Crony capitalism
Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Beyond NCERT
Meaning
Crony capitalism is an economy where a firm's success depends on its ties with officials, not on fair competition. Well-connected firms win favours such as permits, contracts and subsidies. This wastes resources, keeps out better competitors and weakens public trust in markets.
Example
When officials handed out licences at their own discretion, the courts stepped in. They cancelled 2G spectrum licences in 2012 and coal block allocations in 2014. After this, allocation moved towards open auctions. The Economic Survey 2019-20 described India's choice as "pro-business vs pro-crony".
Don't confuse with
- Rent-seeking: this is the act of chasing gains through lobbying for favours instead of producing value. Crony capitalism is the whole system that grows when such lobbying keeps working.
Related concepts
- Industrial licensing
- Licence Raj
- Licensing for regional equality
- Freight equalisation policy
- Pro-market versus pro-business policy