You are currently viewing Nanny State or Crony Capitalism: Lesser of two Evils?

Nanny State or Crony Capitalism: Lesser of two Evils?

The general election in the democratic political system is a great idea. Every vote has equal weight, so we all have the same power. We collectively elect people and hand over them the responsibilities to set up policies for us. It is a very important job since those policies will determine the quality and outcome of our lives.

Absolute democracy will never be possible to implement because then hypothetically every person can be a candidate to run for every position. The voting process will be so long and resource-consuming that we may never actually elect anyone. It might be complete chaos. To solve this problem, we came up with the idea of founding different political parties. Each party has its own agenda and manifesto. Political parties nominate candidates to run for office. We vote for the nominated candidates and one of them will win and hold the office.

It is a practical solution at the same time this is also where we break the holistic values of a general democratic election. Generally, we don’t have a say in the political parties’ candidate nominations. Parties can select nominees who may serve their interests over the general population. So even if we have fair voting, we may never elect someone who is serving the general population.

Political parties and elites may already nominate candidates who will serve their interests over anything else. However, the democratic system will always push the elected personnel to serve the general people at least to the minimum level for them to get re-elected. If you ask a voter who will you vote, often the honest answer is no one, just choosing the least evil one!. Evil is indeed just a metaphor.

“Absolute democracy is impractical. The fair election might not prevent skewed outcome”

Zakaria Khan

The commercialization of skills and innovations through enterprises is the heart of modern economic activity.

Capitalism is an economic system that can higher economic growth through increasing productivity. In this system, capital goods are owned by private entities. Hypothetically, when a free open market sets the price of goods and services; we should have close to maximum productivity.

Capitalism is more like survival for the fittest. Businesses need to compete with each other, set a fair price, and deliver value to stay competitive. Consumers and the market reward productivity and punish non-productivity. Capitalism implements a bottom-up approach for economic activities and requires private ownership of capital goods.

Due to the privatization nature, it can be viewed as Anti-Politics. Unless someone inherits any capital goods then how can they participate in capitalism? The simple answer is that they can exchange their labor (means of production) for wealth with the people who already own some capital goods. Over time, the person with nothing can accumulate enough wealth to buy his/her own capital goods and start competing. A market where we people exchange goods and services shall be free and open. Thus free-market capitalism is a moral system.

“Capitalism is a moral framework. Absolute capitalism is impractical because the system will punish human disability.”

Zakaria Khan

This article is not about comparing a political system and an economic system. Let us first understand the concepts of the nanny state and Corny Capitalism.

What are Nanny State and Crony Capitalism?

Nanny State

It is a government that tries to give too much advice or make too many laws about how people should live their lives, especially about eating, smoking, or drinking alcohol. [Source: Cambridge Dictionary]

Crony Capitalism

It is an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc. [Source: Cambridge Dictionary]

Neither Nanny State nor Crony Capitalism is specific to any political system or any specific economic system. Nanny state and/or Corny capitalism is corruptions where the government is an active participant. Nanny State corruption can be generalized as government controlling their people’s lives by overprotecting, by controlling more than necessary. They do that in the name of well-being. Even though it is especially about eating, smoking, or drinking alcohol; correlation is found that other parts of our lives are affected. Extensive policies potentially can take away our freedom of choice.

Crony capitalism is the corruption of price action and establishing a market monopoly. Setting prices of goods and services shall be a function of the free market. Enterprises must receive the correct consequences of their productivity, process, quality, and management. When a business can not compete in the free market and remain profitable the natural outcome for that enterprise is that it will go out of business.

One example of Corny capitalism is that the government steps in and bails out that business at the expense of people’s current wealth. It is a mutually advantageous relationship between business leaders and government officials.

“Nanny state and/or Crony capitalism is a form of corruption where government participates.”

Zakaria Khan

Let us give the benefit of doubt to those policies and dig into the outcomes.

Dose Nanny State Better Our Lives?

You can go to http://nannystateindex.org/ to see the raking of European countries. The overall number 1 European Nanny state in Finland. I can relate to most of these policies since I live in Sweden and we are proud to be number 7. How can we determine if Nanny state policies are working and making their citizens’ lives better? One matrix could be measuring life expectancy. Let us look into that now.

Life expectancy is a multi-variant matrix. So, just making one to one correlation between nanny state policy and life expectancy is unfair. Life expectancy can depend on the weather, climate pollution, inherit health/DNS. It would be safe to make comparisons within neighboring countries since the external differences are very minimal. For example, Sweden and Finland are very similar to each other, almost twins. Germany and Sweden/Finland’s comparison could be fair too since geographically they are very close to each other.

Life-expectancy-gross-income
Life-expectancy-gross-income

Figure 1 shows the overall nanny state index score of a country and the life expectancy of their people. Finland is number#1 and Germany is the lowest in the Index and both have a similar life expectancy. Spain has the highest life expectancy and they are near the bottom of the nanny index. So it would be safe to say that Nanny State policies do not improve people’s life expectancy.

In Figure 4 they looked into the national income per capita and the life expectancy. It shows the counties that have higher national income, have a higher probability of longer life expectancy. I made an interesting finding from this figure. If you draw a straight line at 79 years you will see something interesting. Every country with over 40,000 PPP has a minimum life expectancy of 79. Countries that have lower incomes than 40,000 have a lower life expectancy. Why 79 is important? The current retirement age for a lot of European counties is 69, which could be extended. We should deserve a minimum of 10 years of life after retirement, is it too much to ask? So regardless of which policies a country may implement, they should implement frameworks where the national income per capita may increase.

Life expectancy represents the overall measure, it does not say how a specific policy performs. It will be interesting to see that if we control tobacco what is the outcome? do we have fewer smokers in the country? Let us now look into two specific policies and the actual outcome. Figure 2 shows that Sweden has the lowest number of smokers in Europe. I’m very proud of that. It is interesting to see that Sweden actually have very low restriction in terms of tobacco policy, we hold 25th position. Regardless of having an easier/less policy on tobacco, people don’t consume more. I can relate to that because I don’t smoke myself.

Figure 3 shows that Lithuania has the highest alcohol consumption in Europe. It is interesting to see that Lithuania has a very high restriction on alcohol yet that did not stop them from consuming more. One can argue that if the policies were less strict, they would consume even more. So, let’s take a low-consumption country. Italy is one of the lowest alcohol consumption countries and surprisingly their policy on alcohol is very liberal. It could be safe to see say that strict policies don’t make people consume less. Having the option to chose seems to keep the consumption at a liberal level. So in my opinion, countries should try to increase awareness, give choice to their citizens and trust them. Then we may have sustainable lower consumption and better life on the whole.

smoker-policy-life-quality
smoker-policy-life-quality
alcohol-consumption-policy-life-quality
alcohol-consumption-policy-life-quality

” There is no conclusive and definitive evidence that Strict and/or overprotective policies lower consumption”

Zakaria Khan

How Can Crony Capitalism be damaging?

We already saw that higher income has a positive correlation with longer life expectancy. Capitalism is one of the economic systems that provide frameworks for everyone to participate in the wealth creation process. We have already found that absolute free-market capitalism is impractical to implement. Let us take two scenarios when we may need to interfere the free-market capitalism.

  • Capitalism rewards productivity so, it may punish people who are born with a certain disability and with no inheritance of capital goods. Born without any inheritance of capital goods is OK since it is possible to exchange labor for wealth. A disability may lead to lower productivity. Born without the ability to exchange productive labor is not the fault of that person. Society needs to take responsibility for them and take care of unfortunates. Disability can happen at any point in time. If disability happens before you accumulate enough wealth to live solely from the earnings of your wealth then you will be in trouble. Capitalism will punish you the same way as you were born with a disability. That is why we all should aim to achieve financial freedom. The solution should include that use case too. Mutual funds and/or social programs for care and crisis are good solutions.
  • Accumulation of wealth can lead to Monopoly. The free market is the framework for people to compete and the best value shall receive the best reward. That is why people with no inheritance can also accumulate a large sum. What happens when someone/business who already have a lot of accumulated wealth compete with small business. It will be impossible for a small business to compete only on price. This is primarily due to the fact that the large business has advantages like “economy of scale” and large capital in hand. The economy of scale helps to cut the production cost and thus the large business can offer a cheaper price. This is good practice and beneficial for consumers. This can also lead to bad business practices like cutting the price to the point of taking huge losses until small businesses run out of money. The incentive for this bad business practice is consolidation and/or less competition. Through consolidation, the big get bigger. No competition lets the business set any price. There should not be any incentive for bad business practice. The consumer has the power the stop it. They can choose not to buy from the business that uses this type of business practice to achieve monopoly. However, that is not very practical due to human nature. We have a strong desire to receive goods and services for free whenever possible. Consumers lacking individual responsibilities and education in price action is a weakness that large enterprises may pray upon. Due to such consumer behavior, introducing regulation could be a solution. Further examples of Crony Capitalism could be that the Government chooses to buy goods and services from an inefficient business due to connection. Even worse they pay a high price for low-quality goods. This is very bad for people because the government is wasting taxpayers’ money. Further, in Crony Capitalism business tends to spend a lot of resources to lobby government rather than spending those resources to become more productive. We lose the benefit of proper economic growth and prosperity.

It is safe to say that capitalism together with social programs could be a great solution for an economy to prosper. So, it would be safe to say that the little involvement of the government could be the solution to implement free-market capitalism in the real world. However, the solution can also become part of the problem.

  • Whenever the government bailouts a company from going bankrupt for management inefficiency they are compensating bad business practices. The reason to involve government was to stop bad business practices not encourage them, a perfect example of Crony Capitalism. In addition, the bailout is essentially taking money from citizens’ future earnings and giving it to inefficient businesses. This can increase inflation a lot.
  • Another example could be, Government subsiding one industry (i.e. healthy food maker) and overregulating another (i.e. Soda maker) is an example of Crony Capitalism. This level of regulation and favor can impact organic innovation. Consumers can decide what they want. To satisfy the consumer and the need to stay relevant; businesses must innovate. Control could lead to less innovation.
  • Further examples of Crony Capitalism could be that the Government chooses to buy goods and services from an inefficient business due to connection. Even worse they pay a high price for low-quality goods. This is very bad for people because the government is wasting taxpayers’ money. Further, in Crony Capitalism business tends to spend a lot of resources to lobby government rather than spending those resources to become more productive. We lose the benefit of proper economic growth and prosperity.

Closing Thoughts

Forming a government is very important for a well-functioning society. The primary function of government should be the safety of its citizens although it is not the only function. Surveillance and safety have an inverse relationship. To ensure safety we may need to give permission for surveillance. For example, a search warrant inside the home is a form of surveillance we may need to allow to pursue safety or justice. The important factor is to find a balance. Looking after common needs (i.e. social programs, building infrastructure, etc.) is also an important function of government. Nanny State does not reduce consumption yet governments are keen to implement such a policy. This indicates that Government is overstepping and moving away from its primary functions. It is a form of corruption perhaps motivated by the desire to control people. Crony capitalism is also an outcome of government corruption influenced by bad business people who have only one motivation, profit. Government must be more responsible than that. Government should interfere as little as possible and trust people to make their own decisions. Less regulation and the free market will bloom the economy and thus improve the quality of life of the people.

#nannystate #cronycapitalism #macroeconomics #financialeducation #economics #finance #governmentfunction #capitalism #governmentpolicy #Corruption 

Disclaimer: I wrote this article to express my point of view only. My point of views could be wrong. You should study and form your own opinion. No specific existing government is targeted. I wrote this article for people education and entertainment purpose.

Spread the love

This Post Has One Comment

Comments are closed.