Crony capitalism is prevalent at the federal as well as the state level, where occupational licensing creates a virtual monopoly of established businesses by requiring expensive licensing procedures for newcomers. Cronyism is thus both unjust and harmful. By boosting the profits of some industries or firms at the expense of other industries or firms, the government violates its obligation to treat everyone impartially, and harms the disfavored industries or firms. And since the government plays favorites by dipping into the public coffer, it also harms taxpayers. The practice socializes costs while privatizing benefits. Crony capitalism also breeds corruption in both business and government, because in exchange for government favors, firms spend money on the campaigns of the favoring politicians. Last but not least, the practice also costs society billions of dollars in unrealized prosperity by harming the privileged firm’s competitors or preventing would‐​be competitors.

All in all, in Matthew Mitchell’s words, cronyism is an “extraordinarily destructive force.” (Matthew Mitchell, The Pathology of Privilege ). Big business is usually regarded as the worst culprit in this regard. But some researchers point out that at least currently, big business doesn’t have much influence on the federal government, as measured by the amount it spends on lobbying: $3 billion a year, versus the $300 billion spent on advertising. (Tyler Cowen, Big Business: A Love Letter , 170–71). But how much big business spends on lobbying might not be a very good measure of its influence on government policy. Perhaps it spends relatively little on lobbying because it doesn’t need to spend more to get what it wants. Even if that is the case, it may still be true that most big, privileged firms don’t have much influence on government because we live in an era of fast technological advances. As a report by Credit Suisse analysts claims, “The average age of a company listed on the S&P 500 has fallen from almost 60 years old in the 1950s to less than 20 years currently.” (“Technology killing off corporate America: Average life span of companies under 20 years”)

On the state and city level, however, attempts by established businesses to keep out new competitors have led to the expansion of occupational licensing. Whereas in the 1950s, only 5% of workers had to be licensed to practice their profession, now nearly 33% do. ( License to Work: First Edition, Executive Summary ) And many of the licensing requirements have nothing to do with consumer safety.

To be clear, not all business lobbying of government is for the sake of special privileges. Some of it is for the sake of preventing or changing harmful or unjust regulations. The epithet ‘cronyism’ applies only to the former. Again, not all businesses that engage in cronyism are equally at fault. And some may not be at fault at all. Consider a business that seeks a tax credit or subsidy purely defensively, that is, only because it can’t compete against businesses that are getting tax credits or subsidies. No business—or person—has an obligation to do what would normally be obligatory in a corrupt system or situation, if doing so means harming, or even destroying, itself. Not seeking the same favorable treatment as one’s competitors in this situation would be like playing by the rules in a game where everyone else is cheating. A business that seeks a tax credit or subsidy defensively, however, will stop taking tax credits or subsidies when it no longer needs them. If it doesn’t, then it joins the long list of firms that seek favors just for gaining an advantage over their competitors. Needless to say, a business that is already flourishing has no excuse for trying to get tax credits or subsidies. This is what makes Amazon’s recent successful attempts at such help for its second headquarters so deplorable.

Some libertarians reject the idea that seeking tax credits is cronyism because, they claim, the state never had a right to impose taxes on us in the first place. Whatever the merits of this claim about taxes, the argument proves too much. If it’s ok to seek tax credits, it’s also ok to seek subsidies, because, after all, subsidies are taken from the same taxes that the state supposedly never had a right to impose on us. Similarly, if it’s ok to seek tax credits, it’s ok to seek low‐​interest or guaranteed loans from the government, because they also draw on the taxes that the state supposedly never had a right to impose on us. So if seeking tax credits is not cronyism, neither is seeking subsidies or guaranteed loans, a view that libertarians, of course, reject.

It’s important to note that a business that doesn’t get government help when its rivals do needn’t always do worse than its rivals. Sometimes the exact opposite is true. For example, J.J. Hill’s Great Northern Railroad was the only transcontinental railroad built and operated without any government help. It was also the most successful. The two facts are connected. Because he wasn’t subsidized, Hill built his track only where he expected people to use his railroad, whereas his subsidized competitors laid track willy‐​nilly, as Congress was paying them per mile of track. (Folsom, Myth of the Robber Barons .) Hill educated his farmer‐​customers about the latest agricultural technology and methods, because he could prosper only if they did. Most of the subsidized railroads went bankrupt in the panic of 1873. Hill’s Great Northern Railroad not only survived, it was, according to the biographer, Michael P. Malone, the “best constructed and most profitable of all the world’s major railroads,” even as the rates Hill charged fell steadily with greater efficiency. (“Railroads, Robber Barons, and Unbridled Capitalism”)

Similarly, Commodore Vanderbilt’s steamship business flourished without any government help, whereas its rivals, fattened by subsidies, foundered under the weight of their own incompetence and wastefulness. (Folsom, Myth of the Robber Barons) In the 1830s, Vanderbilt established routes all over the Northeast, offering service that was cheaper and faster than that of his competitors. Everywhere he went, he reduced fares permanently, beating out Robert Fulton, who had been given a monopoly by the New York State legislature for thirty years. Because Vanderbilt had only his wits to help him compete against his subsidized rivals, he came up with ways of cutting costs and wooing passengers that made his steamships by far the most popular. He also competed with a subsidized trans‐​Atlantic steamship run by Edward Collins, who got lavish subsidies that were spent on luxurious and economically inefficient steamships (6–8). Vanderbilt declared that his own prosperity was “the direct result of unfettered trade, and unrestrained competition,” and that it was his wish that those who came after him would also find an open field (7–9).