Why Crony Capitalism Hurts Us All

Dismantling the system might not be achievable in the near-term, but the climate of discontent is growing and is no longer a right vs. left issue. “One interesting thing about this backlash against cronyism we’ve seen over last five or six years is that it really spans the political spectrum from left to right,” Halcombe notes. “The critiques of cronyism come from all over the political spectrum.” Indeed, the subject has become increasingly divisive even within the GOP, as evidenced by Congressman Eric Cantor’s June primary defeat in Virginia to Tea Party challenger, Dave Brat, which sent Boeing’s stock tumbling. Cantor, well connected to the big-business wing of the party, was a staunch supporter of
Ex-Im Bank.

“This [relatively new] branch of the Republican party seems to really believe in free markets,” says Arthur MacEwan, professor emeritus of economics at the University of Massachusetts Boston. “The establishment likes to talk about free markets, but many of the policies don’t support it.” One of the clearest examples, he says, is the bailout of the banks that caused the mortgage-lending crisis. “Yes, if you’d let those banks fail, it would be damaging to all of us. But it amounts to a subsidy, a way they can get capital very cheaply. They’re then able to influence the regulations, and those allow them to operate just the way they were operating before.” If protectionism were eliminated, if companies had to face consequences and risk, they might behave more responsibly.

But in the near term, small and midsize company CEOs must compete as best they can, eschew any opportunities to benefit from cronyism, and speak out on the subject. Business leaders also have to do more to change Main Street’s perception of business. “The perceived linkage between business health and middle class prosperity has been substantially weakened” because of the recent financial crises, says Nick Pinchuk, chairman and CEO of Snap-on, a Fortune 500 manufacturer of shop equipment products and automotive diagnostic tools. “We have to do more to educate the public, to reinforce the notion that if companies do better, it’s better for the community. As business leaders, we recognize that we are stewards of the investors’ capital, but we also are stewards of the prosperity of the middle class, and we have to act that way.”

Sidebar: Standing on Our Own