Capitalism vs Crony Capitalism: Let’s Play a Game of Spot the Differences

Do you believe that capitalism is greedy and promotes child labor? Is capitalism inherently evil? Should it be regulated by the government?

If you said yes to any of the questions, you’ve mixed up crony capitalism for capitalism. Despite what you’ve heard about crony capitalism and capitalism there are major differences between the two, one of which promotes the stereotypical greedy and corrupt businessman. Let’s start with the definitions for both systems. According to the Oxford Dictionary, capitalism is "An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state,” whereas crony capitalism is “An economic system characterized by close, mutually advantageous relationships between business leaders and government officials” and used with derogatory intent. Clearly, these two definitions are not interchangeable, therefore we should end this unhealthy habit of following individuals and the media that demonizes capitalism and profit-driven motivation.

Capitalism has given us everything we use and it has responded to consumer demand for faster, multifunctional phones. Certainly, this wasn’t the work of the government but of individuals coming together without restricting anybody’s freedom. In order for capitalism to work, it requires tolerance from individuals and the government. Markets such as drugs, prostitution, and gambling would be legal under capitalism if and only if there is a mutual and peaceful exchange between participating parties. However, capitalism does not mean anything goes. Slavery, child porn, and hitmen would be illegal because it violates the right to life, liberty, and property. This system also tells us that we are not entitled to the fruits, or income, of another person’s labor if we don’t succeed. Additionally, this means that all forms of taxes (income, property, and the like), government funded healthcare, and welfare would be illegal in a completely capitalistic economy because it violates your right to enjoy your income which is private property, and the liberty in choosing where your money is redistributed. In other words, taxation is theft.

What turns people away from capitalism is the false belief that profit-seeking is greedy and inhumane, of which is spread by politicians and the media that want you to have less choices so that it becomes easier to manipulate, plan, and control your lives. Capitalism promotes the freedom of many choices meaning that when competition is introduced, all wise competitors will provide improved goods or services at a lower cost, because if they didn’t then they would risk losing their main source of profit which is their customers. And this also means that the consumer has a lot of power in deciding which businesses survive or fail. In other words, vote with your dollar. On the other hand, crony capitalism is run by monopolies or duopolies that attempt to limit choices by killing competition. So how does a crony capitalist become corrupt? By lobbying the government to prevent lower prices (and competition) from existing all in the name of “struggling to survive” or “I’m too big to fail.” If a business fails it shouldn’t be the government’s responsibility to prop them up with subsidies (your tax dollars) that you had no say in, and it should also be the government’s responsibility to stay out of privately run businesses.

For example, during the oil crisis of the 1970s GM, Ford, and Chrysler’s (The Big Three) sales plummeted due to skyrocketing gas prices. Although Americans love their big gas-guzzling cars, they began to look for cheaper alternatives in Japanese cars because they figured it was worth more to be loyal to their wallets rather than American car companies. This elicited a very biased response from the Big Three by saying that only real Americans buy American-made cars, and that the Japanese were invading U.S. markets. Eventually, Chrysler filed for bankruptcy which prompted them, and the other U.S. car companies, to take punitive actions against Japanese car-makers by appealing to Congress. In turn, Congress forced Japan to restrict trade by slapping tariffs and quotas on their imports. However, this action didn’t stop American consumers from buying imported cars because after oil prices went back down to a comfortable level, the Japanese rolled out bigger models like the Toyota Camry and Nissan Maxima in response to Americans’ love for bigger cars. In 2008, GM and Chrysler filed for bankruptcy then asked Congress to bail them out using your tax money. This is prime example of crony capitalism in which the American car companies attempted to create a monopoly on cars and forced taxpayers to part with their dollars, instead of accepting the fact that they’ve been selected for extinction.

Likewise, whenever a private company receives subsidies or some sort of government money, or asks Congress for quotas and tariffs on their competitors, they are engaging in crony capitalism. A pragmatic capitalist understands that most people in the western world don’t like the wages and prices that are offered, and instead offer competitive wages along with benefits. But capitalists should also be aware that people will lobby the government for social responsibilities, like minimum wage, helping the homeless, or helping third world countries, and should adjust their company’s goals accordingly. Capitalism supports the right to pursue wealth but not the guarantee that you will be rich. Furthermore, it’s an economic system in which there is maximum freedom but little financial security. However, that doesn’t mean it’s greedy because charity and benevolence works hand-in-hand with capitalism. Think about it, the richest countries in the world, like the U.S., are more capitalistic and therefore many of their citizens are able to voluntarily contribute to social causes like feeding the homeless, providing scholarships, and building shelter for free. In fact, Americans gave $373.25 billion in 2015 to charity. So should government stay out of a capitalist economy? Yes, because individuals should be free to engage in peaceful transactions, and the only time government should intervene is when life, liberty, or property is being threatened.