“Crony capitalism” pits politically connected businesses against everyone else

Blog, Commentary, Regulation, Steve Lafleur

The Washington Times ran an op-ed today in which the author described how incumbent taxi companies are using their political clout to run revolutionary private car service Uber out of business. This is a major blow to consumers and cab drivers (many of whom do not understand how the current system works against them), and a major victory for politically connected license holders. For example, a 2009 Frontier study detailed how the small number of individuals in Canadian prairie cities who own large numbers of licenses benefit from highly regulated taxi industries. Taxi regulations tend to be designed for license holders, rather than for drivers or consumers.

What made this op-ed particularly interesting is that the author described how this “crony capitalist” approach of giving favourable treatment to politically connected businesses applies to a number of industries. He mentions how brick and mortar restaurants lobby against food trucks, and how licensed interior designers in Virginia lobby against de-regulation (yes, Virginia licenses interior designers). But this is only the tip of the iceberg. The federal government in the United States doles out much larger favours to much larger interest groups, often to the detriment of the public interest. “Crony capitalism” undermines the dynamic market process that is required for capitalism to succeed in the first place. This underscores a point that is often missed in our political discourse: being in favour of free-enterprise does not mean being “pro-business.” Businesses should sink or swim on their own merits, rather than being buoyed by political forces.

Here is the full op-ed, which is well worth the read.