Crony Capitalism is the Opposite of Free Market Capitalism

Market collusion among competitors usually take one of two possible forms. The simplest is an agreement among all the producers of the same commodity to countermand the free market price with a mutual agreement by all to sell at a set price.  The other way is by an agreement to limit production to a set level so that the free market price will rise by holding down supply.

These are the two principal ways market collusion can create a monopoly in a product or service.

Since the 1890s the United States has had antitrust laws making such market collusion illegal. Even if it were not illegal the free market still can play a role in this because individual parties to a price or production agreement can gain an advantage by cheating. This aspect of human nature makes all price-fixing or production-limiting agreements inherently unstable.

An example of monopolist cheating can be seen in this article from today’s (10/11/17) Wall Street Journal,  OPEC Oil Production Rose in September Despite Deal to Limit Output.

The reach of U.S. antitrust laws can sometimes extend to market collusion outside the United States if U.S. companies are party to such agreement. The OPEC Cartel exists without worry of government enforcement actions because no domestic corporation is a member of OPEC (Aramco is a Saudi corporation). Besides, all the members of OPEC are governments themselves.

The WSJ article linked above shows that even if only governments are involved in an attempt to create a monopoly the incentive of individual members to cheat still exists.

A third way is for all the producers or service providers to persuade politicians to do this for them and on their behalf.  This third way is the preferable way because if the government is in on the collusion the producers are essentially protected from civil law suits and enforcement actions under the police power of government. OPEC is a special form of what I’m calling the “third way.” It’s different only in that all of its members are governments, whereas the usual example of the third way is when the members of the cartel are all private companies being helped by politicians. The Politicians usually have their own reasons for engaging in this sort of graft, which can range from outright bribery to the simple human need to be popular and to associate with powerful people. In some cases it can just be ignorant politicians getting  suckered by the slick persuasion of lobbyists.

Examples abound of the third way, even during this era of antitrust laws, because with government’s cooperation the inherent instability of monopolies is either ameliorated and sometimes avoided completely.  The third way is the quintessential example of crony capitalism.

A glaring example of government collusion with private companies can be found in the extortionate Wyoming 12% tax on wine ordered on the internet by Wyoming residents. This tax is not only unusual and egregious, it is also Unconstitutional. Students of American History may recall that one of the main reasons America’s founding fathers arranged for the Constitutional Convention in Philadelphia in the summer of 1787 was to address the many problems that had arisen under the Articles of Confederation adopted by the 13 colonies in 1781.

One of the big things the colonies wanted to address, and prohibit in future, was the practice of some of the colonies to impose import duties on trade among them. These were called “interstate commercial depredations,” just to show you what the colonists thought of them. State levied tariffs are illegal in America under Article I, Section 10, Clause 2 of the Constitution. There is an exception holding that  Congress may give its approval to a particular state import duty. Even then, however, the state is not allowed to keep the revenue thus collected. All of that revenue must be turned over to the United States Treasury.

Clearly, Wyoming’s wine import duty should be challenged in Federal Court as being not just stupid, insulting, and egregious but unconstitutional as well.

Why does it exist? The only reason can be that it is to protect the state liquor industry from out of state competition, and is the result of lobbying efforts by that industry. Of course, the greater constituency of Wyoming voters and wine lovers has to take it in the shorts.

Another blatant example of government collusion with private industry again comes from Wyoming. In Wyoming lawyers’ fees for handling the probate of an estate are set by statute at a certain percentage of the total value of the estate. If you try to negotiate a different fee with the lawyer handling your deceased relative’s estate, the lawyer will simply say his hands are tied by the statutory mandate. Isn’t that cute?

This estate fee statute in Wyoming has to be one of the most atrocious acts of any government. The inherent instability of this particular conspiracy against the public is completely avoided in this instance by a state law mandating the lawyers are not only allowed to charge a fee based on a percentage of the estate, they are specifically required to do so.

To further show the true nature of this consider: In Colorado, it is an ethical violation for a probate lawyer to charge a fee based on a percentage of the total value of the estate. Percentage fees are deemed unreasonable because they hardly ever reflect the actual services provided by the lawyer.  A percentage fee undermines the incentive of the lawyer to diligently represent a client in a professional manner. A “reasonable fee” must be based upon the complexity of the matter, the skill and experience of the lawyer, and any other factors having a bearing on what is reasonable under the circumstances.

The Wyoming legislature several years ago adopted the Uniform Probate Code for Wyoming. The UPC greatly reduces the needless complexity of probate administration. The estate lawyers together lobbied then governor Dave Freudenthal to veto it. He did so. Governor Freudenthal was overall a very good governor, but in my view this veto to help the estate lawyers was in complete disregard for the people of Wyoming.

It didn’t surprise me, though. I grew up in Wyoming. My mother was a political junkie like me.  She knew all the politicians, their virtues and vices. She was incensed by the crony capitalism that has always existed in Wyoming. She also grew up in Wyoming. She knew all about the Wyoming Range Wars of the 1890s in which the Wyoming State Government declared war on Johnson County homesteaders to help the cattlemen. That bit of crony capitalism involved a lot more than mere market manipulation. People were murdered in that fracas.

I wish my mother were alive to read this post. She’d be on the phone to Governor Mead, I’m pretty sure.

 

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