Cronyism’s Cost in Competitiveness

New research continues to highlight the economic burdens imposed by big government regulations and big corporation cronyism in the US. For all the concerns about the heavy hand of Brussels on members of the European Union—and in Europe’s most competitive countries, this was a real concern—the EU has actually reduced the hold of national champions on public policy. As a result, German Gutiérrez and Thomas Philippon find, “Today, European markets have lower concentration, lower excess profits, and lower regulatory barriers to entry.” In conjunction with this change, “political and lobbying expenditures have increased much more in America than in Europe.” Gutiérrez and Philippon say the causation runs from increased political expenditures to greater market concentration. They previously found that increasing concentration led to less business investment. Perhaps their next step will be to look at how much government regulation and legislation induced those political expenditures.

Increasing returns to political spending is something other researchers have described. Daron Acemoglu and his co-authors consider how equality before the law improves a country’s institutions and economics, providing greater benefits to the elites in a country than when they try to exempt themselves from the law. Steven Pinker suggests one reason in his wide-ranging conversation with Jordan Peterson: people are not as upset with income inequality as they are with what they perceive as the unfairness of ill-gotten gains, including the crony capitalism of regulatory capture explained by Gutierrez and Philippon.

Joseph Coletti / Senior Fellow

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...

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