Economics 101 & Public Square

Tax Day Thoughts on Cronyism and Human Flourishing

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Are you receiving a tax refund or making a payment this year?

If you’re making a payment, writing your check to the Internal Revenue Service forces you to think about how the money you’re paying to the federal government will be used.

Will it be used on effective programs that contribute to human flourishing?

Will it be used on activities within a proper scope of government

Or, will it be used for other purposes that would be more appropriately handled by the market and non-profit sector?

Tax Day is a perfect time to be reminded, as frustrating as it is, that some federal funds will be designed for industries and companies seeking unfair advantage over others. This is called cronyism and it represents the worst form of injustice—stealing from others to make oneself better-off without having earned it.

What’s worse is that some income inequality can and does result from cronyism, and that is something that Christians must fight against. This type of inequality makes the rich grow richer at the expense of the poor and the middle classes.

Cronyism: Unfair Use of Federal Funds

There is no other word for cronyism than theft. Theologian and Old Testament scholar Walter Kaiser puts it this way:

…possessions or property could be gained by industriousness (Prov. 10:4; 13:4; 14:23), wisdom (Prov. 3:16; 24:3), or by the development of insight (Prov. 14:15). The book of Proverbs, in particular, stressed the merits of doing a job with pride, satisfaction, and excellence (Prov. 12:24)…. Theft is both a shortcut to obtaining possessions and property by means of avoiding any work to gain such, as well as by an outright denial of God’s law.

This is not an issue of a zero-sum game, where there are winners and losers; it is a negative-sum game, all lose. When we protect some businesses at the expense of others, we not only hurt them, but we hurt consumers, and we hurt long-term entrepreneurship and innovation that is only brought about by market competition.

Cronyism vs. Competition

Cronyism warps good stewardship of scarce resources. This is because market signals are then overpowered by special-interest groups, which ultimately inhibits people from living out their God-given gifts.

How does this actually work? Cronyism occurs by rigging the market through legal protections, sanctions, licensing restrictions, protective tariffs, and subsidies, which benefit those already in an industry from their competitors. When a firm can use its political clout or hire lobbyists, it is able to change the rules of the game in its favor.

The only way to encourage human flourishing through the progressive cheapening of goods and services is through robust competition, but cronyism protects businesses from competition. Businesses must have powerful incentives to find cheaper and more effective ways of doing things. This is what helps the most people, by offering better products and lower prices over time.

Who Does Cronyism Benefit?

Cronyism is an increasing trend in the United States and other countries around the globe. The Economist developed its first “crony-capitalism index” to rank countries that experience the most cronyism. In their words, businesses behaving like cronies do not make the pie bigger. Rather, they make the pie smaller by taking a bigger slice for themselves without creating value, and they thwart future technological and entrepreneurial innovation because they profit without improving how they use scarce resources. Cronyism transforms the positive-sum process of the market and turns it into a negative-sum game. In essence, the pie gets smaller.

According to the 2014 index in The Economist, the United States performs well relative to the rest of the world. It is ranked seventeen out of the twenty-three countries surveyed, meaning that entrepreneurs who are innovating in Silicon Valley are generally much richer than U.S. energy tycoons, some of whom are leveraging political power.

The index also ranks industry sectors to see which ones are easiest to engage in crony behavior. Defense, airports, ports, oil, and infrastructure are all industries where cronyism pays. These are industries with strong ties to the state, so the presence of cronyism is not surprising.

In my chapter in Counting the Cost: Christian Perspectives on Capitalism, I describe two examples of cronyism in both the defense (Halliburton) and energy (General Electric) industries and why they happened.

Why Cronyism is Tempting but Wrong

The problem with capitalism from the perspective of companies like Halliburton and General  Electric is that there is no guarantee. You can be rich one minute and then undercut by a competitor who does something better or cheaper than you. That pressure to remain on top could lure one to go to the government and seek protection from competitors in exchange for giving political and monetary support.

When the government engages with firms in this strategic way, benefiting a few at the expense of other firms and customers, it sets a precedent for other firms to follow suit. The result is institutionalizing greed and theft through laws and regulations. This is inherently unfair and makes the rich richer at the expense of the poor—quite contrary to capitalism, which makes both rich and poor richer through voluntary exchange.

So, write and submit your tax payment today. Government is established by God and we are called to submit to earthly authorities. But we’re also called by God to promote biblical flourishing, and that means being aware of and vocal against cronyism and in support of more effective paths to flourishing.


Editor’s note: This article is an adapted excerpt from Anne Bradley’s chapter in Counting the Cost: Christian Perspectives on Capitalism

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