The Prevalence of Crony Capitalism

Yaron Brook, President and CEO Ayn Rand Institute, was the Libertarian Home Benevolent Laissez-Faire conference keynote speaker. He is a passionate and most engaging speaker. It was a delight to listen to him.

His main thrust was we should not care about income (I think that also means wealth) inequality.
I well remember Margaret Thatcher trying (badly) to explain it at Prime Minister’s Questions some 26 years ago. She was using her hands and fingers to display higher income and wealth for all, even if some were gaining more than others. The Socialists would rather much less for those at the top, so the bottom would get more. Of course the reality is (look at any Socialist state anywhere, anytime eg Venezuela, N Korea, Soviet Union, China, France, UK, USA etc) and what you get is a few at the very top getting richer and richer, and a falling middle class and an impoverishing poor.

And Mr Brook is absolutely correct. In a free market the rich may (and do) get richer but so does everyone else… if they take advantage of the opportunities of free markets. Those who sit watching Jeremy Kyle will get what they get ie not a lot.

The question from the floor (well, me) arose: But we don’t have free markets!? And the response was the top 400 are enormously rich because, like Buffett, Gates and Walton, they are / were geniuses and hugely successful entrepreneurs and they made wealth because they provided something that everyone else wanted or successfully won due to the inefficiencies of the financial system etc.

Well, fine I said. But – in UK terms – the next 900, of the top 1000, are there because of cronyism i.e. banking (and hedge funds) and property.

To which Mr Brook responded with the hedge funds and markets inefficiencies view. They don’t I tried to tell everyone. Largely, they simply go with the flow and lever up. Without cronyism – bailing out banks, QE, ZIRP, Help To Buy etc etc they wouldn’t be able to do that.

Astoundingly, as I recall it, he said or suggested there is no cronyism. I see on Twitter he denies that. The recording will confirm or correct me.

Eventually, he relented and acceded that perhaps 20-30% of folk make money from cronyism.
Now, it is not the point what the percentage is. (It’s much higher in my view in the short term.) But it took a concerted effort on my part to get him to say even THAT. Why does it take a concerted effort from a Libertarian, who is one of the strongest proponents of free markets in the UK, to get the President and CEO of the Ayn Rand Institute to publicly accept there is any cronyism? I can’t fathom it. I would love to hear his logic.

I tell you, in debate with the likes of Galloway, Mr Brook’s argument would be demolished by such a series of mis-statements and the issues he puts forward would be lost to the audience.
Free marketers have it hard enough without such an eminent individual – on our side – potentially making it harder by swatting away obvious realities.

This piece is meant to be constructive. Some or many will see it differently. As Mr Brook might say “That’s your prerogative” and I would 100% agree to that!

Jonathan Davis is a Chartered Financial Planner, an economist and a wealth manager. He is also the presenter of The Booms and Busts Show on Download the free app.
The show is about markets, free markets, capitalism and libertarianism – not necessarily in that order. Live Mondays 2-3pm and 24/7 on the podcast.

LATER: the video, already which post-dated the words, has been amended to include the full back-and forth with Jonathan and Yaron.