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Noah Smith

Capitalism for Cronies or the Public Good?

One form of government investment boosts growth; the other hurts.
Can you spot the insider deal?

Can you spot the insider deal?

Photographer: Philippe Desmazes/AFP/Getty Images

In the past couple of weeks, I wrote one post arguing for more government-driven angel investing and another suggesting that the U.S. consider a new export promotion strategy. Both of these posts received considerable pushback from people on Twitter and elsewhere, who were very upset about the idea of the government helping certain companies at the expense of others. This is part of a general antipathy toward what some call corporatism, or crony capitalism. A number of conservative thinkers, such as the American Enterprise Institute’s T.P. Carney and James Pethokoukis, have made this a cause celebre. 

Now, crony capitalism is a bad thing, and I’ve railed against it in the context of Japan. When well-connected companies are able to use the government as a tool to protect themselves from competition, it’s good for those companies but bad for the economy as a whole. In the U.S. there is too much of this as well.