Why Crony Capitalism Hurts Us All

Crony-2Sadly, only a fortunate few benefit from this largesse. Small and midsize businesses lack the lobbying funds or personal coffers to make huge campaign contributions and therefore have little power to sway legislation. “Even if you’re a profitable, midsize business, if you’re talking about an outlay for one lobbyist coming in at $250,000 a year—and you need three or four of them at least, that’s a bit of a problem,” says Nick Sorrentino, editor of AgainstCronyCapitalism.org, who says the uneven playing field is analogous to high-stakes poker.

“If the minimum to get into the tournament were $20, that would be fine. But with the big companies, GE and Boeing, it’s $10,000 just to get through the door. A lot of the people who have chips, who want to play and want to parlay that [stake] into becoming a large company, they’re not even allowed in the game. It really is pay for play.”

The lopsided distribution of power in the field is evident in the uphill battle faced by innovative startups that find themselves besieged by new regulations that inhibit their growth. “Cronyism destroys innovation,” Sorrentino says simply, pointing to Uber and Airbnb as recent examples of disruptive companies that have faced numerous municipal and state regulations designed to hold them back.

While local regulators do have some legitimate concerns for safety of consumers’ using ride sharing and individual room rentals, it’s hard to tell how much of the reflexive regulatory action is owed to those anxieties and how much is a salve for lost municipal tax revenue and the economic bite for well-connected, traditional hoteliers and taxi and limousine companies. Tesla Motors has been locked in battle with the New Jersey Motor Vehicles Commission over the rights to sell its electric cars directly to consumers, bypassing franchise dealerships. In April, New Jersey passed new regulation prohibiting such direct sales. Tesla CEO Elon Musk accused Governor Chris Christie of bowing to pressure by the state auto dealership lobby, which argued that Tesla’s factory model creates a “vertical monopoly and limits competition.”