Crony Cap. Essay examples

Submitted By alexttorres
Words: 1267
Pages: 6

Crony Capitalism Crony capitalism is an environment, be it business or political, where success is based on mutual benefit or because of a personal relationship. In this type of environment, success is not determined by the free market or by the rule of law, but instead by favoritism. Whether this personal relationship be one of virtue, pleasure, or utility, is irrelevant to the fact that the individuals under the umbrella of friendship are usually the only ones benefiting. Crony capitalism is morally unjustified because when positions of leadership create ties, employ, or share sensitive information based on friendship, mutual benefit, and/or family or organizational improvement, it can create political, business, and social instability. When relationships like these are created, corruption can easily develop and many times relationships based on pleasure or utility are created. Allocative and dynamic inefficiencies, corruption and transaction costs, and social and political instability are but of the few of the consequence of crony capitalism (Frezza). The Koreans call it chaebol, the Russian word is semibankirshcina, and the Japanese call it keiretsu, but here in the United States we know it as crony capitalism; putting family and friends in position of power and giving them special treatment (Safire). The ability to appoint these leaders is not as difficult as one may think. For instance, within the article entitled Victims of ‘Crony Capitalism’ back Aquino written February 1986, author John Burgess describes how President Ferdinand Marcos ruled the Philippines with the use of crony capitalism (Burgess). Marcos and his associates spent 21 years living it up in the presidential palace, treating the Philippines like their own private property, but the potential election of Corazon Aquino threatened that status quo. Billions of dollars were squandered through mismanagement and corruption by Marcos’ team and illegally sent abroad to bank accounts and real estate investments. Aquino would eventually take office and topple the Marco’s regime but the people and economy of the Philippines still suffered tremendously (Burgess). Many times, friends and family in these situations can also be corrupted with the allure of money and power. In situations where the death of a superior, be it a family member or friend, can greatly benefit the crony capitalist, murder has not been out of the question. Relationships can also be based on pleasure and this can negatively affect any firm or government. Pleasure in many situations can mean physical pleasure but this is not always the case. Rajat Gupta is a prime example of this type of relationship. Once one of America's most-respected corporate directors, Gupta was indicted on six criminal counts of insider trading that prosecutors said was motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships (Rothfeld). In this case, Mr. Gupta passed along nonpublic information to hedge-fund titan Raj Rajaratnam not for money but friendship. Gupta was a director for both Goldman Sachs Group Inc. and Procter & Gamble Co., and authorities say Gutpa and Rajaratnam relationship was so close that Rajat passed along tips about corporate secrets almost as soon as he received them (Rothfeld). The realty is that a culture of insider trading where secrets are swapped freely among powerful business figures exists.
Mr. Rajaratnam, the billionaire trader, was sentenced to an 11-year prison term. Mr. Gupta's motives, however, are still very important because no money was exchanged; this will come into play within the court room. Insider-trading law generally requires the government to prove that tippers received some benefit to prosecute them for leaking inside information and Gutpa essentially received none (Rothfeld). Utility friendships are the other type of relationships that can result from crony