The new age of crony capitalism
(1) AS The regime of Viktor Yanukovych collapsed in
Ukraine, protesters against it could be found outside One Hyde Park, a luxury
development in west London. (2) Their
target was Rinat Akhmetov, Ukraine’s richest man and a backer of the old
regime. “Discipline your pet”, they chanted.
(3) Ukraine’s troubled state
has long been dominated by its oligarchs. (4) But across the emerging world the relationship between politics
and business has become fraught. (5) India’s election in April and May
will in part be a plebiscite on a decade of crony capitalism. Turkey’s prime minister is engulfed by
scandals involving construction firms—millions of Turks have clicked on YouTube
recordings that purport to incriminate him. On March 5th China’s president, Xi
Jinping, vowed to act “without mercy” against corruption in an effort to
placate public anger.(6) Last year
182,000 officials were punished for disciplinary violations, an increase of
40,000 over 2011
As in America at the turn of the 20th century, a new
middle class is flexing its muscles, this time on a global scale. People want
politicians who don’t line their pockets, and tycoons who compete without
favours.(7) A revolution
to save capitalism from the capitalists is under way.
The kind of rents estate agents can only
dream of
“Rent-seeking” is what economists call a special type of
money-making: the sort made possible by political connections. This can range
from outright graft to a lack of competition, poor regulation and the transfer
of public assets to firms at bargain prices. Well-placed people have made their
fortunes this way ever since rulers had enough power to issue profitable
licences, permits and contracts to their cronies.(8) In America, this system
reached its apogee in the late 19th century, and a long and partially
successful struggle against robber barons ensued.(9) Antitrust
rules broke monopolies such as John D. Rockefeller’s Standard Oil. The flow of
bribes to senators shrank.
In the emerging world, the past quarter-century has been
great for rent-seekers.(10) Soaring property prices have enriched developers
who rely on approvals for projects. (11) The commodities boom has inflated the value
of oilfields and mines, which are invariably intertwined with the state. Some privatisations have let tycoons milk monopolies or get assets
cheaply. The links between politics and wealth are plainly visible in China,
where a third of billionaires are party members.
Capitalism based on rent-seeking is not just
unfair, but also bad for long-term growth. As our briefing on India explains
(see article),
resources are misallocated: crummy roads are often the work of crony firms.
Competition is repressed: Mexicans pay too much for their phones. Dynamic new
firms are stifled by better-connected incumbents.(12) And if linked to the financing of politics,
rent-heavy capitalism sets a tone at the top that can let petty graft flourish. When ministers are on the take, why
shouldn’t underpaid junior officials be?
(13) The Economist has built an
index to gauge the extent of crony capitalism across countries and over time
(see article). It identifies sectors which are particularly dependent on
government—such as mining, oil and gas, banking and casinos—and tracks the
wealth of billionaires (based on a ranking by Forbes) in those
sectors relative to the size of the economy.(14) It does not purport to establish that
particular countries are particularly corrupt, but shows the scale of fortunes
being created in economic sectors that are most susceptible to cronyism.
(15) Rich countries score comparatively well, but that
is no reason for complacency. The bailing out of banks has involved the
transfer of a great deal of wealth to financiers; lobbyists have too much
influence, especially in America (see article); today’s internet entrepreneurs could yet become
tomorrow’s monopolists.
The larger problem, though, lies in the emerging world, where billionaires’
wealth in rent-heavy sectors relative to GDP is more than twice as high as in
the rich world. Ukraine and Russia score particularly badly—many privatisations
favoured insiders. Asia’s boom has enriched tycoons in rent-seeking sectors.
Wanted: emerging-market Roosevelts
Yet this may be a high-water mark for rent-seekers, for
three reasons. First, rules are ignored less freely than they used to be. (16) Governments seeking to make their countries rich and keep people
happy know they need to make markets work better and bolster the institutions
that regulate them. Brazil, Hong Kong and India have beefed up
their antitrust regulators. Mexico’s president, Enrique Peña Nieto, wants to
break its telecoms and media cartels. China is keen to tackle its state-owned
fiefs.
(17) Second,
the financial incentives for businesses may be changing. The share of billionaire wealth from rent-rich industries in emerging
markets is now falling, from a peak of 76% in 2008 to 58% today. This is partly
a natural progression. As economies get richer, infrastructure and commodities
become less dominant. Between 1900 and 1930 new fortunes in America were built
not in railways and oil but in retailing and cars. In China today the big money
is made from the internet, not building heavy industrial plants with subsidised
loans on land secured through party connections. But this also reflects the wariness of investors: in India, after a decade
of epic corruption, industrialists in open and innovative sectors such as
technology and pharmaceuticals are back in the ascendant.
The last reason for optimism is that the incentives for
politicians have changed, too. Growth has slowed sharply, making reforms that
open the economy vital. (18) Countries
with governments that are reforming and trying to tackle vested interests. (19) Such as
Mexico, have been better insulated from the jitters in the financial markets.
There is much more to be done.(20) Governments need to be more assiduous in regulating monopolies,
in promoting competition, in ensuring that public tenders and asset sales are
transparent and in prosecuting bribe-takers. The boom that created a new
class of tycoon has also created its nemesis, a new, educated, urban, tax pay
middle class that is pushed for change. That is something autocrats and elected
leaders ignore at their peril.
Tenses
1. Simple past tense
Subject + past
participle + Object
2. Simple past tense
Subject + was + Verb 1 +
Object
3.
Simple perfect continuous tense
Subject + has + been + past participle + object
4.
Simple present tense
Subject + present participle + object
5. Simple future tense
Subject + will + verb
1 + object
6.
Simple past continuous
Subject + were + verb 2 + object
7.
Simple present tense
Subject + verb 1 + object
8. Simple past tense
Subject + verb 2 +
object
9.
Simple present tense
Subject + verb 1 + object
10. Simple present perfect
Subject + have + verb
2 + object
11. Simple present perfect
Subject + verb 1 + -ed
+ object
12. Simple past tense
Subject + verb 2 +
object
13. Simple present perfect
Subject + has + verb 1
+ object
14. Simple
present tense
Subject + does not + verb 1 + object
15. Simple present perfect
Subject + has + verb 2
+ have + object
16. Simple
present tense
Subject + verb 1 + -ing + object
17. Simple
present tense
Subject + object + present participles
18. Simple
present continuous tense
Subject + are + present participles + object
19. Simple
present perfect continuous tense
Subject + have + been + past participle + object
20. Simple
present continuous tense
Subject + to be + present participles + object
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