Monday, March 28, 2016

How Crony Capitalism Works. By Jason Willick.

How Crony Capitalism Works. By Jason Willick. The American Interest, March 28, 2016.


In a provocative Brookings essay, Jonathan Rothwell challenges standard assumptions about economic inequality on the left (which tends to assume that markets inherently lead to exploitation of workers by capitalists) and right (which often assumes that the existing wealth distribution is a fair reflection of workers’ talents and abilities). A major source of growing inequality, he says, is not an excess of capitalism, but the distortion of it: The force of market competition has been concentrated on workers and small businesses, while elite professionals and financiers (who encompass the lion’s share of the 1%) have managed to engineer protectionist rackets.

Some examples: Dentists lobby for rules that prevent dental hygienists from performing teeth-whitening; the lawyers’ guild sustains extortionate rates in part by making sure that less-credentialed workers are blocked from performing even basic administrative legal tasks; college administrators earn top-flight salaries while the federally-enforced accreditation system suppresses alternative education models; the American Medical Association strains to minimize the scope of work available to nurses and nurse practitioners; and hedge fund managers push finance regulations make sure they have a leg up on less-sophisticated investors. As Rothwell writes:

Politicians and intellectuals often champion market competition—but what they mean by that is competition among low-paid service workers, production workers, or computer programmers who face competition from trade and immigration, while elite professionals sit behind a protectionist wall. Workers in occupations with no higher educational requirements see their wages held down by millions of other Americans denied a high-quality education and competing for relatively precious vacancies.

Read the whole thing. The essay highlights that what we at Via Meadia call the decline of the blue model—the fading of the midcentury economic system built on monopolistic cooperation between unions, government, and business—has been uneven. Some industries (media, software, entertainment) have grown more competitive and dynamic, while others (finance, law, higher education, medical services) remain heavily regulated, often through hidden channels, in ways that benefit those at the top. It’s a similar story when it comes to labor: Private sector unions have been hammered by globalization and technology, but public sector unions have captured enough state and local governments that they can still provide their workers with lavish benefits. In other words, privileged insiders have been able to retain the parts of the old blue model system that suits their material interests.

The solution to this problem is not to try to reconstruct the blue model by strengthening monopolies and jacking up taxes and regulations. Rather, it’s to introduce competition into industries that have so far been shielded from it, by, for example, undoing repressive occupational licensing rules, modernizing higher educational accreditation, and repealing hedge-fund friendly financial regulations. This project couldn’t be more urgent: At a time when working class Americans are revolting against the democratic-capitalist order, it’s imperative that elites take steps to prove that markets and competition can also work for those who don’t have access to political power.