Cronyism ‘Biggest Threat To Free Enterprise Right Now,’ Experts Say

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Peter Fricke Contributor
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Closing the Export-Import Bank is just part of the anti-cronyism agenda, experts say, predicting future fights over sugar subsidies, small business loans and regulations.

At an event on Capitol Hill Monday, conservative leaders in the fight against corporate welfare argued the need to cultivate alliances with members of both parties in order to eliminate market-distorting policies that favor certain groups over the general welfare of the country.

“Cronyism is the biggest threat to free enterprise right now,” asserted Tim Carney, a senior political columnist for The Washington Examiner and a visiting fellow at the American Enterprise Institute. “I put Ex-Im in an ‘unholy trinity’ with sugar subsidies and the ethanol mandate.” (RELATED: Agriculture Grants Subsidize Booze Production in Minnesota)

Ex-Im is currently at the forefront of the cronyism debate, with prominent Republican legislators and presidential candidates calling the bank a form of corporate welfare and working to prevent Congress from reauthorizing its charter, which expires June 30. Despite support from business groups whose members benefit from Ex-Im’s subsidized financing of American exports, the bank’s opponents have managed to create an effective roadblock in the House, according to Roll Call.

“Other countries hurt themselves when they subsidize exports,” Carney said, observing that the U.S. offers far fewer export subsidies than countries like China and Germany. “Some want us to be more like China,” he said. “I want us to be more like America.”

Asked to define the term cronyism, Heritage Foundation senior research fellow Diane Katz said, “Cronyism is privilege derived from government,” while clarifying that, “lobbying is not cronyism; campaign contributions are not cronyism.”

Veronique de Rugy, a senior research fellow at the Mercatus Center, offered that, “Cronyism is any government favors given to a firm, large or small.” Following from that premise, she said, “I would get rid entirely of the Small Business Administration,” explaining that any business venture worth subsidizing would be able to succeed independently. (RELATED: Coburn Identifies $345 Million in Corporate Subsidies)

Katz and de Rugy agreed that the next front in the war on cronyism could involve either government loan guarantees or farm subsidies, both of which they blamed for creating market distortions that hurt consumers and non-favored businesses, thereby creating a net drag on the economy.

“The farm bill is essentially cronyist in nature,” Katz claimed, pointing out that the Supreme Court had just that morning struck down a law enabling the government to seize crops without compensation in order to control the price of foodstuffs. (RELATED: SCOTUS Strikes Down Federal Power to Seize Raisins)

De Rugy agreed that the farm bill is “ripe for repeal,” but suggested loan guarantees might be the greater danger, because their cronyism is less readily apparent.

“Loan guarantees are less offensive to certain groups,” she claimed, because through the use of “fake accounting,” the government is able to make such programs appear profitable, even though they interfere with normal market processes in ways that create net costs for taxpayers.

“Companies do benefit from cronyism … I have no doubt that a beneficiary of cronyism loves it,” de Rugy freely admitted. She also pointed out, though, that, “there are many costs to taxpayers, consumers, competitors…”

“It’s great to hear someone from France channel Frederic Bastiat,” moderator Will Ruger interjected, referring to the French economist who famously identified the “broken window fallacy.”

Another possible target, recommended by Carney, is the ethanol mandate, an anti-consumer measure that primarily benefits a few farmers while masquerading as an environmental benefit.

“With the Iowa caucuses just around the corner, it’s a great opportunity to talk about that,” he said, explaining that it would be a good way for Republican candidates to back up their anti-cronyism rhetoric by taking a politically risky stand in an early primary state.

Full Disclosure: Peter Fricke was an associate at the Charles G. Koch Institute, June 2014 – April 2015.

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