Gauging the Perception of Cronyism in the United States

October 24, 2012

Despite being around for ages, only recently have there been attempts to look at the impact that cronyism has on political and economic institutions, say Daniel J. Smith and Daniel S. Sutter of the Mercatus Center.

  • Cronyism refers to unequal competition where those with close connections have an advantage over competitors.
  • Sometimes, cronyism is obscured by public interest or consumer protection justifications for regulations.
  • This system of favors has expanded over the decades and has been linked with the decline of economic freedom.

 Cronyism has many direct and indirect costs on the economy.

  • Governments can spend billions of dollars in subsidies for businesses.
  • Furthermore, regulations to appease interest groups can prevent technological and economic transitions.
  • Additionally, politicians can create entry barriers to reduce competition for existing businesses, thus ensuring that the price of services and goods remain high.

Perceptions of cronyism also have an impact on the economy. Politicizing the economy through handouts and regulations can affect investment decisions by businesses. Small businesses are especially vulnerable because of the little influence they have with politicians.

An overwhelming majority of the public perceives cronyism to be rampant between business leaders and the government. This is important because the public may call for more regulations to crack down on perceived wrongdoing, culminating in less economic freedom.

Source: Daniel J. Smith and Daniel S. Sutter, "Gauging the Perception of Cronyism in the United States," Mercatus Center, October 17, 2012.

 

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