19 highlights
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It is ironical that the Prime Minister and other votaries of the liberal economic regime are advising precaution against a disease, which many believe is integral to the capitalist structures, built by pursuing the liberalisation of the Indian economy in the last two decades.
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If the analogy of the Frankestein sounds too clichéd, one would be allowed to borrow the eloquent metaphor of a ‘spectre’ that Marx and Engels used in the Manifesto of the Communist Party.
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Alan Greenspan in his testimony before the U.S. House of Representatives on January 30, 1998 defined crony capitalism as a system where stocks are purchased and loans are made on the basis of association, not economic value
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The debate over the statement that crony capitalism promote economic growth or not have been quite old
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Any interference in the working of free market would lead to sub-optimal outcome or the less desirable one. Therefore, according to the classical economist crony capitalism would lead to sub-optimal outcome
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Keynesian school of thoughts which has its grounding in the great depression of thirties have supported the government intervention on the basis that the market imperfection can be overcome with the help of government intervention
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Adam Smith have advocated laissez-faire policy. They have favored a free market economy, where they assume that the invisible hand of the market can help the economy in achieving all kinds of efficiency, be it allocative or distributive
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in Keynesian economics government intervention is for the developmental purposes but in case of crony capitalism government intervention results in to rent seeking.
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Therefore effect of crony capitalism on economic growth depends on the use of the rent obtained. If the rent is used for the developmental purpose then crony capitalism will promote economic growth and retard the growth process if it is used for the non developmental purpose.
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In most instances reliance on personal relations is detrimental toeconomic efficiency. However, personal relations sometimes enhance efficiency. Where legal, political and economic institutions are weak, as in most developing countries, information about market conditions and possibilities is both scarce and difficult to obtain, and investments and property rights may be insecure.
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Capital markets do not function as effectively in developing countries,and political and economic decision making is subject to greater uncertainty
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Under these conditions, cronyism can reduce transaction costs,
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Monitoring isalso easier, because all parties know each other
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Crony capitalism can promote or retard economic growth based on the relation between the businesses and government. If the relation is balanced that is none of them have an upper hand then it can promote economic growth in some situation as in case of South Korea.If the relation is unbalanced between the two then it will retard the economic growth of an economy as seen in the case of Philippines.
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in classical Marxism, it can be inferred that the concept of crony capitalism becomes irrelevant because it asserts that state itself has a capitalist character.
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SitaramYechury, Politburo member of the Communist Party of India (Marxist) has called crony capitalism ‘a tautology’.
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Some commentators are of the opinion that in the post liberalisation period , cronyism hassprung from a race among private capitaliststo manipulate the state and the public policyto suit their interests. But this is a two-way traffic because the state functionaries are also demanding a share for acting as facilitatorsof private capital.
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Sitaram Yechury cites the example of dubious deals struck in disposing of public-sector unit Balco and Centaur Hotel (Juhu,Mumbai) as part of the disinvestment policy of NDA government(1998-2004).Establishing a clear link between liberalisation and corruption.
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to finally use a cliché, you cannot legislate for virtue.