Cronyism Feeds on the Success of Capitalism—but it Should Not Be Confused With Capitalism Itself

It was in a high school English class where I first learned just how distorted the centuries-long debate over capitalism had become. While lecturing on Joseph Conrad’s classic novella, Heart of Darkness, my teacher, a cantankerous man whose dogmatic progressivism made classroom discussions more than a little uncomfortable, claimed that the brutal effects of colonialism described in the book were caused by “capitalism.”

Yes, I thought in my sarcastic voice, nothing could encapsulate the free market better than a government-led expedition to expropriate property from its rightful owners and transfer it to taxpayer-subsidized businesses.

Of course, my teacher was simply following in the footsteps of many others who unfortunately conflate what is often called “crony capitalism” with capitalism proper. While the latter system respects the private property of individuals who buy and sell freely in an unbridled market, the former gives special privileges to certain individuals and corporations, usually to the detriment of everyone else. It is this system which gave rise to the cruel and pitiless colonization of Africa in the 19th century.

To the extent that businesses stop engaging in peaceful and voluntary transactions and instead use state-sponsored coercion to profit from the exploitation of the poor and helpless, it cannot appropriately be called “capitalism.” Indeed, it is often indistinguishable from historical forms of feudalism, fascism, and socialism.  

That such a simple category error should be made by a layman is disappointing, though not surprising. That it is made by a professional economist like Yanis Varoufakis of the University of Athens reflects just how deeply the confusion runs. In a recent article excerpted from his recently published book, Varoufakis provides us with perhaps the most laughably simplistic caricature of capitalism to date.

Stop Blaming Capitalism

Much like my former English teacher, Varoufakis seems to define capitalism as a symbiotic relationship between government and greedy businessmen who use the coercive power of the State to advance their own interests. To demonstrate that it is this type of capitalism that has dominated Western society in recent centuries, he asks that we “go back to the beginning of market societies for a moment—to the time when the serfs were being kicked off their ancestral lands.”

Varoufakis’ account of the end of feudalism and its replacement by capitalism is dubious, to say the least.

Varoufakis recounts how kings and their armies put down peasant rebellions and forcibly removed them from their land at the behest of the new capitalist class, thus inaugurating a new social order in which the poor were relegated to the slums of big cities. “And how do you think the new order, underpinning market society, was maintained?” Varoufakis asks. “To put it simply, private wealth was built and then maintained on the back of state-sponsored violence.”

Varoufakis’ account of the end of feudalism and its replacement by capitalism is dubious, to say the least. There are many reasons why the feudal system collapsed: war, political upheaval, and a general increase in trade, all happening over the course of centuries.

It is true of course that aristocrats in England evicted serfs from their land, often with the assistance of the state; but this was not a cause of capitalism, but rather a consequence of capitalism’s development, as dynamic market forces made it less advantageous to maintain a system of serfdom. It was not by the power of the landed classes that capitalism evolved; it is simply that capitalism provided new opportunities for the politically connected cronies to corrupt an already-corrupt political system.

What the Critics Fail to Understand

It is this vital point that many critics of the free market fail to understand. They argue that the wealthy have and always will use the power of the state to their own advantage and therefore capitalism is inherently corrupt and must be abolished.

They are attempting to throw the baby out with the bathwater. Indeed, cronyism existed before capitalism and, once capitalism developed, cronyism fed on its successes, just as it does today. And it is only by the introduction of more capitalism, markets free of all corruptible interference, that cronyism will be diminished.