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Crony capitalism, sometimes also called simply cronyism, is a pejorative term used in political discourse to describe a situation in which profit from a close relationship with state power, either through an anti-competitive regulatory environment, direct government largesse, or corruption. (2025). 9781137582874, Palgrave Macmillan. ISBN 9781137582874 Examples given for crony capitalism include obtainment of permits, government grants, , or other undue influence from businesses over the state's deployment of public goods, for example, mining concessions for primary commodities or contracts for public works. In other words, it is used to describe a situation where businesses thrive not as a result of free enterprise, but rather collusion between a business class and the political class.
Wealth is then accumulated not merely by making a profit in the market, but through profiteering by Rent-seeking using this monopoly or oligopoly. Entrepreneurship and innovative practices that seek to reward risk are stifled since the value-added is little by crony businesses, as hardly anything of significant value is created by them, with transactions taking the form of trading. Crony capitalism spills over into the government, the politics, and the media, The Discovery that Business Corrupts Politics: A Reappraisal of the Origins of Progressivism, by McCormick, Richard. 1981. The American Historical Review, Vol. 86, No. 2 (Apr. 1981), pp. 247–74. when this nexus distorts the economy and affects society to an extent it corrupts public-serving economic, political, and social ideals.
The term crony capitalism made a significant impact in the public as an explanation of the Asian financial crisis.
It is also used to describe governmental decisions favoring cronies of governmental officials.
The term is used largely interchangeably with the related term corporate welfare, although the latter is by definition specific to corporations.
The term crony capitalism was initially applied to states involved in the 1997 Asian financial crisis such as Indonesia, South Korea and Thailand. In these cases, the term was used to point out how family members of the ruling leaders became extremely wealthy with no non-political justification. Southeast Asian nations, such as Hong Kong and Malaysia, still score very poorly in rankings measuring this. It was also used in this context as part of a broader liberal critique of economic dirigisme. The term has also been applied to the system of oligarchs in Russia. Other states to which the term has been applied include India, in particular the system after the 1990s liberalization, whereby land and other resources were given at throwaway prices in the name of public-private partnerships, the more recent coal-gate scam and cheap allocation of land and resources to Adani SEZ under the Congress and BJP governments. Similar references to crony capitalism have been made to other countries such as Argentina and Greece. Wu Jinglian, one of China's leading economists and a longtime advocate of its transition to free markets, says that it faces two starkly contrasting futures, namely a market economy under the rule of law or crony capitalism. A dozen years later, prominent political scientist Minxin Pei concluded that the latter course had become deeply embedded in China. The anti-corruption campaign under Xi Jinping (2012–) has seen more than 100,000 high- and low-ranking Chinese officials indicted and jailed.
Many prosperous nations have also had varying amounts of cronyism throughout their history, including the United Kingdom, especially in the 1600s and 1700s, the United States and Japan.
The Gramm–Leach–Bliley Act in 1999 completely removed Glass–Steagall’s separation between commercial banks and investment banks. After this repeal, commercial banks, investment banks and insurance companies combined their lobbying efforts. Critics claim this was instrumental in the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
The defense industry in the United States is often described as an example of crony capitalism in an industry. Connections with the Pentagon and lobbyists in Washington are described by critics as more important than actual competition due to the political and secretive nature of defense contracts. In the Airbus-Boeing WTO dispute, Airbus (which receives subsidy from European governments) has stated Boeing receives similar subsidies which are hidden as inefficient defense contracts and in the form of federal and tax tax breaks. Other American defense companies were put under scrutiny for no-bid contracts for the Iraq War and Hurricane Katrina related contracts purportedly due to having cronies in the Bush administration.
Gerald P. O'Driscoll, former vice president at the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac became examples of crony capitalism as government backing let Fannie and Freddie dominate mortgage underwriting, saying: "The politicians created the mortgage giants, which then returned some of the profits to the pols—sometimes directly, as campaign funds; sometimes as "contributions" to favored constituents".
Corrupt governments may favor one set of business owners who have close ties to the government over others. This may also be done with, religious, or ethnic favoritism. For instance, Alawites in Syria have a disproportionate share of power in the government and business there (Bashar al-Assad himself is an Alawite). Syrian Businessman Becomes Magnet for Anger and Dissent "Like Mr. Ezz in Egypt, he has become a symbol of how economic reforms turned crony socialism into crony capitalism, making the poor poorer and the connected rich fantastically wealthier." This can be explained by considering personal relationships as a social network. As government and business leaders try to accomplish various things, they naturally turn to other powerful people for support in their endeavors. These people form hubs in the network. In a developing country, those hubs may be very few, thus concentrating economic and political power in a small interlocking group.
Normally, this will be untenable to maintain in business as new entrants will affect the market. However, if business and government are entwined, then the government can maintain the small-hub network.
Raymond Vernon, a specialist in economics and international affairs, wrote that the Industrial Revolution began in Great Britain because they were the first to successfully limit the power of veto groups (typically cronies of those with power in government) to block innovations,Vernon (1989) writing: "Unlike most other national environments, the British environment of the early 19th century contained relatively few threats to those who improved and applied existing inventions, whether from business competitors, labor, or the government itself. In other European countries, by contrast, the merchant guilds ... were a pervasive source of veto for many centuries. This power was typically bestowed upon them by government." Vernon further stated that "a steam-powered horseless carriage produced in France in 1769 was officially suppressed." James Watt began experimenting with steam in 1763, got a patent in 1769 and began commercial production in 1775.Vernon (1989, p. 8); see also Watt steam engine and James Watt
Raghuram Rajan, former governor of the Reserve Bank of India, has said: "One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today". Tavleen Singh, columnist for The Indian Express, has disagreed. According to Singh, India's corporate success is not a product of crony capitalism, but because India is no longer under the influence of crony socialism.
Ravi Batra argues that "all official economic measures adopted since 1981 ... have devastated the middle class" and that the Occupy Wall Street movement should push for their repeal and thus end the influence of the super wealthy in the political process which he considers a manifestation of crony capitalism.
Socialist economists, such as Robin Hahnel, have criticized the term as an ideologically motivated attempt to cast what is in their view the fundamental problems of capitalism as avoidable irregularities. Socialist economists dismiss the term as an apologetic for failures of neoliberal policy and more fundamentally their perception of the weaknesses of market allocation.
Conservative commentator Ben Shapiro prefers to equate this problem with terms such as corporatocracy or corporatism, considered "a modern form of mercantilism", to emphasize that the only way to run a profitable business in such a system is to have help from corrupt government officials. Likewise, Hernando de Soto said that mercantilism "is also known as 'crony' or 'noninclusive' capitalism".
Even if the initial regulation was well-intentioned (to curb actual abuses) and even if the initial lobbying by corporations was well-intentioned (to reduce illogical regulations), the mixture of business and government stifles competition, a collusive result called regulatory capture. Burton W. Folsom Jr. distinguishes those who engage in crony capitalism—designated by him political entrepreneurs—from those who compete in the marketplace without special aid from the government, whom he calls market entrepreneurs. While market entrepreneurs such as James J. Hill, Cornelius Vanderbilt and John D. Rockefeller succeeded by producing a quality product at a competitive price, political entrepreneurs such as Edward Collins in steamships and the leaders of the Union Pacific Railroad in railroads were men who used the power of government to succeed. They tried to gain subsidies or in some way use the government to stop competitors.
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