At the end of class on Wednesday, Professor Coppock connected Stigler’s description of noisy political channels to the term crony capitalism. Crony capitalism refers to an economic system where industry interests are protected based on relationships between business leaders and the government. Crony capitalism is used as an argument by left-leaning politicians as an argument against capitalism, but it is also used by right-leaning politicians to demonstrate the negative effects of government intervention in the economy. Emerging economies with large and relatively unregulated industries often see corruption take form via crony capitalism.
Earlier this year, The Economist published an article in which they analyzed a “crony-capitalism index,” suggesting some interesting implications about wealth and economic growth. The Economist formed the index by classifying data on billionaires into crony and non-crony sectors, with crony sectors being those that are particularly vulnerable to rent-seeking behavior, including banking, casinos, defense, and construction. A section of the article that caught my attention was the increase in India’s share of billionaire wealth derived from the crony sectors: over the past 6 years, India’s wealth from crony sectors increased from 29% to 43%. What makes this interesting is that also in the past 6 years, India’s GDP expanded rapidly (with the exception of COVID), driven strongly by growth services in the form of IT Outsourcing. The existence of these two facts demonstrates that while crony capitalism and rent seeking activities lead to inefficient outputs, nations with large amounts of wealth in crony sectors still see rapid increases in economic growth and standards of living.
No comments:
Post a Comment