A new paper states that government favoritism, which is often referred to as crony capitalism or corporatism, is destroying the free enterprise system. Matt Mitchell, a senior research fellow at George Mason University’s Mercatus Center, has written “The Pathology of Privilege: The Economic Consequences of Government Favoritism.”
In it, Mitchell cogently argues that privileges offered by the government to big business, in the form of bailouts, monopoly status, favorable regulations, subsidies, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts, are killing the impetus for small business owners to innovate and enter the market.
Normally, businesses in the free market expand the number of people they do business with and thus consume a greater number of products while they themselves become more specialized. Specialization, in turn, allows for more productive efficiency. But when government largesse intervenes, a business being favored will be able to set a lower price for its product, thus pricing smaller competitors out of the market.
Once the favored business doesn’t have to expend as much capital, they prosper, but consumers suffer; smaller competitors lose big-time. Once a monopoly sets in, the resulting higher price means less consumers. Monopolies have ancillary damages, too, such as less efficient production, loss of innovation, unwise risk-taking by big businesses when they know they will be rescued by the government, and less trust in businesses per se by the public.
America is fast becoming Europe; total government spending was roughly 15% of GDP. By 2010 it was 36%. Comparing our debt-ridden economy to an economically ravaged country like Spain, we see that our debt-to-GDP ratio is 103%; Spain's is 68%.
Mitchell presents a comprehensive attack on the sort of economic restructuring that is Barack Obama’s hallmark. If enough Americans are informed by his writing, we may not go down the path to socialism after all.