
Crony capitalism may be cannibalizing productive capitalism in the U.S. - wowtip
https://www.bloomberg.com/view/articles/2017-06-21/the-wrong-kind-of-entrepreneurs-flourish-in-america
======
zackmorris
I think the great problem of our time is that the challenges get easier to
solve every day but we mostly spend our time making rent. And not the kind of
rent mentioned in the article - just plain old fashioned too-much-month-not-
enough-money kind of rent. When we’re desperate, we grovel and do whatever
work we need to to survive. This is akin to how researchers spend inordinate
amounts of time applying for grants rather than, you know, saving the world
and all that. This is because any free capital in the economy gets vacuumed up
by a few large players who only divvy it out through "sanctioned" channels
that most people no longer have access to.

In the olden days, the main force balancing this was taxation. Even if you
look at it as a purely zero-sum game, any money paid by the very wealthy had
to go somewhere, and that somewhere was the masses. This didn't sit right with
the very wealthy and they rigged the system to such a degree that I've never
seen an appreciable tax increase in my lifetime, even in the face of trillion
dollar deficits and the loss of the middle class in the US. Mathematically,
trickle-down economics has given us just exactly the system it was designed
to. I mourn for the millions (billions) of people left out, but for whatever
reason a lot of people don’t even see them.

Maybe the great problem of our time is ignorance..

~~~
harryh
\- There is plenty of free capital in the economy. More than ever really. To
the point that the "capital glut" is a regular topic of discussion in economic
news.

\- I don't know how old you are but both Clinton and Obama significantly
increased taxes on the rich. Federal tax receipts as a % of GDP are fairly
constant going back to WW2.

[https://fred.stlouisfed.org/series/FYFRGDA188S](https://fred.stlouisfed.org/series/FYFRGDA188S)

~~~
Retric
First that graph shows a huge range of rates. Just 2000 vs 2004 is a 22% drop,
but even that's just federal rates. Total government spending is the only
meaningful metric when state, local, and federal funds are all taken out of
your paycheck.

Further, not being static does not mean it was ever meaningfully increased.
The rate from 1982 was higher than either Clinton or Obama rates. And 1982 was
below the rate from 1932 to 1981. Compare US GDP growth and a high top
marginal rate seems to promote growth, though there are many ways to slice and
dice these numbers.

~~~
harryh
1) I expect that if we included state and local taxes the story would be much
the same, though I don't have a graph handy. You could be right I suppose.

2) I think we mostly agree here. There have definitely been meaningful changes
both up and down (on the order of 20%) over the years depending on both
economic and political changes. However, when you look over a 50 year timespan
(everything post WW2 basically), you don't really see a meaningful
longitudinal change. To me this refutes the OPs point about taxation being
meaningfully different in the "olden days."

~~~
Retric
2) He was not talking about total recites. And the top tax rates are a very
different story:
[https://www.cch.com/WBOT2013/029IncomeTaxRates.asp](https://www.cch.com/WBOT2013/029IncomeTaxRates.asp)

PS: IMO, a ~1 to 2% AMT on all wealth per year would be incredibly beneficial.
But, there is currently about zero chances of that ever happening.

~~~
harryh
My understanding is that those top marginal rates didn't matter as much as you
might think because they mostly shifted forms of compensation. The data we'd
really want to investigate this question is what % of taxes were paid by
various income groups (top .1%, 1%, 5%, 10%) over time. See how much that
share has changed with various policy changes.

I can't seem to find a relevant graph on fred.stlouisfed.org though. :(

~~~
opo
ntu.org has some recent data. In general, federal income tax has gotten more
progressive since the 50s. For example, the top 10% paid 49% of taxes in 1980
and paid 70% in 2014. [http://www.ntu.org/foundation/page/who-pays-income-
taxes](http://www.ntu.org/foundation/page/who-pays-income-taxes)

------
projectramo
There is a theory that _all_ above market profits are generated by government
granted monopolies.

So, for instance, software is protected by patents, oil and gas is protected
by mineral rights, drugs are protected by patent law, entertainment is
protected by IP rights, and so on.

In so far as there is competition, it often arises when the rent-seeking
motivates people to disrupt the government protection by making it useless.

In software, people have lived with that since the beginning because it moves
so fast. But even in slow moving fields like energy, we see new tech rendering
the old protections less important.

I am not saying society has not paid a steep price for rent seeking behavior
but that it has been part and parcel of all capitalism forever, and not unique
to the American experience.

~~~
jbooth
That theory falls under the Econ 101 fallacy -- assuming perfect information
dispersal, instant job-switching, instant production ramping..

"First, let's assume the cow is a sphere".

~~~
arcanus
> "First, let's assume the cow is a sphere".

It is worse than that, because at least physics is validated by experimental
data.

Much of (macro in particular) Economics is a set of axioms that are seldom
predictive.

~~~
pm90
And yet, people swear by them as though they have the same validity as
physics. I never really understood that mentality.

~~~
sadfjhsdf66
Because the monopolies have exerted pressure on public education, including
universities, to churn out advocates for the corporations bottom line.

With no basis in reality, we've brainwashed people to believe the bottom lines
of the elite are to be protected. That's the outcome sought of our educational
system.

It fascinates me how, on the one hand, we complain about how lazy people are.
How much inducement the proles need. "Oh they're just lazy. Push em harder."

If we need to push people that hard, perhaps "economy of effort" is built into
the species. It's a weird cognitive dissonance.

"They want something for nothing! But I want to maintain my elite status built
upon your efforts!"

But that challenges the basis of elite power. If we all quit producing for
them, they lose. So we're "induced to produce" under the constraints they
define: no food, shelter, healthcare.

~~~
pm90
This is unfortunately too close to the truth. One thing I would like to add
though is that despite the fruits of labor accruing disproportionately to the
elite, the system has managed to lift up everyone else as well, right? So the
system does work, and I wonder what would happen if it was changed to be more
egalitarian....

~~~
dragonwriter
> the system has managed to lift up everyone else as well, right?

By some measures, all of which fail to account for the fact that relative
deprivation is a substantial source of experienced disutility.

~~~
pm90
Its true, but I'm not sure whether I would choose to be born in a Cholera
ridden mid 1850's London or the Ghettos of Inner-City Houston today. We've
solved some problems and now face others of course, but my question is whether
the earlier problems were of a different kind...

------
dv_dt
Does it seem to anyone else that the finance industry is increasingly
distracted from actually matching up capital to fundamentally productive
companies, especially new companies?

Looking at the stock market, there are few IPOs, and after IPO, being public
only provides access to limited access vis issuance of new stock...

Some capital flows to VCs, but it seems the more capital flows to large VC
funds, the more the criteria becomes look for a sure thing and filter more for
large scale opportunities - all while small scale fundamental development
receives poor access to the vast amount of capital sloshing around (and
settling in places like unused real estate...).

To me it seems that investment in direct development of productive tech and/or
process is competing against profitability of short term financial
manipulation - and causing a drop in overall delivery of new productivity
improvements to the general economy. But even further, the very financial
industry isn't really creating or maintaining a channel for money to open
opportunities to develop that kind of company - certainly not a large scale
needed or possible today.

~~~
mowenz
>Does it seem to anyone else that the finance industry is increasingly
distracted from actually matching up capital to fundamentally productive
companies, especially new companies?

This is somewhat controversial to posit, but I believe the corruption in the
financial industry is extraordinarily entrenched because of the Fed. Before
you call me a lunatic, smart and good people from Aaron Schwartz to Sanders
have said things like this: that it should be eliminated, or that it is
nothing more than socialism for the rich while hurting the poor.

The most obvious problem with it is that it creates astronomical moral hazard
by protecting and guaranteeing the big banks.

After the Fin Crisis Krugman was talking a lot about making banking boring
again, and run like utility companies. You can still have VCs, hedge funds, or
whatever you want--but it's not funded by and guaranteed with anything other
than the money you put in it, and it's separated from vanilla banking, ie
Glass Steagall.

But then we had Dodd Frank and sometime after Krugman never went back to
talking about that again.

Unfortunately, the dogma about the Fed is so entrenched in mainstream
economics--so much so that speaking against it is immediately written-off.

Nearly 1.5 centuries ago, all the banks were actually betting against Lincoln
to lose his war. So he used the constitutionally-granted right to print the
nation's own currency, and won the war with it. The point is, there's no
reason we can't do this if we really wanted to (and if you care about poor and
working class, and eliminating cronyism from the world, you should want to).

~~~
BFatts
You're saying we should get rid of the financial industry? What, because we're
all so good at managing our own money?

Guaranteeing the big banks can't fail is how we keep the economy going. If a
bank fails, everyone that is owed money by that bank fails too. Is that
acceptable? Would you be fine with your employer going belly up because the
bank they rely on can't pay out money?

~~~
mrchucklepants
Guaranteeing the big banks can't fail is a source of moral hazard, removing
the cost of being wrong from those taking the risk and transferring it to the
general public. Make the banks responsible for the negative consequences of
their actions with no potential for bailout, and watch their behavior change.

~~~
mowenz
This is exactly right.

Just to address the above poster: vanilla banking could still be guaranteed.
By contrast, in essence the Fed is guaranteeing the banks' risky investments.

------
Stryder
I was 20, naively unaware of the ways of the real world, and nearly overnight,
I lost everything and everyone I cherished in my life.

Over the next 6 months, it slowly dawned on me that those who survive and
thrive are those willing to screw other people over for their own benefit
without as much as blinking an eye, as long as it suits them.

"This is the way of the world", I thought to myself.

Over the next decade, I focused, and worked my ass off. On my way up, I
encountered countless more rich, successful and morally bankrupt individuals,
and the higher I go, the more sophisticated the moral bankruptcy gets.

To be fair, it's not the fault of a lot of these individuals. Some of them
genuinely do not comprehend the consequences of their actions - it just
doesn't cross their mind. Instead, the fault lies with a system that not only
enables but promotes this kind of behavior to the very top, without an
effective counter-balancing weight on the other end. And we are the custodians
of the system, we are the ones who shape it on a daily basis, by the actions
that we take, the investments that we make, and the kind of relationships that
we build.

~~~
xxSparkleSxx
I agree, but can we honestly put all the blame on those at the top.

Many of of us in the middle and at the bottom are just as complicit. We go to
work for companies we know make the world a worse place, we work under
horrible people and hand them part of the value we create every week.

Those in the middle and below do not have as much power as those on the top as
an individual, but as a collective we have much more power. We can sit down
and choose not to work, we can choose not to contribute to certain companies
or to certain individuals.

We can say "NO!" But most do not because money. The same reason those at the
top do immoral/awful things are the same reasons those in the middle and below
do immoral/awful things (those at the top just have a bigger impact).

And some of those in the middle that just accept the status quo because "I've
got a mortgage! I've gotta eat! I made these crappy kids and now I have to do
awful things so they can eat!" will go on to be those at the top who continue
the same behavior.

------
kevmo
Many of our regulatory bodies have been utterly captured by biggest companies
that they are supposed to regulate, and they are tamping down innovation
(which creates jobs), increasing prices, and decreasing quality. Both the
Democrats and Republicans have been engaging too heavily in crony capitalism
for decades, and this is the result.

How it works: Regulations that are supposed to protect the public end up being
a cudgel with which to beat down small companies that can't afford to deal
with an onslaught of often unjustified demands for regulatory compliance. When
the only companies who can afford to comply are the big ones, it squeezes out
new market entrants. This decreases competition. It's bad for all but a
handful of people.

How it should work: Generally (not always), there should be a direct
relationship between company size and the amount of regulations which apply
(i.e. more regulations as you get bigger, fewer if you're small).

We need a heavy injection of honesty into our regulatory agencies. Restoring
balance to the system would unleash a wave of economic growth.

When I was shilling for Senator Sanders in 2015 and 2016, I often said that I
was equally excited for both his policies and the fact that he would make a
lot of good appointments, which would clean a lot of crap out the rent-seeking
regulatory system, which would be great for the economy.

Unfortunately, we're going to have to wait. But I hope this gets on more
people's radars as one of the reasons why the middle class has been shrinking
and real incomes going down for four straight decades.

~~~
kem
Regulatory capture, advertently or inadvertently, is one of the elephants in
the healthcare room. I'm tired of all the discussion (on both sides) totally
ignoring this issue.

~~~
ntsplnkv2
Healthcare is a vehicle to serve another agenda. That is the problem.

It doesn't matter if insurance is private or public if the costs of healthcare
are too high. I don't see why there is no compromise. It's very bad for the
future of this country.

------
Animats
Good idea. Weak article. The HBR article cited [1] is an obituary for William
Baumol. Baumol is associated more with the "cost disease" problem - high
productivity industries shrink over time, as their market saturates.
Agriculture and manufacturing in the US have great productivity, and are
constantly shrinking employment while increasing output. US manufacturing
output is at an all-time high, but is down to 8.1% of the labor force.
Agriculture is at 1.4%.[2] So business growth has to be in low-productivity
sectors, with low wages. That's cost disease.

If you want to read about rent seeking, read Peter Theil's "Zero to One". It's
a manual on rent-seeking. It's all about how to create a monopoly.

Changing Government policy to reduce rent-seeking is very tough politically.
Successful rent-seekers are the biggest political contributors. They pay to
not have their income stream cut off.

[1] [https://hbr.org/2017/06/is-america-encouraging-the-wrong-
kin...](https://hbr.org/2017/06/is-america-encouraging-the-wrong-kind-of-
entrepreneurship) [2]
[https://www.bls.gov/emp/ep_table_201.htm](https://www.bls.gov/emp/ep_table_201.htm)

~~~
tomjen3
But cost disease can, at most, account for growth in prices that follows the
growth in salary paid to the most productive professions, no? Because if so
the price increase of health care and college (which is the two big
expenditures) _cannot_ be explained by cost-disease alone, as they have both
grown much higher than salaries.

------
saas_sam
It's interesting to me how this article frames crony capitalism as a use or
abuse of government by corporations, almost as if the government is a victim.
But it's the government that has all of the power in this context. There's
something to be said for corporate money influencing elections, but even there
it's elected officials who are deciding on policies after getting there, and
if they are making decisions based on how to most easily keep their job (ex.
take corporate money for reelection campaign), that's their unethical doing,
not the corporations.

~~~
bjl
Knowingly providing incentives for people to do something unethical is itself
unethical.

The corporations aren't blameless here.

~~~
mtberatwork
Indeed, this is even outlined in the infamous Powell memo: "Business must
learn the lesson ... that political power is necessary; that such power must
be assiduously cultivated; and that when necessary, it must be used
aggressively and with determination—without embarrassment and without the
reluctance which has been so characteristic of American business." [1]

[1] [http://billmoyers.com/content/the-powell-memo-a-call-to-
arms...](http://billmoyers.com/content/the-powell-memo-a-call-to-arms-for-
corporations/)

------
bogomipz
From the article:

>"Because it’s just a transfer from one person to another, rent doesn’t
necessarily make an economy less efficient -- it’s just often unfair. "

I would argue that "rent" does make the market more inefficient. The more rent
these companies can extract from consumers the larger their lobbying budget
and the more campaign donations they can make at all level of government.

Political lobbying is the biggest and most effective tool used by crony
capitalists.

~~~
mars4rp
problem is with political system, lobbying and campaign contributions!

~~~
ue_
Although privileges granted by the State to "crony capitalists" excarberates
issues, I do not consider it the root of issues, and to me, capitalism would
have the same issues even without a government, or with minimal government. I
think we're fixing the wrong part of the bottleneck by arguing for a
completely free market.

~~~
mars4rp
we don't have capitalism in US we have corporationism. free market would have
been a good thing before automation and AI, but it won't work for the future.
but you can't convince people to go toward socialism in this country. but left
and right agree that problem is crony capitalism ! let's start from there and
do something!!!

~~~
bogomipz
>"free market would have been a good thing before automation and AI, but it
won't work for the future."

Can you elaborate on this? I am curious to hear why those two things - a free
market and AI are mutually exclusive.

~~~
mars4rp
because in a society when most of people don't need to work because there is
nothing to do for them. you can't compete by working, you can compete by the
amount of your capital. for example if you use robots to produce X, the only
way I can compete with you is having more or better robots (there would be
still competition on building better robots as long as people making robots
and AIs not AIs generating more AIs). in such a word most of people don't
contribute to the economy, allocating resources based on amount of work or
capital is going to leave most of society without any resources! free market
is still going to be helpful in making AI and Robot owners compete, but they
shouldn't be the sole benefactor of robot's work!

------
jondubois
I think that these issues are getting a lot of attention recently. A lot of
people feel that their jobs are not meaningful anymore and that they cannot
find any meaningful work that pays well.

Most of the jobs that pay well are zero-sum games. Finance, tech, law. Even
medicine and pharmaceuticals are becoming zero-sum games (e.g companies
boosting drug prices because it's easier than inventing new ones).

People have become cynical and distrustful towards each other and the system.
We have lost touch with our old values.

I'm surprised that society can continue to function under these conditions.

In this zero-sum economy, we are all enemies of each other.

~~~
rtx
Thats why we need space colonization. We as a species are programmed to
expand. We have become stagnant in the last 100 years.

~~~
refurb
_We have become stagnant in the last 100 years._

Are you serious? Do you know how much mankind has accomplished since 1917?

~~~
vkou
They should go to India, or China, or Vietnam, or Nigeria, and, with a
straight face, tell people there that we've become stagnant over the last
century.

~~~
jondubois
That's actually a very good point. Globalization has been great for developing
countries and terrible for developed countries. People from developing
countries have a much better life outlook as a result.

As a westerner, I am much worse off than my parents were and so my perception
of life is very cynical. The lifestyle that I had in my childhood and the idea
of life which my parents projected onto me was so much better than today's
reality. It's quite a depressing feeling.

~~~
refurb
_I am much worse off than my parents_

OK, let's assume you're 30 and your parents were ~30 when they had you. That
means your parents spent their 15-30's during the 1970's. What were the 1970's
like in the US (yes, I'm assuming you're American)?

Absolute crap.

Post-Vietnam with everyone wondering whether or not the US was done as a
superpower. A humiliating withdrawal from a war that killed 50,000 Americans.
Stagflation, with inflation in the teens and unemployment 3x what it is today.
Want to buy a house? Sign on the dotted line for a 17% mortgage. Oil
embargoes/energy crisis and line ups for gasoline. "General Malaise". Serious
crime problems in cities and a decaying inner city. Race riots in recent
memory. Watergate scandal and a disgraced President who relinquishes office.

I think it's silly to think our parents had it better.

~~~
vkou
It was followed by the 80s and the 90s.

------
frgtpsswrdlame
Just to kick off some discussion. Do you guys think that the shift from on-
prem to SaaS is indicative of a move towards rent extraction?

~~~
deathhand
Not necessarily as overhead operational costs are lowered with the SaaS model
and that's not true 'rent'. Licensing fees would be considered 'rent' but
obviously necessary as a motivator for production.

~~~
ben_jones
Isn't that a case of "get everyone hooked then raise the prices"? How much is
pricing currently subsidized by VC and early access promotions (like GCP, AWS,
Uber) which will go away over the next ~10 years.

~~~
pm90
AWS is currently minting money. Amazon and Google don't offer no subsidies,
Amazon at least, invests all its profits back into the business, which is def
not a subsidy in any sense of the term.

As the competition heats up and providers become more efficient, I actually
expect prices to go down even further.

------
subverter
"Crony" is so often followed by "capitalism", but it's really just cronyism
that's the issue. You can find it in capitalism and you can find it in
government. But they go best hand-in-hand. I'd argue that most crony
capitalism is made possible only because they can leverage the monopolistic
power of their crony allies in government for mutual gain.

~~~
RobertoG
I hear frequently the argument that crony capitalism is not really capitalism.
And how "real capitalism" would work wonderfully.

That always remember me, how, when you argue with a communist, frequently
those examples that you bring to the conversation are never "real communism".

------
a3n
> Sometimes the government allows companies to get a certain amount of rent --
> for example, the royalties from patents, which we protect in an attempt to
> encourage innovation.

This is the classic, maybe _the_ reason given to justify patents. The
implication being that no one would bother innovating if patents didn't grant
them rent for a time.

But I wonder if the reality is merely that _different_ people, and different
_kinds_ of people, would innovate in a patent-free world.

~~~
digi_owl
The problem is not the concept, but the current application. And that is not
even a construct of the law as written, but the courts application of said
law.

Patents started out as a 20 year protection on mechanical mechanisms or
chemical processes as long as what was protected was publicly documented in
full. Thus once the patent had run out, anyone could replicate it from the
patent document.

But then the chemical process side used to argue for a quasi-software patent
in court, because the patent described a computer monitored mixing process.
And thus the ball got rolling.

Thing is though that 20 years is a very long time when we are talking
software. By the time the RSA patent ran out, the algorithm described was
largely obsolete.

On top of that we have gotten a mass of patents that are so generic in
terminology, that even if they describe something mechanical they can
potentially be applied to something done in software.

Not that patents have not been a problem even before computers. Serious
refinements of the steam engine for example didn't happen until after the
initial patent ran out.

Similarly Smith and Weston sat on their refinements for the Colt revolver
until the patent ran out.

~~~
jb613
> Patents started out as a 20 year protection on mechanical mechanisms or
> chemical processes as long as what was protected was publicly documented in
> full.

1) Patents are not an American invention. England had them before, and the
Romans before that.

2) I'll assume you implied U.S. patents. The Founders regarded patents so
highly that they wrote them into the U.S. Constitution. It was written
generically and not limited or fixed to only "mechanical or chemical" but
rather "to promote the progress of science and useful arts, by securing for
limited times to authors and inventors the exclusive right to their respective
writings and discoveries".

> Thing is though that 20 years is a very long time when we are talking
> software. By the time the RSA patent ran out, the algorithm described was
> largely obsolete.

RSA patent expired nearly 20 years ago yet RSA is still used today. For
example, the public key used to secure
[https://news.ycombinator.com](https://news.ycombinator.com) is RSA.

> Not that patents have not been a problem even before computers. Serious
> refinements of the steam engine for example didn't happen until after the
> initial patent ran out. > > Similarly Smith and Weston sat on their
> refinements for the Colt revolver until the patent ran out.

The myth is that patents block innovation. The reality is that blocking
someone from doing something incentives them to find another way to do it.
Afterall, if all you want to do is copy then how is that "blocking
innovation"?

------
dreamdu5t
You can't get $10k to start a hot dog stand but you can get billions of
dollars with literally no plan for profit if you're already rich or seeking
VC. But want to start a normal business? No capital for you! And your taxes
will pay for the banks and VCs when they screw up.

~~~
balls187
I get that this is hyperbole, but:

1\. There are plenty of US Government (i.e. tax payer funded) programs to help
people get "normal" ideas off the ground. From grants, to loans, the money is
there. It's hard to imagine someone destined for success being stopped by not
being able to raise $10k. $10k in credit card debt is nothing for the average
american.

2\. Success breeds success. If you're rich, you may already have your own skin
in the game, or you may have proven yourself capable of using capital
effectively.

~~~
xenadu02
> 1\. There are plenty of US Government (i.e. tax payer funded) programs to
> help people get "normal" ideas off the ground. From grants, to loans, the
> money is there. It's hard to imagine someone destined for success being
> stopped by not being able to raise $10k. $10k in credit card debt is nothing
> for the average american.

You've obviously never tried this. It would be a full-time job for a year to
even have a shot at these supposed grants. The money is absolutely not there
the way you claim.

The younger you are the less credit history you have which makes getting loans
almost impossible unless you already have collateral to pledge against the
loan.

Oh and $10k is often not nearly enough capital to start a business since you
need to pay your own bills while you bootstrap the business. We get away with
it in tech often because we have the luxury of working after-hours as a side-
project to start with. A customer-facing business can't do that.

~~~
balls187
> It would be a full-time job for a year to even have a shot at these supposed
> grants.

How bad do you want to start a business?

How long do you think startup founders work before having something that is
worthy for seed funding?

------
jackcosgrove
The only way this will end is limits on campaign contributions and other kinds
of bribery. The returns on lobbying are astronomical compared to the returns
on productivity improvements.

~~~
Terr_
I think the linchpin is actually our voting system. It strongly encourages the
existence of only two parties that are always trying to split the difference,
and that's the scenario which is very friendly to institutional bribery and
regulatory capture.

~~~
Paul-ish
Countries with a system that allows for many parties still end up forming
coalitions though. It isn't clear that the problem goes away.

------
bostonscott
The concept of "crony capitalism" is a misnomer. "Crony" is not a type of
capitalism, it's the antithesis of capitalism. It's enabled by giving too much
power to government.

For example. When insurance companies jack-up rates or impose customer
"unfriendly" terms, they are not acting within the "free market." They are
exploiting "crony'esque" rules that limit competition by restricting insurance
companies from competing across state-lines.

~~~
bjl
Crony capitalism is not a misnomer, its the endgame of all capitalists. When
people have the resources to buy a regulatory advantage, of course they are
going to do so; that's just capitalism at its 'finest'.

~~~
bostonscott
It's not the endgame of all capitalists. Actual capitalists, limited in number
as they are, prefer free markets (e.g. no cronyism) because they'll make more
money that way over time.

Opportunists are the ones who thrive when things are rigged. They can't
survive on their own.

But yes, many capitalists (and non-capitalists alike) "buy" regulatory
advantages.

Some leverage their dollars (buying) Some leverage their numbers (voting)

These groups enable eachother. Motives range from "defense" (virtuous) to
"offense" (sinister).

You will find no practical solution to this problem other than starving the
beast (decentralizing power away from government).

~~~
svachalek
> Actual capitalists, limited in number as they are, prefer free markets (e.g.
> no cronyism) because they'll make more money that way over time.

Citation needed.

~~~
bostonscott
You doubt people act in their rational self-interest?

Smart, hard-working people who consistently exercise good judgement, prefer
merit-based systems.

They do better in merit-based systems than systems that reward those who are
born lucky, who have access, or who cheat and lie.

Is a citation really needed?

~~~
dragonwriter
> You doubt people act in their rational self-interest?

Yes the rational choice model is well-established to be false.

They may act in their _perceived_ self-interest, but _rational_ self-interest
involves a lot more than that.

~~~
nunyabuizness
> Yes the rational choice model is well-established to be false.

Citation? I hear this a lot, and it seems to stem from a misunderstanding of
the word "rational" in this context, which I believe is supposed to mean
"perceived" \- how else would you objectively define rational?

Is it rational for a thirsting person to prefer gatorade to water (it is for
them, if that's the choice they want to make)? Do you have more perfect
information to justify your opinion on the matter as more "rational"?

~~~
dragonwriter
Rational choice theory holds that actual behavior will be that which maximizes
utility (in it's simple form), and expected (in the Bayesian probability
sense) utility (in the more complex version addressing uncertainty.)

“Rationality” refers specifically to this mathematical optimization.

------
hasbroslasher
The choice of title is interesting, if a bit misleading, so I'm gonna run with
this. It's often suggested that there are two types of capitalism: one
productive, competitive and free -- the other gripped with cronyism,
protectionism, and exploitation. I don't buy that. There is just one type of
capitalism, and while at times it may look more like one or the other of these
poles, it always tends toward the latter: monopolistic, state-sanctioned
"crony capitalism" that puts allows business owners to prioritize their own
profits over the collective good. That's not to say that the sky is always
falling: Scandinavian countries enjoy healthy markets and don't have absurd
corporate welfare, for instance, it's just that the incentives for "good
capitalists" to become cronyists are always present.

The problem with the "two types" thinking is that it is always in a person's a
person's best interest to get something for free. Ironically, this rhetoric is
often used by capitalists, fearful that leftism might become effective, by
claiming their opponents are the ones who want free stuff. There are lots of
ways to get things for free. For instance, you can steal your workers time and
fail to compensate them (common in fast food), you can coerce a government
into cooperation ("We'll move to India if you don't give us the tax breaks")
or you can campaign to get your friends into the government.

The fallacy of libertarianism is a belief that capitalists don't want a state
mechanism with the power to tax and regulate. That is exactly what capitalists
want. They're given state protection via a police or military force, state
welfare through tax write-offs and incentives, power and influence in crafting
legislation that fits your worldview, and less turbulent markets due to
stifling of demand. The alternative is Hobbes' "short, nasty, brutish" life -
duking it out eternally trying to achieve efficiency instead of excess,
competing endlessly, only to profit in the slightest.

It's often said that "it's in our nature to be competitive" but it's also in
our nature to be cooperative, and corporations display this fact amazingly
well- they use collective influence and power in numbers to achieve ends that
small businesses never could. Until people outside of that system learn to
cooperate well enough to bargain for their own interests (e.g. Labor
movements), it's going to be smooth sailing for the "crony" capitalists.

------
balls187
I read the opening paragraph, them skimmed through the rest of the article
looking for concrete examples of "Wrong Kind" of Entrepreneurs.

I have a hard time imagining tech entreprenuers are the "wrong kind."

They may disrupt by circumventing the law, but I don't buy the argument that
they're not producing something of value in return.

~~~
bertjk
If someone has to violate the law to produce value, then it is likely that
they haven't really "produced" any value. More likely they are simply stealing
from the commons.

~~~
balls187
> If someone has to violate the law to produce value, then it is likely that
> they haven't really "produced" any value.

Imagine you created an app that allowed Gay and Lesbian couples plan their
wedding, and you operated in states that haven't legalized same-sex marriage.

Are you stealing from the commons?

Just because a law exists on the books, doesn't mean it's a just law.

------
emodendroket
> Regulation could be a big drag as well. Eager both to shield workers from
> obsolescence and to appease corporate lobbyists, many U.S. states have
> enacted laws to protect established industries from new market entrants.
> Some states forbid car companies from selling directly to buyers, while
> others protect credit-card companies by banning retailers from passing on
> swipe fees. Though one study has cast doubt on federal regulation’s role in
> reduced entrepreneurial dynamism, state regulation could be a much bigger
> deal.

I'd contend the opposite seems more likely; we've deregulated a lot of stuff,
including, perhaps significantly, getting really lax on antitrust legislation.
Consolidation and subsequent rent-seeking is the typical result of unregulated
market economies.

~~~
JamesBarney
Which large corporations are involved in rent seeking, and you think would
have been broken up under previous regulatory reigmes?

------
ithinkinstereo
Most rent-seekers are at least operating within the boundaries of law and
physics, if not ethics.

Compare that to scam-preneurs behind startups like Theranos or uBeam, or vc-
hustle-preneurs behind is-this-satire startups like Juicero, June, etc.

~~~
wu-ikkyu
Is it ethical to have ~23 empty homes for every homeless person in the US?

[https://skeptics.stackexchange.com/questions/22335/are-
there...](https://skeptics.stackexchange.com/questions/22335/are-
there-24-empty-houses-available-per-homeless-person-in-the-usa#22336)

------
digi_owl
and we keep finding that outside of the labor theory of value (and he may not
even have been wrong as much as overstating the importance of labor) ol' Marx
was right on the money...

------
jorblumesea
The natural choice for anyone is going to be "how do I get the most money with
little effort". Corruption needs to be made difficult, but sadly the people
who write the laws benefit the most from this corruption and are unwilling to
surrender political control. If things are going to change don't count on the
1% to do anything about it. They are comfortable in their nested bubble of
kickbacks, slush funds and stock. If the average person wants change, they
need to confront the wealthy interests that control almost everything and
fight for their place at the table.

I think the biggest mistake of the last 30 years was putting any kind of trust
in the ruling class to do anything but enrich their own.

------
rrivers
This article speaks to a larger problem with the U.S., and really global
system of finance. Right now we live in a world where finance dictates
production, rather than production dictating finance. Combine that with the
massive concentration of wealth on a global scale and we can observe a very
real problem that will continue to hinder global progress until it is
addressed. So often we as a collective naturalize the institution as if it was
not an economic technology that we have created. Over time all technologies
need updating, and our economic models are no different.

As Harvard's Roberto Unger often says, "Finance has become a bad master,
instead of a good servant."

------
BFatts
This just read like a bunch of "I think" and "it might" instead of "I know"
and "it will." So, stating that crony capitalism is hurting regular capitalism
doesn't do anything except make people attack an idea instead of facts.

And focusing on the financial industry might make you feel good because it's
easy to say "wall street..." and everyone joins in on the bitch fest. It's a
ton of conjecture and hypothesizing as to why business is failing, but to make
it sound like one industry is just banking cash while providing nothing, is a
disservice to all the people that work in that industry.

------
dudul
Not native english speaker here. My comment is probably of very limited value,
but mostly for my personal improvement :).

When I read "the wrong kind of entrepreneurs flourish in America" it surprises
me to not see: "the wrong kind of entrepreneurs flourishes in America". I
understand that "kind" should be the subject of the sentence, not the
entrepreneurs. I have seen this construct several times (e.g. "this type of
errors are very common", etc) and I'm wondering if it's correct, or simply one
of these errors that are so common that they become the de facto rule.

~~~
eric_h
You are correct, "kind" is the subject of the sentence and the right
conjugation would be "flourishes". You are also correct that it's a very
common error that has generally just become acceptable.

~~~
TimPC
"The wrong kind of entrepreneur flourishes in America" would probably be the
better title. The article describes a single kind of behaviour. "The wrong
kinds of entrepreneur flourish in America" would better describe an article
where multiple kinds/distinct groups of behaviors were present.

------
shmerl
TL;DR: Parasitic tendencies are growing. It requires some serious reform to
fix this, but current level of legalized corruption makes it very hard.

------
TimPC
Lawsuits aren't always rent seeking sometimes they are necessary economic
activities. Economic models can be poor when they (implicitly) define redress
for illegal actions as rent-seeking behaviour, and cutting a competitors
cables as valid economic activity -- for example the lawsuit against Comcast
that alleges driving a competitor out of business with malicious construction.

------
a_c
What the article says is true - banking, patents, regulations, corporate
subsidies all contribute to rent-seeking behaviour. But one cannot strike a
balance between rent-seeking and value-producing behaviour without
investigating the motivation behind. Is it greed and laziness working in
tandem? Or something else? I honestly have no answer

------
dkarapetyan
I find the juxtaposition of productive and capitalism odd. The entire point of
capitalism is to slush money around. That is the definition of productivity in
capitalism but somehow some people got the money part mixed up with "value"
and now they need fancy mental gymnastics to explain how the system working as
intended is in fact not working.

Basic system theory 101 says if you work with and optimize a proxy instead of
the true metric then you will always deviate from your true and intended path.
Money is only a proxy for value and some people did not get the memo. You need
some second and third order correction terms if you use proxies.

------
ThomPete
Why is this title changed? The correct title is "The Wrong Kind of
Entrepreneurs Flourish in America" which was also up in the beginning.

------
danesparza
It's interesting to me that the word "wrong" is used in the title. This is
assigning a moral code to capitalism and I think that is misplaced.

It's fine to have a moral code. It's fine to be a capitalist. Just don't
expect capitalism to always fit in a moral code.

I think the article's main unspoken gripe is about bad actors (folks acting in
a non-altruistic way) in human society in general.

------
notadoc
Sounds about right.

Until you remove all money and related influence from politics, it will only
continue.

------
Anarchonaut
The crony capitalism you describe is actually 'corporatism'.

------
draw_down
Hmm, I'm pretty sure this is just how capitalism works. Sorry :(

------
joshuaheard
This article is a great argument for a more limited government.

------
wowtip
Hm, why was the headline changed for my post?

------
metalliqaz
> Crony capitalists seek to generate profits without producing anything of
> value.

If they are generating profits, then they are doing something valuable. Are
they sucking cash out of the government? Maybe, but it's valuable to somebody.
You want to fix it? Don't try to fix the entrepreneurs, fix the goddamn
government.

Most of these Comcast-type rent-seekers are complete and total assholes, I
agree, but I'm not about to hold my breath waiting for them to stop going
where the money is.

~~~
leggomylibro
Kind of reminds me of that episode of Always Sunny in Philadelphia where Danny
DeVito's character comes out of retirement to save his former company.

"So what do we make here, Frank?"

"What d'you mean? We make money."

"Right, yes, but what do we actually create?"

"We create wealth."

"Okay, but like, what do we produce, what do we manufacture, what do we
design?"

"Manufacture? Leave that to the c&$%^s, we produce profit!"

Incidentally, starting to order parts a few hundred at a time from places like
Taobao for various projects, I'm noticing that there are a lot of companies
who just do that and slap a 500% markup on Amazon. Want a 6-pack of $0.15
mini-breadboards or a few dozen $0.05 jumper wires? Sure, $5.99 with prime
shipping. What a steal!

~~~
abakker
Alternatively, I am willing to pay a very small amount in absolute terms for
the convenience of not ordering 500 breadboards :).

Bulk ordering has always been an accepted way to pay less in unit costs, but
it helps move the risk from the manufacturer/wholesaler to the buyer. If you
want to take the inventory risk, then you charge the customers for doing so,
and the wholesaler cuts you a deal for reducing their risk in a concomitant
way.

~~~
leggomylibro
Me too, but there are services for ordering off of Taobao in Western nations
which will collect your orders somewhere on the mainland, send you pictures of
each item and allow you to return things that don't match, and then package
them into a single shipment. You pay a ~10% commission and a bit more on
shipping, but it still comes out to much much less money, if you're okay with
waiting a week or two.

