Ashwin Parameshwaran — Crony Capitalism Thrives In The Absence Of A Safety Net

In his book ‘The Rise And Decline Of Nations’, Mancur Olson argued that over time stable democracies will experience a progressive increase in the power and influence of special interests and crony capitalists. Olson also identified the self-preserving nature of this phenomenon. Once rent-seeking has achieved sufficient scale, “distributional coalitions have the incentive and..the power to prevent changes that would deprive them of their enlarged share of the social output”. Olson’s diagnosis was accurate on both counts. Most developed economies are currently stuck within various stages of Olsonian demosclerosis....

Macroeconomic Resilience
Crony Capitalism Thrives In The Absence Of A Safety Net
Ashwin Parameshwaran

A common feature of most crony capitalist economies is the pervasive presence of subsidies targeted at the middle class. Progressives often view middle-class subsidies as the unavoidable price required to secure widespread support for the welfare state. But in reality middle-class subsidies act as the carrot that aligns the interests of the middle class with parasitic crony capitalism. However, along with the carrot comes a very hefty stick – the absence of a safety net. 

The absence of a safety net that protects individuals against catastrophic outcomes breeds middle-class insecurity. The fear of falling through the cracks causes the middle class to support the very rent-infested programs and corporate bailouts that sustain the plutocracy. In the absence of a safety net, the middle class seeks safety in the safety of the incumbent firm that employs them. I have often described the neo-liberal era as the era of “stability for the classes and instability for the masses”. But the two are not independent. It is precisely the fragility of the masses that provides stability to the classes.

This is part and parcel of Marx's view of middle class (petite bourgeoisie) cooptation, in which the petite bourgeoisie align with the owners of capital (haute bourgeoisie) against the interests of workers (proletariat), many of whom are middle class themselves. This is of the essence of the class struggle as Marx presented it.

Why do I bring in Marx? Because until we as a society confront the demonization of anything related to "class" as Marxism, we cannot have an intelligent debate about what matters socially, politically and economically. Social scientists know this, and so does the elite. It is the interest of the elite to keep off the radar of the public and forbidden for economists. It's long past time to recognize a social taboo that serves the elite and get rid of it.

An employer-independent safety net promotes free enterprise by enabling us to dismantle of the privatised welfare state that is the lifeblood of crony capitalism. Only if we construct a safety net for individuals can we dismantle the hammock that incumbent crony capitalists in our economy currently enjoy.

This requires re-introducing class structure and economic rent into the frame. Otherwise, economics is just modeling la-la land, and political economy is propaganda.