It's Time to Rethink Crony Capitalism

The Niskanen Center’s Brink Lindsey and Steven Teles have been making the rounds of late, promoting their new book The Captured Economy. In it, Teles, who teaches political science at Johns Hopkins University, and Lindsey, a long-time think-tanker whose previous experience includes several years at the Cato Institute, argue “the powerful have rigged the economic game in their favor.” This “folk theory of inequality,” they write, is not “the ranting of ignorant rubes,” but is rather closer to the mark than many sophisticates on both the left and the right would like to admit. Even if grassroots populism has it wrong about the “specific mechanisms” through which elites enrich themselves, its account is “at least aiming in the right direction.”

The authors’ acknowledgment that government is actively tipping the scales in favor of the rich and their economic interests is refreshing. Pundits on the political left demonize the rich but believe that government is the answer, a benign tool for promoting more equitable economic outcomes. And the political right tends to defend the rich as having simply won by serving consumers and working efficiently in the competitions of the free market. Lindsey and Teles say both these accounts are wrong (or at least only partially right). They believe the state and big business are, more often than not, working together against equality and free-market principles. Both the political left and the right are confused and unable to see the real problem, much of which stems from a simple failure to clearly communicate ideas with clarity and charity. I say they fail to communicate with “clarity” because, depending on a pundit or politician’s political outlook, people may assign one of several different and competing meanings to terms such “free market.” I say they fail to discuss important economic issues with “charity,” because we find it difficult to take the arguments of our perceived adversaries on their own terms (that is, without reading into them various ignoble motives). For instance, when libertarians talk about the “free market,” they tend to mean an economy based on voluntary exchange -- one that is simply defined and free of the kinds of pervasive special privileges for which left-wing critics of corporate capitalism damn that system. The left, on the other hand, tends to define the “free market” as corporate capitalism and its abuses. Thus, the left is scandalized by the notion anyone would praise such a system. At this point, astute observers will no doubt have descried the communicational disconnect short-circuiting the possibility of a meaningful and mutually edifying dialogue. Nineteenth-century libertarians such as political theorist and land reformer Joshua King Ingalls would have agreed with the thesis of The Captured Economy. Avoiding the half-truths described above, Ingalls wrote, “It is assumed then that existing conditions and inequalities obtain from the operation of the laws of trade. Nothing could be further from the fact.” In this simple but astute remark, Ingalls pinpointed the confusion that continues to hold back political debate and progress in the direction of liberty. Ingalls goes on to identify the true source of the economic injustice and inequality he observed: “They are the results of barbaric custom, of class domination and legislation, and are upheld by no natural law of trade or natural law or any kind yet discovered.” As Lindsey and Teles argue, the administrative regulations that progressives believe check the power and abuses of big business serve (as an empirical matter) to consolidate market power among the largest, most entrenched corporations. Even a beginner’s understanding of economic thinking -- attempting to comprehend and predict rational responses to financial incentives -- suggests the inevitability of this result, however counterintuitive the political left may find it. Compliance with the reams of new agency rules promulgated every year comes at a cost to U.S. businesses; many cannot endure the impact of this cost and must exit the marketplace. Progressives, then, are faced with a problem: If their claim really is that such injustices and inequalities proceed directly from a strictly voluntary society -- one founded upon respect for the inviolable rights of every individual -- then they are, ipso facto, arguing violence and coercion are not anathema to justice in human relations, but rather necessary to effect it. Progressives must confront this conundrum, at least if they hope to be intellectually honest. If, however, they are not making this argument and are instead maintaining the current politico-economic system rests on pervasive forcible rights violations, both historical and yet ongoing, then the principled libertarian should not (indeed, cannot) object. And that’s the conundrum on the free-market side, a contradiction that Lindsey and Teles call “the conservative inequality paradox.” According to Lindsey and Teles, “Either conservatives have overstated the amount of crony capitalism, or their dismissal of the concept of inequality as envy is misplaced.” Lindsey and Teles are right, of course. Just as progressive advocates of sweeping state-driven redistribution can’t have it both ways, neither can we as libertarians, classical liberals, and free-market conservatives. Both sides should be more careful in articulating and understanding their respective arguments, as well as in understanding their implications. David S. D’Amato (think@heartland.org) is an attorney, expert policy advisor at the Future of Freedom Foundation and The Heartland Institute, and a columnist at the Cato Institute’s Libertarianism.org.