J. Scott Applewhite/AP
General Electric CEO Jeffrey Immelt and President Obama speak at a GE plant in Schenectady, N.Y., on Jan. 21, 2011. Former Reagan administration official David Stockman, who is writing a book on the topic, calls Immelt the "poster boy for crony capitalism."
J. Scott Applewhite/AP
Crony capitalism is a term very much in vogue because of Mitt Romney's accusations that President Obama has engaged in the practice, allegedly rewarding the business interests of political supporters with federal taxpayer dollars.
That the term is being used as a cudgel by one presidential candidate against another is reason enough to be skeptical about the accuracy and fairness of the charge.
Indeed, Washington Post fact-checker Glenn Kessler declared false at least one Romney claim of the Obama administration's crony capitalism.
Still, the allegations raise the opportunity to focus on a point made increasingly by critics of American politics and capitalism. Namely, that crony capitalism exists and that it is thoroughly bipartisan.
One of the most interesting and evenhanded recent discussions of the issue comes from David Stockman, the former congressman who served as President Reagan's budget director and later became an investment banker.
Bill Moyers interviewed Stockman on Moyers & Company about the one-time Reaganaut's book scheduled for publication early next year, The Great Deformation: How Crony Capitalism Corrupted Free Markets and Democracy. Stockman takes to task both major political parties for essentially doing Wall Street's bidding to greater or lesser degrees.
Stockman singled out General Electric and its chairman Jeffrey Immelt as being an especially salient example of the type of crony capitalism he says cuts across party lines.
BILL MOYERS: "You name names in your writing. You identify several people as the embodiment of crony capitalism. Tell me about Jeffrey Immelt."
DAVID STOCKMAN: "He is the poster boy for crony capitalism. Here is GE, one of the six triple-A companies left in the United Sates, a massive, half-trillion-dollar company, massive market capitalization. I'm talking about the eve of the crisis now, in September 2008.
"Suddenly, when the commercial paper market starts to destabilize and short-term rates went up. He calls up the Treasury secretary with an SOS, 'I'm in trouble here. I need a lifeline.' He had recklessly funded a lot of assets at General Electric Capital in the overnight commercial paper market. And suddenly needed a bailout from the Treasury. Within days, that bailout was granted.
"And therefore, General Electric was able to avoid the consequence of its foolish lend-long and borrow-short policy. What they should have been required to do when the commercial paper market dried up — that was the excuse. They should've been required to offer equity, sell stock at a highly discounted rate, dilute their shareholders, and raise the cash they needed to pay off their commercial paper.
"That would've been the capitalist way. That would've been the free market way of doing things. And in the future they would've been less likely to go back into this speculative mode of borrowing short and lending long. But when we get to the point where the one triple-A, a multi-hundred-billion-dollar company gets to call up the secretary, issue the SOS sign and get $60 billion worth of guaranteed Federal Reserve and Treasury backup lines, then we are, you know, our system has been totally transformed. It is not a free market system. It is a system run by powerful, political and corporate forces."
BILL MOYERS: "So when you saw that President Obama had appointed Jeffrey Immelt as the head of his Council on Jobs and Competitiveness what went through your mind?"
DAVID STOCKMAN: "Well, I was in the middle of being very disgusted with what my own Republican Party had done and what Bush had done and the Paulson Treasury. And then when I saw this, I got the title for my book, The Triumph of Crony Capitalism."
That was actually Stockman's working title before he and his publisher agreed on The Great Deformation.
DAVID STOCKMAN: "If you have a former community organizer who was trained in the Saul Alinsky school of direct democracy, appointing the worst abuser, the worst abuser of crony capitalism, GE, who came in and begged for this bailout, to head his Jobs Council, when obviously GE's international corporation, they've been shifting jobs offshore for decades, then it becomes so obvious that we have a new kind of system, and that we have a real crisis."
That the book is scheduled to be published in January, the same month in which the next president is to be inaugurated, is a telling coincidence. It seems to reinforce Stockman's point that it doesn't matter which of the two men contesting for the White House is ultimately elected.
The problem, as he sees it, will remain that Wall Street will continue to wield disproportionate power in Washington and over the economy. Not only that, Wall Street officials have become much more situational in their free-market ideology, he said. As many others have noted, the big bankers are perfectly happy to live in a world where big gains are privatized and big losses are socialized.
So, according to Stockman, Romney is right to accuse Obama of crony capitalism. But Stockman would add that Romney also needs to point the finger at his own party, which has been at least as culpable in forming cozy ties between Washington policymakers and Wall Street.
A website worth bookmarking that skewers both Democratic and Republican government officials for their close ties to business is www.AgainstCronyCapitalism.org.
On the issue of crony capitalism, you might also want to check out the work and thoughts of Luigi Zingales, a University of Chicago economist recently featured on NPR's Planet Money blog and program. A recent Wall Street Journal op-ed piece by Zingales headlined "Crony Capitalism and the Crisis in the West" received much attention.