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September 6, 2016

Frederick County Exercises Crony Socialism

Ken Kellar

I recently sent an e-mail to the County Councilmen chastising them (4 of 7) for raising the county hotel tax by 66% to pay for a downtown Frederick hotel. I charged them with crony capitalism. Here are the definitions of capitalism and crony capitalism from Wikipedia:


Capitalism – an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.


Crony – a close friend or companion.


Crony capitalism – a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.


I thought “crony capitalism” fit pretty well. However, a few minutes after sending the e-mail, I started regretting having sent it. Oh, don’t think my regret was based on any sentimentality. Our arrogant, manipulative council members deserve nasty messages daily to go along with the lawsuits they receive for their picking and choosing and manipulating.


My regret was that I didn’t charge them with crony socialism rather than crony capitalism. To explain, let’s first review Wikipedia’s definition of socialism:


Socialism – a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.


Just for completeness I’ll throw in the definition of communism:


Communism – a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs.


Socialism aficionados always seem to get quite huffy when the terms communism and socialism are interchanged. I take personal pride that I can’t really distinguish between the two. My guess is communism admits you have to break skulls to impose socialism, while socialists live in utter fantasyland. Or is it the other way around? Who are the one’s attacking Donald Trump supporters?


So, anyway, after sending my e-mail, I recalled that the city/county/state, or some government combination, would own the hotel’s building lot, the convention center and the parking facilities. So, the “means of production,” at least in part, would be owned by the “state” or “community” as the Wikipedia definition so quaintly states.


So, our elected officials picked a “crony” or private business entity, a “capitalist” to provide a special favor to. This took the form of millions of dollars.


For some reason our elected officials want to hold onto the “means of production,” thus the term “crony socialism.” You could probably stick the word “capitalism” in the middle, but crony capitalism socialism is just too cumbersome.


I couldn’t find a crisp definition of crony socialism. One author claimed the term was redundant like “watery water.” However, I did find an excellent article titled “Crony Socialism” about a city meddling in the hotel business. It is reproduced, in part, below. The author, by the way, is a dentist.


Crony socialism

By Don Tabor

Jan 1, 2012

The Virginia-Pilot


“When government enters into public-private partnerships, or otherwise intervenes on behalf of one competitor in the marketplace at the expense of another, that spontaneous order is destroyed and replaced by command elements driven not by mutual self-interest, but rather by cronyism or political agendas. In every case, the efficiency of the economy, and thus overall prosperity, suffers.


“We see this intervention at all levels of government. However, blatant corruption and cronyism will draw the attention of the press and the electorate, so these underlying motives are always masked behind some perceived public good, such as "saving the planet" or "creating jobs" or even "economic development."


“The paradox is that these social goals are rarely accomplished. In the private sector, the risk of losing one's investment brings caution and careful market study before resources are committed, and that caution more often leads to success.


“Public-private partnerships use the force of government to command resources, artificially create demand, guarantee profit or divert risk to the public. Under these conditions, mal-investment, such as wasteful allocation of resources and careless risk of capital, is virtually guaranteed. These questionable ventures were not attempted by private investors for good reasons, and even with the scales tipped in their favor by government influence, they nearly always fail.


“We are seeing this play out on the national stage in the series of bankruptcies of "green energy" companies like Solyndra, where even subsidies and mandates fail to keep a business afloat in the face of market realities.


“The catastrophic rise and fall of the housing bubble was in part fueled by the belief that government would not let Fannie Mae, Freddie Mac or large banks fail. The belief that loan risk could be transferred to the public led lenders to make loans they would never have considered with their own money.


“Locally, we see this crony socialism in the form of public-private partnerships in which the risk of failure is assumed by the public through loan guarantees, as in the Virginia Beach Convention Center hotel. Risk is one of the important controls in a free market in discouraging mal-investment. When investing one's own money, ventures are not undertaken based on hope or vision without careful planning and reasonable expectation of success, but the bar is much lower if all or part of the potential loss is assumed by someone else.


“By socializing risk while privatizing profit, we encourage ventures doomed to fail and bring down surrounding businesses with them. If the hotelier is not willing to risk his own money based on his assessment of the likelihood of success, then why would the citizens of Virginia Beach be willing to place their future prosperity at risk?


“In all these cases, the public is persuaded to allow these improper government interventions into the marketplace on behalf of campaign donors, political allies and other cronies with the promise of some public good, and it is that fig leaf of collective social purpose that makes this corrupt process properly called crony socialism.”


Note: A month after the dentist’s letter, the City Council officially killed the controversial deal to build a four-star Hyatt hotel near the Virginia Beach Convention Center. If only our local officials had a little more love of country and a little less infatuation with communism. PS – Don’t write back to tell me I mixed up communism with socialism. Potato, potawto!


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