Socialism And Crony Capitalism: Both Are Losers

I am reading several books right now. One is titled “The State,” by Anthony de Jasay. I am not that far into it, but it defines the state as an entity, different than the natural state, that emerged either violently or by social contract. As I began reading this book I thought a good companion read would be “Capitalism for the People: Recapturing the Lost Genius of American Prosperity.” So, I decided to reread it. That was a good choice, especially in light of recent news.

Zingale, the author of Capitalism, was an Italian economist who did not like Capitalism until he moved to the United States and saw how it could work. In his book he warns how Socialism and Crony Capitalism lead to the same end. “In a socialist economy, the political system controls business; in a crony capitalist system. . . business controls the political process. The difference is slim: either way, competition is absent and freedom shrinks” (p. 29). I think this is a true statement. Either Socialism or Crony Capitalism will lead to less efficiency in the market. Two recent events are great examples.

Airbus, Boeing’s main competitor, launched its A380 in 2000. It is a very large airplane that holds 555 people. It has been described as the “eighth wonder of the world.” Leave to the Europeans to embellish one’s importance. According to the Wall Street Journal, “Airbus has sunk at least $17 billion into the project yet sold less than the half of the 750 superjumbo jetliners it promised to deliver by the end of this year.” Last week Airbus announced that it would cease production by 2021. As Holman Jenkins argues it is a lesson for young Socialists.

Jenkins states, “Socialism is currently in vogue. If the word means anything in today’s context, it means projects of unusual government ambition.” I remember when the A380 was being developed. I was a Boeing employee, and we discussed the pros and cons of a very large airplane. Based upon market analysis Boeing felt that smaller, more fuel-efficient airplanes that go point-to-point were what people wanted. They moved away from the very large airplane and built the 787. The rest so they say is history.

Airbus, instead, with government underwriting via massive subsidies ignored the market to create this behemoth. Jenkins asks the question, “what went wrong?” The governments involved with Airbus wanted to override the invisible hand of the market. As Jenkins states, “They would have to overrule the preference of business travelers for frequent departures,” and “they would have to overrule the public’s appetite for lower fares.” Add to this the amount of time it takes to load and unload 555 people, Airbus, and Socialism in general, created a loser. As Jenkins rightly points out, “Enough Socialism could be mobilized to get the plane built, but not enough to make it commercially viable.”

If we want to continue to look at the failures of Socialism look no further than the California bullet train. Billions of dollars were wasted on a train to nowhere. The current Governor of California initially canceled the program, but according to some may be waffling. We shall see. Don’t get me wrong there are some things that government can do well, but there are many things it can’t do well.

The next example of inefficiency is Crony Capitalism. When the business system moves from a competitive free-market to favors from a government we have an asymmetric system that rewards insiders. This creates a system seen as unfair, seen the greatest concern for the modern expression of Capitalism. People are fine with competing if there is a level playing field. So, when businesses become so big and powerful it becomes problematic.

I would never say I agree with Alexandria Ocasio-Cortez on anything, but I worry when companies the size of Amazon, which is a Leviathan, get government favors. Of course, New York City stated that Amazon would not have gotten any incentives without creating the jobs promised, but I worry about this type of activity. On the other hand, I agree with Amazon choosing to take its ball and go to another state.

Once again, I agree with Holman Jenkins. “Slathering on tax abatements and infrastructure promises to lure new development may be irresistible for communities, but it is always a second-best idea. For New York it is especially unnecessary given all the city’s attractions.” It is not the best thing for communities to lure big business via incentives, leaving small business in its shadows.

When a free market is encouraged and supported, and people have the freedom to choose what they purchase and what they sell, we have economic growth. But when there is government overreach and business greed the market suffers. Jenkins says it well, “In a pungent statement on the governor’s [New York] own website, Mr. Cuomo not only acknowledged New York’s fiscal unattractiveness and the reality of tax competition with other states. He skewered the disingenuous and just plain dumb critics who portrayed his Amazon deal as a net giveaway when Amazon would have brought New York $9 in tax revenue for every $1 in tax relief it enjoyed.”

If I lived in the area where Amazon was going to locate, and would have had the opportunity to get a good paying job, I would be pretty upset. Some of the interviews I saw online were examples of that. I don’t know if the Amazon event would have been a good deal in reality, but I always worry when business and the state get too chummy.

When we have a free market, the players have to behave. “In a competitive market, individuals who want to discriminate against others, refusing to trade with them, wind up worse off themselves.” The invisible hand controls the process. This is what had made the American system the best in the world. When our systems move us away from a free market model, we the people will suffer.

And that is my thought for the day!

One thought on “Socialism And Crony Capitalism: Both Are Losers

  1. It seems to me that you continue to be mistaken with socialism thinking it is communism.
    Socialist now are trying to save capitalism as FDR did last century. Socialists have the interest of our society over the interest of particular individuals. Knowing that individuals cannot flourish if societal guarantees are not in place.
    Think about “law and order” it is a socialist idea.
    I know you don’t want to hear this, but I couldn’t stop myself!

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