What is “Crony Capitalism”?

What is “Crony Capitalism”?

Caroline S. Hau (Center for Southeast Asian Studies, Kyoto University)

 

The term “crony capitalism” was coined by George M. Taber, then business editor of Time magazine, to characterize the Philippine economy under strongman Ferdinand Marcos. Taber attributed the sluggish performance of the Philippines to the sweetheart deals that favored Marcos’ family and friends and the corruption that plagued the business community. “Crony capitalism,” argued Taber, was the “Philippine distortion of the capitalist system. This was not capitalism. It was a weird distortion of the free market that benefited a few and kept the masses in poverty. The cronies got richer, and the poor stayed poor” (Taber 2015; the term first appeared in his article, “A Case of Crony Capitalism” in the April 21, 1980 issue of Time).

The word “crony”—which has a long history of usage in American politics–first entered the Philippine popular lexicon through Ricardo Manapat’s 1979 pamphlet “Some are Smarter than Others” (later published as a book in 1991), an exposé of the business dealings of a number of civilians who were known to be close friends and associates of Marcos. The so-called “Octopus Gang” included, among others, Roberto Benedicto, Rodolfo Cuenca, Eduardo Cojuangco, Lucio Tan, and Ricardo Silverio, who were each assigned an economic sector—the cash-crop sector (sugar, coconut, tobacco), among them, but also manufacturing, financial services, construction—that was organized as monopolies or semimonopolies. These beneficiaries of Marcos-era favoritism attracted strong criticism from businessmen whose interests were negatively affected by the state-created monopsony and the favoritism shown to a few close associates and relatives of the president.

The raising of interest rates by the U.S. Federal Reserve Board (chaired by Paul Volcker) in 1979 saddled the crony-headed big corporations with unpaid debt, and Marcos made the decision to bail out these companies. In this context of eroding business confidence, Jaime Ongpin, a member of the opposition whose brother Robert was one of Marcos’ technocrats, wrote a letter to the Asian Wall Street Journal on June 6, 1981, calling international attention to the “avarice and incompetence” and “gross exploitation of political connections and unbridled access to government financial institutions” that he deemed responsible for deepening the economic crisis that hit the Philippines in the early 1980s.

“Crony capitalism,” then, has a negative connotation, and is commonly held up as the major cause of the spectacular failure of the Philippine attempt at state-led (authoritarian) development.  The concept of “crony capitalism” rests on the notion of plunder, on the political pathology of the kind of authoritarian rule whose sole, imputed purpose is to ensure its own survival and perpetuation, while diverting the wealth of the nation for the personal and political use of the dictator and his family.

The Philippines, with its rent-seeking elite, its “weak” public institutions (beginning with the state itself) and a bureaucracy uninsulated from the meddling of politicians and vested interests, its yawning gap between the rich and the poor, its “political culture” founded on coercion and patron-clientelism, its corruption and “cronyism,” its absence of state purposive power and elite concern for redistribution, and above all, its familism and Ferdinand and Imelda Marcos, would go on to serve as the emblematic Other against which the East Asian “developmental state”—the paragon of the East Asia Economic Miracle—was defined. Walden Bello (2004) famously characterized the Philippines as having an “anti-developmental state”.

“Crony capitalism” would, however, move beyond Philippine shores and acquire regional currency during the 1997-1998 Asian Financial Crisis, when American officials such as William Clinton, Robert Rubin and, most especially, Lawrence Summers employed the Philippine-coined terms “cronyism” and “crony capitalism” to lay the blame for the Asian crisis on the cozy collusion between government and business, particularly in Southeast Asia, an attack that could also be read as a critique of the “developmental state” itself, the hallmark of which had been the close relations and coordination between government and industry (Bello 2000; Clinton 2005; Rubin 2003). The assumption that dirigiste policies serve only to further entrench crony capitalism became the basis of calls to ditch dirigisme in favor of efficient corporate governance, transparency in government-business relations, and competition policy.

And while successful developmental states like Singapore under Lee Kuan Yew (2000; Economist 2008) have sought to maintain the current political order by invoking the specter of messy, chaotic Philippine democracy as their negative Other, they are unable to escape being tarred by the label of “crony capitalism,” as seen in the Economist’s Crony Capitalism Index (2014) ranking Hong Kong (1), Malaysia (3), and Singapore (5)—the three countries that experienced the East Asia Miracle—above the Philippines (6) in the list of countries where “politically connected businessmen are most likely to prosper.”

The term would ultimately come back to haunt the United States, which has come under (mainly internet) criticism by its own people for its own brand of crony capitalism and its dynastic political families and oligarchies.

The elasticity of the term “crony capitalism” has breached the conceptual opposition between crony capitalism and developmental states. For nearly twenty years, the paradigm of the developmental state rooted in East Asian experience had offered an alternative to dependency, world-system, and neoliberal theories. But the discourse of crony capitalism, originating from the Philippine “anti-developmental state”, proved eminently exploitable by pundits and policymakers, who seized the opportunity provided by the Asian financial crisis to call for the dismantling of the developmental state in the name of “reforms” in governance as well as further economic liberalization.

 

Works Cited

Bello, Walden. 2004. The Anti-Developmental State: The Political Economy of Permanent Crisis in the Philippines, by Walden Bello, Herbert Docena, Marissa de Guzman, and Marylou Malig. Quezon City: Department of Sociology, University of the Philippines and Focus on the Global South.

__________. 2000. “The Asian Financial Crisis: Heroes, Villains, and Accomplices.” Principled World Politics: The Challenge of Normative International Relations, ed. Paul Wapner and Lester Edwin J. Ruiz, 181-90. Lanham: Rowan and Littlefield Publishers, Inc.

Clinton, Bill. 2005. My Life, vol. 2. New York: Vintage Books.

Economist. 2014. “Planet Plutocrat.” 15 March-21 March: 54-55.

___________. 2008. “Too Much or Too Little?” 26 November. http://www.economist.com/node/126762673, accessed 19 September 2011.

Lee, Kuan Yew. 2000. From Third World to First: The Singapore Story, 1965-2000. New York: HarperCollins Publishers, Inc. New Haven: Yale University Southeast Asian Studies.

Manapat, Ricardo. 1991. Some are Smarter than Others: A History of Marcos’ Crony Capitalism. New York: Aletheia Publications.

Rubin, Robert E. 2003. In An Uncertain World: Tough Choices from Wall Street to Washington. New York: Random House

Taber, George M. 2015. “The Night I Invented Crony Capitalism,” Knowledge @ Wharton, 3 November. Internet document: http://knowledge.wharton.upenn.edu/article/the-night-i-invented-crony-capitalism/, accessed 5 January 2016.