The Insidious Economic Drag of Crony Capitalism

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The Insidious Economic Drag of Crony Capitalism

For as long as capitalism has existed, so has crony capitalism.  If capitalism is a bright beacon that brings equal opportunity and prosperity to the world’s economies, then crony capitalism is the dark shadow where insiders receive unequal benefits.

One particularly blatant example of crony capitalism is the federal government’s support of the American sugar industry.  The Washington Post reports that sugar subsidies have been around since the Depression, and that the current program includes a mix of “import quotas, price floors, and taxpayer- backed loans to prop up . . . domestic growers.”1

It’s probably no coincidence that those domestic producers of sugar just happen to be among the biggest contributors to politicians’ war chests.  According to Reuters, “Out of a total 2.2 million U.S. farms, less than 4,700 grow cane and beet, according to data from the Washington-based Heritage Foundation, a conservative think tank.2  But the sector accounts for a third of the crop industries’ campaign donations and 40 percent of crop industries’ lobbying expenditures.”

Failed presidential candidate Ted Cruz put it more succinctly during a Republican primary debate last November.  As he put it, according to MSNBC.com, “Sugar farmers farm under 0.2 percent of the farmland in America, and yet they give 40 percent of the lobbying money.”3

It’s hard to believe that the lobby money makes no impact on politicians’ decisions, especially because there is simply no justification for the subsidies.  As a Wall Street Journal editorial recently observed:4

“There is no economic defense of the sugar program, which every year provides non-recourse loans to sugar processors at a guaranteed price-per-pound.  If the market price is below the guarantee when they want to sell, the processors simply dump the crop on the U.S. Department of Agriculture as the loan repayment.  To avoid that outcome, the USDA holds sugar prices artificially high by imposing tariffs on imports above an annual quota.  The result is that Americans pay about twice what the rest of the world pays for sugar.

“The Coalition for Sugar Reform, which includes businesses that use sugar, says that for every U.S. sugar-growing job saved from high U.S. sugar prices, about three American manufacturing jobs are lost.  The U.S. candy industry has been hollowed out as companies have fled to places like Guatemala and Thailand where they can remain competitive by buying sugar at world-market prices.”

That’s the nature of crony capitalism.  Instead of letting the marketplace choose winners and losers, insiders use campaign donations to persuade politicians to subsidize their businesses, giving them an unfair advantage...

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