Crony Capitalism - Crony Capitalism in Practice

Crony Capitalism in Practice

In its lightest form, crony capitalism consists of collusion among market players. While perhaps lightly competing against each other, they will present a unified front (sometimes called a trade association or industry trade group) to the government in requesting subsidies or aid or regulation. Newcomers to a market may find it difficult to find loans, acquire shelf space, or receive official sanction to sell their product or services; in technological fields, they may be accused of infringing on patents that the established competitors never assert against each other. Distribution networks will refuse to aid the entrant. That said, there will still be competitors who "crack" the system when the legal barriers are light, especially where the old guard has become inefficient and is failing to meet the needs of the market. Of course, some of these upstarts may then join with the established networks to help deter any other new competitors. Examples of this have been argued to include the keiretsu of post-war Japan, the print media in India, the chaebol of South Korea, and the powerful families who control much of the investment in Latin America.

Crony capitalism is generally associated with more virulent government intervention, however. Intentionally ambiguous laws and regulations are common in such systems. Taken strictly, such laws would greatly impede practically all business; in practice, they are only erratically enforced. The specter of having such laws suddenly brought down upon a business provides incentive to stay in the good graces of political officials. Troublesome rivals who have overstepped their bounds can have the laws suddenly enforced against them, leading to fines or even jail time.

States often said to exhibit crony capitalism include the People's Republic of China; India, especially up to the early 1990s when manufacturing was strictly controlled by the government (the "Licence Raj"); Indonesia; Argentina; Brazil; United Kingdom; Malaysia; Israel;Russia; the United States; Tasmania; and most other ex-Eastern Bloc states. Wu Jinglian, one of China's leading economists and a longtime champion of its transition to free markets, says that it faces two starkly contrasting futures: a market economy under the rule of law or crony capitalism.