The Case Against Cronies: Libertarians Must Stand Up to Corporate Greed

It's time for a free-market corporate social responsibility. Conservatives who rail against government hand-outs should also blast companies who seek shelter from Washington.
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The Republican attack on President Obama's economic policy has changed subtly, but significantly, in the last three years. In 2009, he was allegedly a "socialist" and a "Marxist" who lusted for government control of the entire economy. But lately, that has given way to more nuanced charges of "crony capitalism" -- of giving special, friendly treatment to certain companies and industries, or allowing powerful corporations to essentially write the laws, themselves.

Republicans shouted about Obama's green energy handouts and industry bailouts. Mitt Romney assailed him for picking winners and losers. "Free enterprise works," Romney said in early 2012. "Crony capitalism does not." The anti-cronies expanded their focus beyond the White House, voting out government officials seen as cozying up to businesses, like Sen. Bob Bennett of Utah and Rep. Bob Ingliss (a.k.a.: "Bailout Bob").

Voters despise government officials who get in bed with corporations. But what about corporations who cozy up to government? Are companies who use cronyism to grow their profit acting unethically?

The question makes some free-marketeers uneasy. After all, we not only tolerate the fierce pursuit of profit, but also we defend it against taxes and heavy-handed regulation. Milton Friedman famously said, "The social responsibility of business is to increase its profits."

But in the age of crony capitalism, libertarians must declare that some means of pursuing profit are immoral and call on executives to reject them. This would create a positive case for capitalism -- arguing that the pursuit of profit, in the context of fair and open competition, helps the whole society. The new corporate social responsibility, redefined for libertarians, must stand athwart crony corporatism yelling "stop."

How Cozy Are Big Business and Big Government?
Naturally, all economic policies will help some interests and hurt others. Just because a company profits from a policy doesn't make it "crony capitalism." But when lawmakers go along with lobbyists' requests, they are often subordinating the public interest to private interests -- or at least showing more concern about the fate of the well-connected than the fate of the masses.

If you regularly read Reason magazine or receive Club for Growth emails, you're pretty familiar with the litany of corporate welfare and crony capitalism. In case you don't, here's a quick primer of corporate-government collusion since George W. Bush's second term.

The 2005 and 2007 energy bills required drivers to buy ethanol, created a government loan-guarantee program for private sector green-energy projects, and effectively outlawed the traditional incandescent light bulb. Ethanol and the green-energy finance programs are pretty naked corporate welfare. General Electric and the light-bulb industry lobby supported the light-bulb law, which forces consumers to buy higher-profit-margin high-tech bulbs.

Then, 2008 saw an avalanche of corporate bailouts: Bear Stearns, AIG, Fannie Mae and Freddie Mac. Then the TARP bailed out all of Wall Street, and later General Motors and Chrysler.

Obama came to power in 2009 and signed an $800 billion stimulus bill supported by the Chamber of Commerce and loaded with goodies for the likes of Google and Solyndra. Obama pushed cap-and-trade with the support of the U.S. Climate Action Partnership, a corporate coalition led by GE, which had set up a business to create and trade greenhouse-gas credits.

In June 2009, Obama signed the Family Smoking Prevention and Tobacco Control Act, a regulatory measure that Philip Morris supported and reportedly helped write -- smaller competitors called it the "Marlboro Monopoly Act." That same month, Wal-Mart, the country's largest private-sector employer, publicly endorsed the employer mandate in health insurance that became part of Obamacare. The drug lobby wrote significant parts of Obamacare, and the hospital lobby liked the bill enough to file an amicus curiae brief with the Court defending the law from its challenge by states and the small business lobby.

Boeing and the Chamber of Commerce launched a full-court lobbying push in 2011 to save and expand the Export-Import Bank, the government agency Obama loves using to subsidize U.S. Exports -- including lots of Boeing jets. In a lesser-known case of regulatory profiteering, Obama hired H&R Block's CEO to a top position at the IRS, where he crafted new regulations on tax preparers -- rules which H&R Block supported and small tax preparers sued to overturn.

There are dozens of examples in recent years that fit a pattern worrisome to free-marketeers: big business pursuing profit by lobbying for more spending and stricter regulations. So what should a defender of capitalism do about it?

Name and Shame
Tom Borelli spent much of last decade trying to steer companies away from big government. He co-founded the Free Enterprise Action Fund, a mutual fund that bought stocks in companies for the sake of filing shareholder motions. The fund has typically targeted corporate execs who embraced big government policies that would reduce profits, such as members of the U.S. Climate Action Partnership supporting federal climate legislation that would raise taxes on energy companies.

But lately, Borelli has targeted companies who are cozying up to government to increase their profits -- such as Boeing designing export legislation that improves their lot and tax laws that squeeze out competition for H&R Block.

When the Obama administration issued new IRS rules in early 2010, analysts at UBS said the regulations would "help Block by ... add[ing] barriers to entry (or continuation) for small preparers, [and] provid[ing] revenue as Block may sell their continuing education and competency tests to others."

It is these arrangements -- in which the industry loses, but one company wins, or a few big companies win -- that free-marketeers should pay more attention to.

While Borelli's first trigger for a complaint was an executive selling out his shareholders, Borelli's second trigger is far loftier. It is, in his own words: "Is this ultimately good for the free market? Is this ultimately good for liberty?"

Borelli has given up the shareholder suits -- executives have too much power to quash them -- but he's still trying to pry corporations away from government. His new tactic: "Shaming." This can move businesses, because they care about their "billion-dollar brands being tarnished," Borelli argues.

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Presented by

Timothy P. Carney

Timothy Carney is senior political columnist at The Washington Examiner and director of the American Enterprise Institute's Culture of Competition Initiative.

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