The Magazine

The Crony Capital

Capitalism, Washington, D.C., style.

Jun 23, 2014, Vol. 19, No. 39 • By JIM DEMINT and MIKE NEEDHAM
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Five and a half years into the Obama era, a healthy conservative movement would be well positioned to highlight the link between big government and corporate cronyism. President Obama’s stimulus package, supposedly passed to address unemployment, functioned primarily to line the pockets of well-connected unions and firms like Solyndra rather than to build a foundation for a broad-based recovery. Obamacare, professedly designed to reduce costs, has served instead to increase premiums, limit choice, and guarantee insurers a steady stream of revenue. The Dodd-Frank reform, billed as a measure that would protect consumers from future financial collapses, has only exacerbated the problem of too-big-to-fail, and Wall Street profits have soared in subsequent years. Corporate friends of the Obama administration and the Democratic party have done quite well in the Obama era, even as the economy has stagnated. Being well-connected does wonders.

There’s nothing wrong with soaring profits, as long as they don’t come at the expense of the public weal. Irving Kristol once observed that big business “straddles, uncomfortably and uncertainly, both the private and public sectors of our ‘mixed economy.’ ” The discomfort is disappearing. In the Obama era, big business seems to prefer sure profits guaranteed by government to the risks of competition.

Unfortunately, because many voters still perceive Republicans as pro-business rather than pro-market, the party is poorly positioned to articulate this critique. Congressional leadership’s obsession of late with amnesty for illegal immigrants—a priority for big business that remains anathema to Main Street—has done the conservative movement no favors in this regard. Perceptions can change, but only if political leaders claiming the mantle of Reagan make some difficult decisions. Congressional leaders have numerous opportunities to break with the politics of crony capitalism this year, but only if they are willing to upset powerful corporate interests in the process.

Consider the Export-Import Bank, up for congressional reauthorization this year. A New Deal program created to make loans to the Soviet Union, it has been used for the last 70 years to make loan guarantees that help some American exporters compete in foreign markets. The operative word here is “some.” Only 2 percent of American exports receive taxpayer-backed guarantees. In 2012, one corporation, Boeing, took 80 percent of the guarantees—$12.2 billion. Conservatives seeking to draw a contrast with the left would allow the bank to expire and leave the defense of cronyism and corporate welfare to the opposition. They must be ready, however, for backlash from its beneficiaries.

The same is true of the broken “tax extender” process. Each year, Congress extends a block of short-term tax provisions in ostensibly temporary legislation. Included are minor, obscure tax breaks—tax credits for railroad track maintenance and mine rescue team training, for example—as well as major provisions, such as the research and development tax credit. Because the extenders tend to be considered as a group rather than separately, many schemes that would never survive individual scrutiny are propelled on the popularity of bigger provisions with larger constituencies. Like the now-dead earmarks, extenders are a way of doing business that encourages favor-trading and rent-seeking. Unsurprisingly, the annual extender package attracts more than its fair share of attention from lobbyists and other influence peddlers. Conservatives should recognize such processes as detrimental to the long-term interests of our movement and make an ultimatum: Congress allows each extender to rise or fall on its own merits through individual votes or lets the entire package die.

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