IEA Conversations

Countering Crony Capitalism

February 9, 2019

Davos, the super-exclusive annual gathering of the world’s political and business elite displays all the features of a petri dish for the spread of “crony capitalism”.

A tiny number of extraordinarily powerful individuals meet to discuss how the affairs of all seven billion human beings should be planned and co-ordinated. It represents an environment for the growth of regulation, intervention and enhanced barriers to entry for small businesses.

All too often what we see in criticisms of capitalism are actually examples of rent-seeking and corporations trying to game the system, which amounts to crony capitalism.

But has crony capitalism like that displayed in Davos become a catch-all term?

It no longer focuses purely on cases where cronies have prospered by taking advantage of political connections. Attacks on crony capitalism too frequently devolve into attacks on capitalism itself. In reality, the real ‘cronies’ are typically not CEOs. Rather they cut a sympathetic figure.

In many cases, crony capitalist outcomes are the result of lobbying from consumer groups. Take OfGem’s Non-Discrimination Condition which banned energy companies from charging consumers less in one region and more in another. It resulted in less competition and higher margins, hitting the poorest in society, hardest.

The challenge for free markets, and for capitalism, is manifold: the message is tarnished, the frames are poor, and, fundamentally, the moral case for what they achieve is missing.

On this week's podcast, the IEA's Digital Manager Darren Grimes is joined by the IEA’s Director General Mark Littlewood and the Director of the IEA’s FREER initiative Rebecca Lowe to discuss these challenges.