Gary Becker on crony capitalism in Latin America

One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes.

Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favoured and protected positions.

These favours include monopolies over telecommunications, exclusive licenses to import different goods, and other sizeable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes.

…The excesses of cronyism have provided ammunition to parties of the left that are openly hostile to capitalism and neo-liberal policies. Yet when these parties come to power they usually do not reduce the importance of political influence but shift power to groups that support them.

…Leftist ideologies take advantage of the discontent this causes among intellectuals and the poor, and promise a redistribution of assets and better education opportunities for the poor.

Promises of redistribution have figured prominently in the speeches of Chavez, Lula, Morales, Peronists in Argentina, and Andres Manuel Lopez Obrador, former mayor of Mexico City and a leading candidate to be Mexico’s next president.

When it is discovered that left wing governments usually do not end up helping the poor very much, they tend to be voted out of office.

… The overall trend during the past several decades in practically all countries of this region has been toward more open economies with greater competition within industries, with much more reliance on private enterprise, and with a reduced role for government mandates, government-run enterprises, and cronyism.

Since these policies have provided greater benefits to all classes than the socialist policies of a Fidel Castro or a Hugo Chavez, the vast majority of people that live under such leaders will be, or in Cuba have been, disappointed by the unfulfilled promises. They are likely to come back to parties that support more market policies as long as free elections are preserved.

Gary Becker 2006

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