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Guest Post: Crony Capitalism And The Expansive Central State

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

Crony Capitalism And The Expansive Central State  

Crony Capitalism flourishes in an economy dominated and controlled by a Central State.

Crony capitalism arises when an expansive Central State dominates the economy. The Central State can then protect crony-capitalist perquisites, cartels, quasi-monopolies and financialization skimming operations of the sort which now dominate the U.S. economy's primary profit centers.

If we step back, the larger context is the purpose and role of establishing a State to protect its citizens from foreign and domestic predation and exploition.

The Central State is granted the sole power of coercion by its membership (citizenry) to protect the membership from the predation of individuals, concentrations of wealth and other subgroups seeking monopoly. They grant the State this extraordinary power to insure that no subgroup or individual can gain enough power to dominate the entire membership for their private gain and to protect freedom of faith, movement, expression, enterprise and association.

Granting this power to the State creates a risk that the State itself may become predatory, supplanting the parasitic elements it was designed to limit. To counter this potential, the State has self-limiting mechanisms such as an independent judiciary, armed forces under civilian control, etc., a separation of powers such that no one institution or agency can dominate the State and thus the nation. The goal is to create a stable but flexible equilibrium between comparably powerful institutions, all of which are tasked with enabling and defending the members’ freedom of movement, expression, enterprise and association against the encroachment of powerful subgroups.

In this sense, the State is ultimately an immune system for the nation, a system designed not to dominate but to recognize and limit potentially destructive forces within the ecosystem (nation). To monitor and limit the influence of individuals and subgroups within the State itself, an internal immune system of regulation, auditing and enforcement is built into each institution.

The State is thus designed to be a self-regulating immune system, protected from abuse of power by its own internal immune system.

We can understand the tradeoff of the citizenry in establishing a State as a risk-gain hedge: the risk of granting extraordinary powers to the State is offset by the gain of being freed from local or foreign tyrannies and the predation of criminals and exploitative Elites. This establishment of liberty is worth the risk of a self-regulating State becoming predatory.

The self-regulation mechanisms are supposed to act as a hedge against a runaway parasitic State.

We can properly understand the State as a concentration of risk and gain: its extraordinary powers of coercion render it a great risk to the membership, even as its protective shield of liberty offers the freedom to pursue individual happiness and self-fulfillment.

Since the State is a concentrator of both wealth and power, it also concentrates the risk that ontologically accompanies concentrated power and wealth: with such great power, the abuse, repression, exploitation and predation which the State could unleash on its citizenry are fearsome.

This concentration of wealth and power makes the State the primary attractor in the economy for those seeking to increase their private gain. What better way to enforce a monopoly than to persuade the State to limit your competition? What better way to lower the risk of enterprise than to persuade the State to grant its own contracts to your company? What better way to amass a fortune than to harness the coercive powers of the State to your own self-interest?

The State is thus the ultimate lever within the ecosystem. While $1 million buys little influence within the market, if spent to influence State policy then it will buy more power than $10 million spent in the marketplace.

There is a great irony in this concentration of power in the State: the power is concentrated to protect the citizenry from predation and exploitation, but that concentration becomes an irresistible attractor for all those seeking to increase their private gain via monopoly, cartels, collusion, fraud and other forms of predation.

The wealth that can be concentrated in private hands is not limited or self-regulated, and so private concentrations of wealth inevitably exceed the threat-gain threshold of individuals within the State. This structural imbalance leaves the State ontologically vulnerable to the influence of private wealth. Once this wealth has a foothold of influence within the State, it can then bypass the State’s internal immune system and become the financial equivalent of cancer: a blindly self-interested organism bent solely on growth at the expense of the ecosystem as a whole.

This financial/political cancer of single-minded self-interest creates a self-reinforcing feedback loop within the State: the more power and influence it gathers, the more it can weaken the State’s own immune response to its rising dominance. This erosion of restraint further frees it to increase its influence, which then gives it more power to weaken the State’s immune system, and so on, until private concentrations of wealth, in partnership with self-serving State Elites, bypass the State’s immune response.

At that point, the collusion of private wealth and State Elites comes to dominate the entire ecosystem. The State’s function as the system’s immune system has been subverted by private wealth and the State’s own extraordinary powers have been directed to serve the self-interests of private Elites and their cronies within the State.

Another name for the collusion of private wealth and State Elites is crony capitalism, which has reached its apex in an economy dominated by an expansive Central State (i.e. the Federal government).

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Wed, 04/18/2012 - 12:10 | 2355105 GeneMarchbanks
GeneMarchbanks's picture

Stop re-inventing the wheel Chuck just because you are impotent to anyhting about it.

Fascism, there, all has been said.

Wed, 04/18/2012 - 12:11 | 2355112 spiral_eyes
Wed, 04/18/2012 - 12:15 | 2355122 Buckaroo Banzai
Buckaroo Banzai's picture

Of course. The job of the marxists is to make people believe that corporatism = capitalism.

The job of the fascists is to do the exact same thing.

Wed, 04/18/2012 - 12:19 | 2355135 johnu1978
johnu1978's picture

The best example of Crony Capitalism can be illustrated at how the Federal Reserve and the big banks are working to keep the big box stores on life support.

I think that life support is going to end soon and Best Buy will be the next big chain to die.


Primitive Skills Classes - Edible Plant Tours

Wed, 04/18/2012 - 12:41 | 2355172 engineertheeconomy
engineertheeconomy's picture

Wealthy Elite living in underground bunkers where the Fukushima Radiation doesn't reach them.

How long before their radiation-free supply lasts before it too is affected?

Clearly the Wealthy Elite are not nearly as smart as they think they are.

They are EVIL, not intelligent, and they only have THEIR SELFISH SELF-INTEREST'S IN MIND.

Their children and grandchildren without end AS WELL AS OURS will be MUTATED and live with CANCER thanks to their STUPIDITY.

If YOU are a cop, or in the military, don't you think it's time that YOU set your weapon down and step aside, and let (the people by the people for the people) draft a new declaration of independance and start over?




Wed, 04/18/2012 - 12:42 | 2355197 Alcoholic Nativ...
Alcoholic Native American's picture

I would advise against it.   If they want to keep drawing a paycheck and be able to retire they better not step out of line.


Paychecks!  Get Some!

Wed, 04/18/2012 - 13:39 | 2355365 oddjob
oddjob's picture

Trading your one life for paper promises 35 years down the road obviously placates the feeble mind.

Wed, 04/18/2012 - 13:47 | 2355385 AldousHuxley
AldousHuxley's picture

Capitalism is the old elite justifying their legitmacy of right to rule via "merit" measured in money point system although most of them inherited it or just got lucky.


Thailand, the King calls himself CEO.



Wed, 04/18/2012 - 12:36 | 2355179 Bluntly Put
Bluntly Put's picture

Most likely as internet retailers have far lower overhead, and can employ temp workers at a fraction of the cost. Plus transactions on line require credit cards which the banks like and the feds like as they can immediately track real-time your purchases individually and in aggregate; furthering the "evolution" towards cashless currency.

Wed, 04/18/2012 - 12:24 | 2355148 GoinFawr
GoinFawr's picture

Correction,  Marx merely pointed out that 'corporatism' is the inevitable result of unmitigated capitalism; exactly as it is playing out.

Wed, 04/18/2012 - 12:25 | 2355156 GeneMarchbanks
GeneMarchbanks's picture

Correct. Now get ready to be bombarded with nonsense.

Wed, 04/18/2012 - 13:14 | 2355282 Spastica Rex
Spastica Rex's picture

History began with Atlas Shrugged.

How's that?

Wed, 04/18/2012 - 13:24 | 2355313 CH1
CH1's picture

'corporatism' is the inevitable result of unmitigated capitalism

LOL.. and the state is utterly absolved! Turn your eyes away from the coercive force that stands behind it all!

Long live the state! Savior of us all!

Now, if we can just get the right people to run it... this time for sure!!!

Wed, 04/18/2012 - 13:34 | 2355350 GeneMarchbanks
GeneMarchbanks's picture

You enjoy your slavery, just admit it. There are many of you around. You equate any citizen duty as contrary to freedom.

Simply amazing, cheering for your own destruction = virtue in 2012. Incredible. Bernays smiles on his creation.

Wed, 04/18/2012 - 21:11 | 2356877 CH1
CH1's picture

That was sarcasm, Gene.

Wed, 04/18/2012 - 13:31 | 2355336 Apocalicious
Apocalicious's picture

Yes, Marx was correct. Capitalism > corporatism > fascism > revolution & reboot. The reboot is the problem. You either stay stuck in socialism, or go all the way back to freedom. I'm betting we're phukked, and socialism is here to stay...

Wed, 04/18/2012 - 14:13 | 2355504 Buckaroo Banzai
Buckaroo Banzai's picture

What the fuck. Anybody who thinks Marx was right about anything needs a checkup from the neck up. Every single thing he wrote about economics and politics was a lie.

Wed, 04/18/2012 - 14:09 | 2355487 Buckaroo Banzai
Buckaroo Banzai's picture

WRONG. Marx wasn't correct about anything.

Wed, 04/18/2012 - 14:55 | 2355649 Freewheelin Franklin
Freewheelin Franklin's picture

Updated by Schumpeter.

Wed, 04/18/2012 - 12:26 | 2355157 nick howdy
nick howdy's picture

Fascism/Corporatism will happen and it doesn't matter whether anyone who self identifies with any ideology thinks..

The fact that anyone considers themselves conservative/liberal or on a certain side, just means they fell for the Elite's propaganda..

When is comes right down to it most people are really just debt slaves/serfs with an inherited ideology that doesn't work to relieve them from this reality.


Wed, 04/18/2012 - 12:37 | 2355183 e_goldstein
e_goldstein's picture

So will the right.

Wed, 04/18/2012 - 12:38 | 2355182 Marc_W
Marc_W's picture

Yes, the merger of state and corporate power, i.e. fascism, perfectly describes the state of the American police state.  "Too Big to Fail" is not merely a reference to certain massive corporations, but to the central federal state that exists in a symbiotic relationship with those corporations.


The existence and health of the TBTF corporations has been deemed a national security issue.  This is why I am long BAC, it literally cannot fail without the simultaneous collapse of the United States Federal Government.  And our nuclear arsenal, carrier groups, and global air superiority make that unlikely.


Go long fascism, bitchez.

Wed, 04/18/2012 - 12:12 | 2355106 Bearster
Bearster's picture

It is not "crony capitalism" or indeed any kind of capitalism.  Mussolini coined the right word for business and government working together (against taxpayers, would-be competitors, and customers.


Wed, 04/18/2012 - 12:31 | 2355164 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

my favorite Mussolini quote

"it is not impossible to conquer the Italian people, merely useless."

(the people have strong black market)

Wed, 04/18/2012 - 12:32 | 2355169 Alcoholic Nativ...
Alcoholic Native American's picture

What?  It's still capitalism.

From the article....

"This structural imbalance leaves the State ontologically vulnerable to the influence of private wealth."

The "private wealth" people are what you call capitalist.

So here we have businesses and government working for those with capital in a scheme to aquire more capital.

This is capitalism baby, and it's thriving.



Wed, 04/18/2012 - 13:02 | 2355253 Bearster
Bearster's picture

Alcoholic: you are describing fascism.  This is the system in which ownership is nominally private, but control is public.  And everyone is attempting to live at the expense of everyone, as Bastiat put it.  While the entire ship collapses, people are jostling to stand on the heads of others.  The whole thing is made possible by the unlimited power of the government to initiate the use of force against anyone.  The "rule of men" as Ben Franklin described it.

People vote for fascism because they want something they didn't earn.

In capitalism, on the other hand, the government exists to prohibit the initiation of the use of force.  No thug can rob you without facing punishment, no union can forcibly block your customers or other employees or burn down your factory, no one can lobby to take your property, etc.  No corporation can burn down your house either, or take your bank account to bail out their bad decisions.  The only way to get rich is to deliver value to customers.

We have fascism today.  Capitalism died the death of 1000 cuts at least starting with the anti-trust law of 1890, but arguably the "crime of '73" when they demonetized silver.  And arguably prior to that when they took money from everyone to give to railroad barons for the sake of the "national prestige" to run a railroad from New York to California.

Wed, 04/18/2012 - 13:46 | 2355383 hidingfromhelis
hidingfromhelis's picture

Of course we're living under fascism.  However, it's private money/power that's calling the shots.  This masquerades as capitalism.  So many complain about the intrusiveness of the state, yet the state is simply the marionette at the end of the strings.  The state acts because someone wishes it to act and has the influence to make it act.

Wed, 04/18/2012 - 14:34 | 2355585 JOYFUL
JOYFUL's picture

ladies & gentlemen...we have a winner!

Wed, 04/18/2012 - 16:10 | 2355686 psychobilly
psychobilly's picture

"The state acts because someone wishes it to act and has the influence to make it act."

All the more reason to limit its power.

The state seems to be the most responsive to the mob, and to elite, moneyed interests.  Neither of which makes for a legitimate basis for determining the legality of a thing, or for metting out justice.

You appear to be living in some sort of fantasy world where those evil people running corporations that lobby the state to further their own interests are magically transformed into public servants when they are employed by the state.  And the same mob that has eagerly supported all of the worst atrocities and most malicious ideas in human history and must be rigorously policed itself has the wisdom to rule over the rest of us.

Give a bazooka to the gorilla that's beating you over the head with a club.  That will surely improve the situation.

Wed, 04/18/2012 - 13:17 | 2355295 Apocalicious
Apocalicious's picture

No, it's not capitalism. In capitalism, the state is not driving, (DIRECTING, PROHIBITING) the flow of capital. They are there to keep the playing field level (i.e. enforce anti-trust laws and ownership rights), not pick winners and losers.


We have state overriding ownership rights, dictating the flow of capital, and cultivating rather than breaking up cartels. THIS IS THE OPPOSITE OF CAPITALISM, baby.


I'm trying to free your mind, Alcoholic. But I can only show you the door. You're the one that has to walk through it.

Wed, 04/18/2012 - 15:01 | 2355660 Freewheelin Franklin
Wed, 04/18/2012 - 12:11 | 2355111 Trimmed Hedge
Trimmed Hedge's picture

If ya can't beat 'em, join 'em..?

Wed, 04/18/2012 - 12:12 | 2355113 Buckaroo Banzai
Buckaroo Banzai's picture

"Granting this power to the State guarantees that the State itself will become predatory, supplanting the parasitic elements it was designed to limit."

Fixed it for ya.

Wed, 04/18/2012 - 12:13 | 2355117 SilverDoctors
Wed, 04/18/2012 - 12:18 | 2355133 Shizzmoney
Shizzmoney's picture


Wall Street demonstrated its immense political power during the financial crisis and its aftermath. Financiers may bellyache about increased regulation over the last couple of years, but the actual changes have been very minor. The major bill that changed the regulatory architecture, nicknamed Dodd–Frank, was weak tea to start with and is being watered down further as the detailed regulations required in the legislation are written.

So in return for hundreds of billions of dollars in public funds used to keep the financial system from going under, the banks will emerge from this crisis largely unscathed. One reason for this is Wall Street’s skill at lobbying, and its ability to spread huge amounts of cash around Washington. As Public Citizen documented, between 1998 and 2008, Wall Street spent $5 billion in campaign contributions and deployed 3,000 lobbyists across Capitol Hill to get its way. While $5 billion sounds like a lot, it was less than a third of the Goldman Sachs bonus pool for 2009, and spread out over a decade. Wall Street has a lot of money, and Congress can be bought on the cheap.

Wed, 04/18/2012 - 12:20 | 2355141 Winston Churchill
Winston Churchill's picture

The body politic therefore has leukaemia.

Revolution and debt Juibilee,  or Fascism and WW III.

Time to choose ?

Wed, 04/18/2012 - 12:19 | 2355144 buzzsaw99
buzzsaw99's picture

Fascism, it is what is for breakfast, lunch, and dinner in freedumb's land.

Wed, 04/18/2012 - 12:19 | 2355145 Zardoz67
Zardoz67's picture

Plato wrote all before in The Republic:

Oligarchy then degenerates into democracy where freedom is the supreme good but freedom is also slavery.


Democracy then degenerates into tyranny where no one has discipline and society exists in chaos. Democracy is taken over by the longing for freedom. Power must be seized to maintain order. A champion will come along and experience power, which will cause him to become a tyrant. The people will start to hate him and eventually try to remove him but will realize they are not able.


Wed, 04/18/2012 - 12:48 | 2355217 libertus
libertus's picture

You forget that tyranny leads back to freedom when a rebellion by the philosophers "lovers of wisdom" resist the excess of the banksters. Its all in Book seven...just take a look. 

Wed, 04/18/2012 - 12:35 | 2355173 Kreditanstalt
Kreditanstalt's picture

What about trade unions?  Welfare advocates?  The AARP?  The Israeli lobby?  The AMA?  And so on...and on...and on...

Aren't all of these also "...all those seeking to increase their private gain via monopoly, cartels, collusion, fraud and other forms of predation"?

It's pernicious, it's everywhere and the game has always been GETTING MONOPOLY PROTECTION FROM GOVERNMENTS.

Wed, 04/18/2012 - 12:36 | 2355178 Kreditanstalt
Kreditanstalt's picture

By the way...the AAPL is rotting again!!!!!  Bastille Day?!


Wed, 04/18/2012 - 12:38 | 2355180 citta vritti
citta vritti's picture

In a country without a legacy or other foundation of liberty and related democratic principles and institutions, particularly those related to economic freedom, crony capitalism can, possibly, be understood (justified is a different thing) as substituting trusted relationships among economic actors' families and friends for all the other institutions that are missing as a means for the people in country to move towards free market capitalsim. But in countries with a legacy or other foundation of liberty and related democratic principles and institutions, particularly those related to economic freedom, crony capitalism is simply looting from the top down, in matters petty and big. GSA and Secret Service partiers, MF Global, CFTC, SEC, DoJ, AIG, GS, GM, GE, FRBNY, Fed, UST, Buffet, BoA, JPMC ... the mind wearies - so many names, so little time.

Wed, 04/18/2012 - 12:40 | 2355189 lakecity55
lakecity55's picture

Obama eats helpless puppies.

A direct result of fascism!

Wed, 04/18/2012 - 12:39 | 2355190 penexpers
penexpers's picture

What do all of these terms matter (fascism, cronty capitalism, corporatism, ect.) in a society where the majority of the population is at the point of fully embracing their servitude? What the American Zombie Horde needs is a big reality a check and then maybe, just maybe, they'll understand that something is terribly wrong.


Wed, 04/18/2012 - 12:44 | 2355204 Kreditanstalt
Kreditanstalt's picture


Any or all of those would do nicely.  I'm also anxious to see the first major government layoffs...

Wed, 04/18/2012 - 15:51 | 2355815 psychobilly
psychobilly's picture

"What the American Zombie Horde needs is a big reality a check and then maybe, just maybe, they'll understand that something is terribly wrong."

I wouldn't bet on that.  More likely they'll freak out completely and scream for their tormentors to be given even more power to rescue them.

What about the horde gives you the impression they handle reality well?

Wed, 04/18/2012 - 12:42 | 2355195 CulturalEngineer
CulturalEngineer's picture

Cronyism has a lot more to do with biology than you might think... and its what Ayn Rand (and her idiot followers) never understood.

Issues in Scaling Civilization: The Altruism Problem


Wed, 04/18/2012 - 14:50 | 2355628 Lednbrass
Lednbrass's picture

Total leftist silliness. You dont define your terms well at all and seem to consider self evident things which you only murkily describe.

Everything you say seems to boil down to central planning and control by the self anointed supra national "enlightened". What you consider intellectually "evolved" sounds like a rehash of previous failed idologies.

If it meant otherwise, you certainly dont convey it well. Cartoonish indeed sir.

Wed, 04/18/2012 - 12:44 | 2355203 Marc_W
Marc_W's picture

Geopolitical analysis is a valid form of analysis for stock picking is it not?  Therefore, political trends are equally valid.  Therefore, using the reality of American fascism as an indicator for stock picking is likely to produce strong results.


I present to you the greatest basket of stocks for investors in the 21st century American police state - The Fascist Investment Strategy:


All the TBTF corporations/banks.  Defense contractors.


Someone run the numbers of that basket from QE1 through today.  I guarantee you will like what you see.  Precious Metals are merely a hedge against the potential failure of the fascist central states.


Long fascism.

Wed, 04/18/2012 - 12:43 | 2355205 Peter Pan
Peter Pan's picture

Unfortunately government has become a facade for the top one per cent and nothing more. In return the bureaucrats are guranteed jobs and pay levels beyond those now on offer to the general population.

It is no longer capitalsm but crapitalsm !

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