Crony Capitalism: How it Compromises Economic And Social Justice

Crony Capitalism is a term that is used to describe an economic system wherein businesses grow not as a result of free market operations, but rather as a result of collusion between businesses and the government. When businesses  can profit from government policies, it entices businesses to pursue benefits through government favours rather than through productive activity. The more the government involvement in the market, the higher is the dependence of business profitability on government support rather than productive activity, and as a result political connections become more and more important for business success. In such a situation, when the government can deliver favours to businesses, the latter tend to devote resources to acquiring these favours which can take any form. This situation is known as rent seeking. Firms increase their profits from government favours and in return support politicians, financially or otherwise, who provide these favours. The profit that arises from rent seeking benefits the firm, but instead of adding value to the economy, these profits subtract value. This is because firstly, the resources deployed in rent seeking are wasted on an unproductive activity and at secondly, the benefits received as a result of the rent seeking activity are economically inefficient.

Such an economic system inherently compromises economic and social justice. On one hand, it makes businesses economically inefficient and restricts the  market for new entrants or for people with less resources. Success is tied directly to the availability of resources at one's disposal. This curtails economic and technical development by creating an unfair playing field for businesses. As a result economic justice is compromised. On the other hand, this kind of an economic system tends to choose the interests of businesses over the interests and wellbeing of the common man. This created inequality and division in the economy and thus compromises social justice. The best example for this is the economic inequality that tends to prevail in almost every country.