Crony capitalism is a condition in which participants in an economy rooted in capitalism earn and manipulate favor with one or more government entities. The favor is generally not based on quality or merit; instead the relationship is normally based on political posturing that results in both the capitalists in business and the government officials determine such a relationship would be mutually advantageous. In the worst examples, this variant of capitalism creates a situation where taxes collected from citizens are used to purchase overpriced goods and services from favored suppliers, who in turn influence the creation and application of laws impacting business operations.
The basic function of crony capitalism is similar to that of cronyism. With cronyism, two or more businesses effectively form a working relationship that closes the marketplace to competing entities. Often, the business climate is made so unpleasant that newer companies are unable to connect with the target market and are effectively run out of business. With crony capitalism, this same set of circumstances also exists, but adds the factor of the manipulation of a government agency to maintain what amounts to a shared monopoly of the marketplace.
In general, the businessmen and businesswomen who function as cronies within crony capitalism relationships are much more concerned with personal interests that with the general health of the economy or the welfare of consumers. They may seek to use their government ties to initiate new tax laws that will drive competitors out of business while at the same time seeking tax concessions that help to reduce their overall tax burden. Favored capitalists may also seek special privileges when it comes to mergers, securing government contracts, and obtaining permits on localized operations anywhere within the nation.
While referred to as crony capitalism, the concept effectively negates the basic tenets of capitalism. By attempting to control the marketplace, businesspeople who engage in this sort of activity prevent the growth of free enterprise and can sometimes create circumstances that have profoundly negative consequences for consumers and the economy in general. In many countries around the world, efforts to pass legislation that limits the practice of cronyism and crony capitalism have provided some success in containing the phenomenon.
However, crony capitalists can often identity and implement ways to circumvent the restrictions of laws aimed at limiting the incidence of crony capitalism. In some cases, they are able to manipulate the laws as a means of gaining an unfair advantage at the expense of another company or sector of the population. For this reason, the battle to minimize or eliminate crony capitalism from any capitalistic economy remains a difficult task.