Posted in: Columnist, Opinion

A Test For Crony Capitalism

Posted on December 15, 2013

A Test For Crony Capitalism

One of the most popular phrases used by politicians to justify spending your money is “public-private partnership.”

The term is most often heard in the same sentence as economic development and has been used at the national and state-level by both Republicans and Democrats to provide justification for significant financial incentives given to businesses that would otherwise have a problem raising money in the private sector.

It is unfortunate that the term has been co-opted by the economic growth crowd, because a real public-private partnership can be beneficial to taxpayers.

For example, a competitive bid process involving private sector business to determine the most efficient way to build roads, bridges or collect garbage is beneficial to all parties involved.

But lately the term has been used to cover for what has become known as crony capitalism. Crony capitalism describes economic transactions that depend on close relationships between business people and government officials.

Crony capitalism can involve straight up financial incentives or regulatory benefits such as changes in land zoning to accommodate a developer.

Most of these projects are sold to the public as being cost-beneficial in the long-term either financially or in addressing some societal goal. Some projects are even sold as a “must have” project that will be a “game changer” for the community.

However, after taxpayer money is spent and the “friends” of the politicians build the project, it seems that those in charge forget about the cost-benefit evaluation part of the equation.

While most of the focus on crony capitalism has been at the national level dealing with bridges to nowhere and promises of a successful solar industry, local communities are not immune to spending on these projects.
But how can you identify a crony capitalism project?

I propose all you need is the answer to three main questions.

First, is the proposed project seeking taxpayer dollars or any significant regulatory favor?

A yes here is required to qualify for a crony capitalism designation.

Second, is the project subject to a competitive bid process based on price where at least two bidders provided responsive bids?

This the big one. Procurement rules require two to three responsive bids on price for a project so taxpayers get the best deal. If at least two bids are not received, usually the parameters of the request for proposal are changed.

If a project is not subject to a competitive bid process or there are not at least two responsive bidders on price, it may be a crony capitalism project.

And finally, the obvious question; does the provider of the project or representatives of the project have ties to elected officials?

This is a straight-forward question, but it is important to note that the answer to this question must be evaluated with the answers to the other questions to determine if the project is truly a crony capitalism project.
For example, a yes here for a project is properly bid would not be categorized as a crony capitalism project.

So a YES, NO, and a YES to the above three questions would indicate the existence of a crony capitalism project.

After answering these three questions, additional information can put the project in proper context.

Does the project address a core-government service and can the results of the project be measured?

Of course, elected officials will stretch the definition of core government service, but a key here is to determine if the service is currently being provided in the free-market. If the service is being provided in the free market, it is not a core government service.

Can the results of the project be measured?

Most crony capitalism projects reveal themselves over time by financial failure. However, those projects that may claim to serve a government purpose, but have no objective measurement of success are ripe for abuse.
Over the coming days, Tallahassee Reports will evaluate specific projects using this test for crony capitalism.

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