Cronyism wins when media get lazy

What is cronyism? It’s:

  • “old-fashioned welfare” (Nobel economist Joseph Stiglitz)
  • “socialism for tycoons and capitalism for the rest of us” (New York Times columnist Nicholas Kristof)
  • “a cozy relationship among government, big business and big labor” in which “government bestows a variety of privileges that are simply unattainable in the free market” (ABC News and Fox News pundit John Stossel)

As my report on Carolina Cronyism explains, one of the reasons cronyism happens is when safeguards of good government fail. These safeguards include news media. I wrote how media can fail:

News media, by acting as political information aggregators, can make it easier for people to stay informed. They are therefore an important good-government safeguard. Unfortunately, news media can choose to look the other way, subvert their role by keeping information from the public, or grow lazy.

Here’s how media are often lazy in failing to recognize cronyism: they’ll suspend their suspicion of big business getting cozy with government when that coziness coincides with their own political preferences.

For example, instead of reporting on how the big business is serving its own interest illegitimately by winning government officials instead of consumers, they cheer it on.

When the world’s biggest retailer wants to hike competitors’ labor costs

CNBC just provided a sterling example of this kind of failing. Here’s the headline:

Walmart CEO says Congress should fix the ‘lagging’ federal minimum wage

Now, news media have a strong political preference for hiking, even more than doubling, the federal minimum wage — so strong that they habitually ignore mainstream economic thinking on the minimum wage.

But to an economist, a more accurate headline might be:

Walmart CEO says Congress should hike labor costs on smaller competitors and put them out of business

If CNBC was not so impressed with a Big Important Business echoing their political preference, they might have realized how Walmart pressuring Congress (amplified instead of scrutinized by a lazy media) would serve Walmart’s interest by making it harder for their competitors to do business, especially smaller, Mom & Pop outfits.

Most businesses in the U.S. — most as in over 99 percent— are small businesses. They can’t afford to pressure Congress. They’re too busy trying to stay in business and hoping Congress (or the General Assembly) doesn’t pressure them more.

Facts gleaned from the article:

  • Walmart is the world’s biggest retailer
  • Walmart’s minimum wage is $11/hr. (which is over one and a half times the federal minimum wage of $7.25/hr.)
  • Walmart’s average, hourly compensation is over $17.50

Not every retailer can offer wages that high. Especially not small, local retailers in poor neighborhoods. These neighborhoods are better served by having a local retailer employing residents and offering local consumers a nearby place to shop instead of having to go farther off.

Media intrinsically know all that, and even report from that knowledge when they’re not distracted by some squirrel of politics. E.g., reports on local shop openings and closings, public-interest stories of local entrepreneurs, consumer reports on how to save money, even articles worrying about “food deserts.”

But CNBC sets aside such knowledge in this report. And what they ignore is this: Walmart could absorb a hit in labor costs much better than small businesses. It could afford to employ and pioneer automation in ways the vast majority of smaller competitors simply could not. It’s the world’s biggest retailer, after all.

And it can be even bigger if Congress acts in such a way that makes it so smaller competitors can’t afford to do business.

For more reading:

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

Reader Comments