‘Crony’ Capitalism: Capitalism’s logical conclusion.

It is often claimed by advocates of free market capitalism that a distinction exists between a pure, unfettered, deregulated from of capitalism and the present — day nepotistic form which involves collusion between large corporations and the state. This argument typically arises when people on the left criticise the capitalist mode of production for accumulating capital and power in the hands of fewer and fewer large corporations, who often rely on State power to secure their positions in the market, precluding competition and inflicting immeasurable damage on the lives of ordinary people and oftentimes, the environment as well. This short piece will attempt to refute the contention that such a distinction exists, arguing instead that it is the internal logic of capitalism itself which creates this collusion. I intend to focus on the historical reliance of corporations on the State to protect their private property rights, such as the reliance of joint — stock companies on the British State during the mercantilist era, protecting their monopolies on production in the colonies. It is also imperative to analyse how the law of production for profit necessitates the agglomeration of small business into larger business, which then seek state collusion.

Capitalism, since its inception, has relied on State power to protect and engender private property rights. Although there is a clear difference between mercantilist capitalism which viewed economic prosperity as a zero sum game and shunned specialisation and free trade, and the iterations of capitalism which succeeded it, the central tenets of private ownership of the productive forces and the exchange of goods for profit were entrenched by this time as nations competed for a share of the world’s wealth. Britain’s mercantilist era involved the Crown establishing monopolies on trade with North American and West Indian colonies, relying on a reciprocal guarantee from private interests, using revenue which came from commodities produced in the colonies to fight wars. A quintessential example of this is the 1660 Navigation Acts. At the time, Britain’s trade had suffered in wars against the Spanish and the Dutch, and in order to fight wars and prevent any one country from dominating the Continent, revenue from tea, sugar, tobacco and other commodities was required in lieu of efficient tax systems at home. This did not only take place in Britain, as in the Dutch Republic, where the VoC laid the foundations of European imperialism in Asia, Jan Pieterszoon — Coen’s efforts to control the prices and quantities of nutmeg in the Bandanese islands produced a native revolt in the early 17th Century. The repercussions were immense, as in 1621, nearly all of the natives were wiped out when Coen ordered his soldiers to raze Bandanese villages to the ground, during which an approximated 2,500 natives died.

There is no enterprise which better encapsulates the symbiotic development of the State and the capitalist mode of production than the East India Company, whose history gives us stark warnings if read in the context of the bank bailouts of 2008. During the heyday of the British Empire, the Company sought to break into South and East Asian markets following the success of the Dutch and the Portuguese. The Company became racked with debts after a famine in Bengal in 1770 led to shortfalls in expected land revenues. In 1772, the Company appealed to the Bank of England for a loan of £400,000. Nearly a quarter of MPs held company stock at this time, meaning that the interests of the State and major corporations were again intertwined, as the need to secure a monopoly on commodities in not only India, to later sell opium to China as well, became a major foreign policy objective of the British government. Like the banks in 2008, The East India Company was considered ‘too big to fail’. Edmund Burke, who remains a seminal figure in the history of British conservatism, argued for the impeachment of the Company’s corrupt governor — general Warren Hastings, on the basis that the Company’s debts would eventually bring down the country. It is clear from examining this case study that a “pure” and unfettered capitalism, fervently eulogised by the likes of Tucker Carlson in the U.S and Daniel Hannan in Britain, is not only non — existent in the present day but has never existed. The idea that fair and just competition, underpinned by a Christian morality which emphasises the familiar, the particular and the local can coexist with the drive to make profits is demonstrably an absurd and ahistorical proposition.

Furthermore, the argument that “crony capitalism” and genuine capitalism are distinct overlooks the central premise of production and competition under a capitalistic framework: the profit motive. If any company can gain more market share, and a chance to make more profit than their competitors they will do so, attempting to minimise their costs of production through economies of scale. It is by this process that small businesses become bigger businesses, and that the so — called ‘Crony’ Capitalism decried by the modern Right, comes into being. In order to remain competitive, enterprises invest in new, labour — saving technologies which drive down costs of production, expanding their businesses through mergers and acquisition takeovers. In an article published in 2018, The Economist calculated that over the past decade, 55% of the 250 main industries in Britain have become more concentrated, with the 4 largest firms accounting for a bigger share of revenue than ever before. Over the past 20 years, Britain has seen around £5 trillion worth of mergers and acquisitions in domestic firms. The extent of the malign influence of mergers on the “innovation” and “competition” which is supposedly such a benefit of free — market capitalism can best be seen in Japan, where high — profile mergers in 1934 left 96% of pig iron production and over 50% of steel production in the hands of a single company. This is not “cronyism”. This is the right wing libertarian fantasy of competition coming into contact with its dialectical antithesis: the causal link between production on a high scale, and high profits.

Once businesses have established themselves as the primary competitor in a market, it is only logical that they should seek to use the apparatus of the State to their own advantage. The establishment of patents to prevent competitors from using the same technologies as the bigger companies is a popular tool under capitalism. The bigger businesses have the money and power at their disposal to hire better lawyers, and are therefore nearly impossible to defeat. In February 2011, for instance, oil companies BP and DuPont took a rival to court and won, alleging the infringement of patented biofuels that might have introduced innovation through the use of cleaner fuels. In August 2012, Samsung was ordered to pay Apple over $1 billion in damages due to patent infringements. These companies often refuse to invest in the technologies, such as 3D printing, which would actually improve scientific and technological innovation, because they involve a higher risk, and consequently less profit, than investing in areas where the majority of demand exists. Moreover, the monopolisation of new technology by larger firms prevents smaller firms from gaining access to methods of improving the productive process, as larger firms squander opportunities to innovate. They prefer to waste money on petty squabbles over patents in the interest of short — term, pecuniary gains, therefore stifling the innovation which they claim to create.

The current state of the U.S. healthcare system, in which the prices of drugs are rigged by patents to the advantage of major pharmaceutical companies over ordinary consumers, is a typical example of the pecuniary logic of capitalist accumulation in practice. Between 2012 and 2016, pharmaceutical company AbbVie prevented competitors from making the drug Hamira, increasing its price by 18% and extending its monopoly until 2023. The 12 top — selling drugs in America average 125 patent applications per drug, and since 2012, the prices of 11 of these have gone up by an average of 80%. This shows that the legal system and state apparatus are friendly to companies who have the means at their disposal to attract them.

Rather than a mutation of an otherwise just, fair capitalist system, ‘Crony’ capitalism is the logical conclusion of an economic system which puts profits above the needs of people. Historically, the State protected private property rights and the monopolies of large corporations during the mercantilist era, safeguarding the interests of major trading companies to maintain a steady source of revenue for fighting wars. In the modern era, little has changed, as larger firms gain advantages over smaller firms by soliciting the help of the State to produce on a larger scale, driving down costs and eliminating competitors. Whether this is through gaining patent rights and artificially raising prices, or engaging in legal battles to monopolise certain products or technologies and prevent any improvement for consumers, large corporations have always recognised that in the race to make as much profit as possible, the State is not an enemy of capitalism, but a friend and an enabler. The solution, therefore, is not to rail against ‘Crony’ capitalism but to acknowledge nucleus of the problem: that production for profit inevitably creates these unethical and undesirable consequences. The solution is the establishment of new property relations in place of the old, whereby production meets the needs of people, not those of profit.