- - Tuesday, March 26, 2013


The issue of crony capitalism is slowly emerging as a political issue that could provide Republicans with an opening to leapfrog Democrats on the question of job creation, economic growth and the widening income gap.

It may seem counterintuitive because of the public perception created by the Citizens United case that Republicans rely much more on wealthy contributors than Democrats. But a brief examination of a few of the examples of crony capitalism may serve to dispel this perception.

The most widely discussed example at the moment is the issue of Too Big To Fail, which has received considerable recent media coverage. Although it has bipartisan roots (look, for example, at the positions of Sen. Sherrod Brown, Ohio Democrat, and at the persistent campaign being waged by Richard Fisher and his colleagues at the Dallas Fed), the TBTF issue on balance has decidedly more conservative support than liberal. As such it represents a populist Main Street versus establishment Wall Street issue, but may never become mainstream Republican because the biggest banks are such a lucrative source of campaign funding on both sides of the aisle.

At present, however, it has strong tea party support because of the average tea party supporter’s aversion to bailouts; it thus remains a potent argument for conservatives. Obamacare is another example. Last year’s Supreme Court decision has not blunted the serious fundamental problems facing health care reform - namely, its utter failure to address the issue of incentives.

The lack of incentives is the product of Obamacare’s refusal to embrace competition, which is the most powerful force available to encourage individual choice, growth and efficiency.

The failure to embrace incentives, in turn, is a product of crony capitalism - in this case, the Obama White House deal to garner multimillion dollar support for the legislation in return for protecting the big insurance companies from competition. An essential missing element of that competition - requiring consumers to have more “skin in the game” - will prove fatal to a workable system unless rescued by some form of medical savings accounts.

A third area of crony capitalism is the defense procurement system, initially identified by President Dwight D. Eisenhower as the “military industrial congressional complex” (later stripped of the “congressional” reference for political reasons). A more competitive system directed at real military strategy rather than congressional politics would save billions of dollars and provide for a better and more flexible fighting force - as would reform of the system of military medical care which rivals Obamacare in its waste.A fourth area is energy. We are all aware of the failed subsidies to electric car, battery and solar panel companies, along with the accompanying bankruptcies. What is not so well known are the regulatory subsidies for electric cars embedded in EPA regulation.

A major problem with these regulatory subsidies is the abolition of a level playing field for competing alternative fuels, which include biofuels, compressed and liquified natural gas (CNG and LNG) for light- and heavy-duty vehicles respectively, coal to liquid, and methanol (which can be made from coal or natural gas).

All of these alternatives are much cleaner and cheaper than regular gasoline. Ethanol, for example, is maligned for its alleged but nonexistent subsidies, but its pollution-reduction properties are such that it is essentially required for blending by refineries at current prices and would be used in greater volumes if the playing field were level.

Methanol is another example of a very clean, homegrown fuel that is not allowed to compete because of the tangle of crony barriers to entry. Producing methanol from coal releases a lot of CO2, but CO2 is a valuable commodity for tertiary oil recovery and possibly fracking as well. It is impossible to move a CO2 producing coal power plant to an oil field, but very easy to locate a coal-to-liquids plant near one - if the product had a fair shot at its market.

Level regulatory playing fields were mandatory in the Reagan years and should be restored.

• C. Boyden Gray has served as White House counsel, U.S. ambassador to the European Union, special envoy for Eurasian energy and special envoy for European Union affairs. “Arbitrary and Capricious” runs monthly.



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