It is easy to see how almost all the European Union’s Member States, as well as other western advanced economies, are facing greater social inequalities, the spread of precarious/poorly-paid job conditions, greater tax burdens on households/SMEs, stagnation or slow economic growth together with high unemployment rates and cuts in core government functions. All these factors are leading to an impoverishment of the middle classes. From this picture arises, at least, one question: Is this situation a harsh consequence of a global economic crisis, or, on the contrary, the crisis is a response to a particular type of socio-economic paradigm—commonly known as “the system”? This article, divided in two parts, aims to answer that question: part 1, concentrates on negative socio-economic effects of crony capitalism, and part 2, deals with the relationship between crony capitalism and the global neoliberalism paradigm now reigning in most countries.Crony capitalism, which can be defined as a set of economic practices and modes of organisation whereby success depends of the close relationships, often even personal, between business people and political figures, can be identified as the core of a flawed socio-economic system, mainly based on the characteristics that will be listed below, having an overall negative impact on economic growth as well as wealth distribution, and ultimately generating a high level of systemic poverty.
Strong links between politics and wealth — rent-seeking. In essence, business people use political connections to achieve wealth. Rent-seeking is a source of corrupt practice that distorts free market — there is no creation of wealth nor entrepreneurial spirit is necessary, as entrepreneurs/enterprises obtain financial gains, without any risk, from political lobbying.
Financial speculations — e.g. commodities and property prices are conveniently inflated. Lack of competitiveness — monopolies and oligopolies. The current economic globalisation is plagued of enormous asymmetries—multinational companies have an oligopolistic power in most markets—. Poor regulations (or appropriated legal vacuums) allow governments to grant profitable contracts to their cronies.
Privatisation policies — well-placed people/entrepreneurs/firms gain the property on public assets (sometimes at bargain prices) stifling fair competition. These privatisations worsen the efficiency of the service, contracts are not awarded to the best-qualified applicants, but to those who are closer to political power—also making it more expensive as bribes and increase the cost and ultimately the price of a service. As it is well known, the private sector has the goal of profit maximization and cost reduction. However, such profit-driven approach should not be applied to the management of the key functions of the state, because doing so only favours access to public services from people with sufficient economic capacity to afford them, leaving all others behind.
Lobbyists — e.g. privatisation of public corporations (roads, ports, airports, oil companies…), transfer of wealth to financiers, enterprises/entrepreneurs arising from political clientelism…, etc.; governments can enact laws to benefit incumbents (their friends and contributors) and decry potential insiders…