A Definition and Brief Discussion of “Crony Capitalism”
(This definition borrows heavily and incorporates language from the Wikipedia entry for “Crony Capitalism” at http://en.wikipedia.org)
Crony capitalism: is a system wherein those managing political power either by occupying or by controlling occupancy of key positions of government collude with those managing trade and commerce. Under crony capitalism the government grants favors to certain businesses or types of businesses in the form of permissions, franchises, government payments, government subsidies, government contracts, exemption from regulation or taxation, etc., in exchange for financial support and or the personal enrichment of those in charge of the government. The opportunity to open or conduct successful businesses or succeed in government thus becomes heavily dependent on one's connections. This results in business decisions being powerfully influenced by business friendships and family ties rather than by impersonal market forces and open competition, and in governmental policy being powerfully influenced by private, usually secret interests, frequently to the detriment of democratic or pluralistic ends.
Crony capitalism is always used in a pejorative sense. Some ethicists argue that it is simply corruption. It is similar to bribery, in-so-far as individuals or groups spend money (or give some other value) in the expectation of influencing official outcomes; but it is much more complex and indirect in its methods, which unlike bribery, are often entirely legal—such as contributing to political campaigns, making loans, lobbying, etc. It goes beyond these respectable activities, however, in its veneality and narrowness of motive, which is always the advancement of those who are “connected” to the exclusion and at the expense of those who are not. Furthermore, implicit in the practice of crony capitalism is the notion of circumventing electoral processes in the pursuit of private ends that would almost certainly lack public acceptance or support.
Widespread in developing countries, crony capitalism is seen by most economists as an obstacle to free market development and by political theorists as a destructive element counter to democracy. Most conservatives argue that it is not capitalism at all, since it subverts the principles of free markets. Liberals contend that it is endemic to laissez-faire capitalism and can be remedied only by countervaling standards of fairness in the form of democratic government regulation and oversight. A relatively new term, crony capitalism gained currency among economists studying instances where superficially market-based economies had failed to generate economic growth because of underlying issues of fairness and access. The term has been used to describe economic conditions in countries as diverse as Japan, Indonesia, the former Soviet Union, and the United States.