The “Crony” in Russian “Capitalism” is Socialism

Question: Don’t recent events in Russia and the Far East show the “dark side” of capitalism? Doesn’t unrestrained capitalism lead to kleptocracy, cronyism, and anarchy?

Answer: Russia and the Far East are hardly examples of “unrestrained capitalism.” Laissez-faire capitalism means not only private property and the rule of objective law but the complete separation of the state from economic activity–conditions that do not exist in these areas.

The fall of the Soviet Union in 1991 did not usher in capitalism.

It merely replaced communism with socialism.

Most property in Russia has not been privatized, and the legal system remains anti-business. No businessman in Russia can count on a legal system that upholds contracts. The theft of Western aid by former party officials and state-favored gangsters is only further evidence that a corrupt government, not private business, runs the Russian economy.

Moreover, the Western aid to Russia came from the International Monetary Fund, an anti-capitalist agency whose funding derives from taxes on Western producers. No capitalist system would permit such a theft–whether from taxpayers or by gangsters and cronies of the state posing as independent businessmen.

Russia’s devaluation of the ruble in August 1998 was, again, an act of theft by the state bank and a further example of the expropriation of wealth. Only under socialism does one find such “robber barons.” Under capitalism the money and banking system is owned and operated by private banks, not by financial ministries that are mere appendages of the state.

“Crony capitalism” is a misnomer. Under capitalism, there are no state favors or subsidies to business. Entrepreneurs succeed solely on the basis of merit, not state handouts. It is socialism and a mixed economy that breed “cronyism.” State interference in the economy can make or break businessmen, and thus it’s unavoidable that these businessmen will spend money trying to influence state officials. To get money out of politics, one must get politics out of money-making. That’s what capitalism does. There is no “influence-peddling” under capitalism because the system bars the state from exerting influence over business.

The Far East is also a mixed economy– although with a lesser degree of state control than in Russia. But, like Russia, the Far Eastern finance ministries devalued their currencies and thereby caused a wave of bank failures and recessions. The International Monetary Fund’s involvement in these countries only made matters worse, as the IMF advocated raising taxes, intensifying regulation, and imposing capital controls.

It is commonly believed that socialism means government favors to labor, that fascism means government favors to some racial group, and that capitalism means government favors to business. But what about a system with no government favors to any group? That’s true capitalism.

The labeling of any failed system in the world today as “capitalism” is but a repeat of the same old socialist myth. Once again, just as in the Great Depression, capitalism is being blamed for the evils engendered by statism. Capitalism once again is made into a scapegoat. No rational observer should fall for it. Russia did not become communist in a day and it won’t become capitalist overnight. Achieving capitalism requires fundamental philosophic change: a respect for reason and rational self-interest, the protection of individual rights, and the complete separation of government from business.

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