Cronyism and capitalism are are complete opposites. They really don't belong in the same sentence, much less next to each other like this: Crony capitalism.

Capitalism means a free market, and a free market means absolutely no government intervention. In the authoritarian world we live in today, a free market is impossible. Even black markets are influenced by government, as the risk of fines or incarceration makes black market participants raise their prices to make the huge risks worth their while.

Cronyism exists within industries themselves, as corporations form alliances, or even merge together in the hopes of decimating the competition. This isn't the cronyism most people concern themselves with, even though a market without it would mean lower prices for them as consumers. The bigger concern for most people is cronyism between private corporations and public servants. This is one of the big inherent problems with any government, whether it seeks to foster capitalism, socialism, or communism. When government intervenes in the free market of capitalism, there's a potential for competition to be reduced. This takes control away from what Adam Smith described as the invisible hand of the market.

There are several different ways government cronyism is employed to pick winners and losers in an industry.

Campaign Contributions

In the United States we leave the door wide open for cronyism with the method we choose our public servants and representatives in government. Election campaigns cost money, and it's hard to believe that corporations and individuals would give so much to candidates without seeking political favors in return. This door opens even wider when the candidate is an incumbent, already possessing the power of his office and seeking donations for their campaign to be re-elected.

Bailouts

Bailouts have been a very effective tool for the government to pick winners and losers in industry. This practice rewards mismanagement and incompetence with taxpayer dollars.

Regulations

Government regulations also carry a potential for cronyism. Overbearing and costly regulations can be a benefit to larger corporations, which can absorb the costs and effort it takes to be in compliance. This puts smaller companies at a disadvantage, and stymies competition in the industry. In fact, there are so many banking regulations that they've spawned their own industry of compliance consulting.

Government Contracts

You don't have to look very hard to find no-bid contracts from government, basically denying any need for "shopping around" competitors to get the best price for the work needed. This is especially obvious when we examine defense contracts, or any contract involved with warfare. The best known no-bid contract in recent history was awarded to Halliburton to rebuild Iraq. Since Vice President Dick Cheney was a former CEO of the company (and probably still holds stock in it), it's not a stretch to suspect Cheney of profiting significantly from the war in Iraq.

Criminalization

What could be more profitable than having the government declare your competition illegal? Perhaps we should ask William Randolph Hearst and Lammot DuPont. Their vast empires faced a huge threat back in the late 1930s. Competition from hemp was potential ruin for Hearst's logging and paper empire, and hemp's fibers were about to be a cheap and easily produced substitute for rayon and nylon created by DuPont Chemicals thanks to a device called a decorticator. The decorticator was a harvesting machine that mechanically separated the fibers of the hemp stalk. So these two tycoons got together and formed an alliance with Harry Anslinger, the head of the Federal Bureau of Narcotics. With Anslinger on the inside, and Hearst using his vast newspaper empire to spread propaganda and even utilizing Hollywood, cannabis including hemp was eventually criminalized.

Sadly, to this day this hugely beneficial cash crop is still criminalized in several states and at the federal level. It's continued criminalization can probably be explained by cronyism, since public opinion has shifted long ago. Huge industries like logging, paper, chemicals, pharmaceutials, and even the privatized prisons stand to lose massive amounts of money, and actively lobby against legalizing cannabis.

Capitalism and Cronyism are not compatible. The more power we give the government, the more we open the door for cronyism to walk into our lives. We should stop conflating the two words, as capitalism is about competition that spurs innovation, while cronyism is all about destroying competition, which stifles innovation.

Cronyism isn't Capitalism