The Road to Cronyism: Is Capitalism Sustainable?

s Capitalism Sustainable? Does capitalism in a democracy tend toward cronyism? Michael Munger presents his view on the topic, questioning if capitalism depends on people being good and analyzing the pathologies of capitalism. He begins by presenting ideas from Cicero on how men can be both wise and good, Israel Kirzner on entrepreneurship and profit-seeking, and Steve Jobs on consumer-demand theory. Then makes the distinctions between profit (mutual benefit) and rent-seeking (resources consumed in securing transfers) and explains a theorem that says that if an exchange is truly voluntary, profits are the excess of revenues over costs in a market without artificial constraints. "Entrepreneurship is always virtuous. It is the habit of alert seeking of exchange opportunities, embedded in a character of forbearance of rent-seeking opportunities.” Later describes the problem: sustainability. Munger questions if it is possible to maintain being good in a system where stakeholders want the maximum legal profits, and concludes that bad character of corporate managers is actually a government failure. As a political scientist, he explains this from the perspective of Public Choice. "The claim of public choice is that we cannot assume that people who work for the government are good. We need to create a structure of incentives so that (...) the contest of self interest actually leads people to do what’s in the best interest of the public.” Rent-seeking will always be greater than zero for the rational manager, whenever the state offers opportunities. So Michael says, the real question is, can politicians be virtuous? Can the members of the legislature demonstrate good character and forbearance in service of “public benefits.”? "We can’t expect capitalists to be virtuous because their job is earning legal profits.” Munger shares some examples of the common pathologies of socialism and capitalism, that people use to defend each ideology and conveys on the danger that cronyism represents in the defense of capitalism. Finally explains with examples some final concepts like profits, rents, rent-seeking and rent-extraction. He concludes that, in order for capitalism to be sustainable we need to rethink the approach that institutions have to solve this problem; maybe address it from the study of character in college curriculums?, Munger suggests.