Crisis of Responsibility

by David L. Bahnsen

  Cronyism: Why the People Want a King

  We find a disturbing ancient foreshadowing of what plagues us today in the verses prior to the biblical passage I referenced above as the birthplace of statism:

  When Samuel became old, he made his sons judges over Israel. The name of his firstborn son was Joel, and the name of his second, Abijah; they were judges in Beersheba. Yet his sons did not walk in his ways but turned aside after gain. They took bribes and perverted justice.

  Then all the elders of Israel gathered together and came to Samuel at Ramah and said to him, “Behold, you are old and your sons do not walk in your ways. Now appoint for us a king to judge us like all the nations.” (1 Samuel 8:1–5, emphasis mine)

  Cronyism and corruption caused the people to lose faith and opt for statism. Yes, the people rejected self-government and even theocracy. They were warned of all the consequences for having a king, but they didn’t care. They traded the promise of greater freedom and prosperity for a leviathan. But underlying it all, indeed, serving as the impetus to the impulse for big government, was corruption.

  Crony capitalism, to use a modern phrase, gave birth to statism. And to be sure, history has done nothing but reinforce this basic reality. Thoughtful people may think it a non sequitur, but it’s the way of raw human nature. When we fail to repudiate rent seeking, handouts, sweetheart deals, and the government selecting winners and losers in the marketplace, we risk far more than election results.

  Interestingly, the citizens who’ve rejected elitist forces today have not returned to the miracles of free and open markets, despite holding government and intervening entities in such low regard. How could a society be so displeased with the results of an all-encroaching state and yet not demand a renewed love affair with free enterprise to rekindle freedom and prosperity in our society? The answer is tragic: the citizens no longer trust free enterprise to be free at all. They believe it to be a “rigged” game of special favors, handouts, and predetermined advantages for the connected class. Their cynicism isn’t entirely justified, but it has enough prima facie support to force proponents of free markets to fight an uphill battle moving forward. That struggle will continue until trust can be reestablished in the public square by demonstrating that the game is not rigged and the government is no longer choosing winners and losers.

  Wherever candidates or parties are perceived as cronyist (at the local, state, and federal levels), not only will elections be lost, but truly conservative ideas will fail, as well. When people are forced to choose between what they believe to be a devil they don’t trust (corporate interests, Wall Street, big business, greedy developers, etc.) and a devil that at least offers them candy (the blue-state model of big spending, vast government services, and entrenched government programs), they tend to choose the lesser of two evils. At that point, it does no good to argue (correctly, of course) that vast corruption and cronyism also exist behind the second door. We can be right when insisting that the deeply embedded cronyism and corruption of public-employee unions and politicians are no better than crony capitalism—and we’ll still lose the argument. Given the choice between the two, the people want a king.

  The time is now for all who cheer greater individual responsibility and freedom to seize this message. To anyone who thinks the stigma of crony capitalism is not election-crushing: ask Hillary Clinton. In spite of having an election matchup that she and the Democratic Party would have gladly moved heaven and earth to create, she lost. She simply could not shake the (accurate) assessment that her Clinton Foundation, corporate speeches, and entire post–White House ecosystem was all one big, crony charade.

  To be fair, one could argue that Republicans need this message more, given Donald Trump’s populist appeal and electoral success of his promise to “drain the swamp.” After the Troubled Asset Relief Program (TARP), Americans felt Wall Street got a crony handout from the Republican Party—an unavoidable outcome of TARP legislation so poorly constructed, executed, administered, and defended in the court of public opinion. Those failures led the American people to hate the “financial bailouts” (a subject for another time), in spite of the fact that Democrats supported the bill. It originated with a Republican president and a Republican treasury secretary. The association between TARP and the GOP was set.

  Today, however, at the federal level, the most egregious forms of federal crony capitalism, whether it be the known failure of Solyndra or the perceived success of Tesla, are not associated with the GOP. Republicans must drive this fact home: the Left is using taxpayer dollars to create billionaires. Republicans must advance thoughtful legislation to strip the opportunity for rent seeking from the federal landscape as much as possible.

  Needless to say, corporate tax reform is a great place to start. There are numerous ways to strike favoritism and governmental selectivity from the tax code. Proponents of a lower corporate tax rate often correctly applaud the benefit of reestablishing American competitiveness, but the reduction would do much more. Lowering the corporate tax rate would further eliminate the loopholes, deductions, exceptions, and carve-outs that have made such a mockery of the entire revenue-collecting process for American business. Even a low-tax, supply-sider like me believes lowering the rate is only the second biggest benefit to be gained. Treating businesses equally under the law—without special regard for influence and power—will prove to have the greatest impact when we flatten the corporate tax code.

  What loopholes, you ask? Consider the following exceptions to the tax code for those gifted in the art of influence peddling. These examples leave tax-paying citizens on Main Street shaking their heads at the apparent disparities in the system:

  *A 20 percent tax credit for “qualified research expenses.” An actual credit against tax owed for doing what, last I checked, companies are in business to do.

  *The alcohol food credit. We know it in polite society as ethanol. It’s a handout to corn producers, pure and simple, and a toxic political issue thanks to Iowa’s place as the first caucus state each election season. Rank. Crony. Capitalism.

  *Low-income housing credits for developers. Originally sold as a benefit to the lower-income renters who will eventually inhabit the units, this tax credit not only creates a malignant supply/demand distortion in the marketplace, it also becomes a boondoggle for real estate developers in line for a free-money handout from the taxpayers.

  *Accelerated depreciation on machinery and equipment. This tactic simply changes the tax code rules for select industries, period. The change I suggest is not to merely eliminate the accelerated depreciation for the special interests, but to provide instant and full expensing for all sectors. Right now, however, the tax code does a modified version of the right thing for a select group—and excludes all others.

  *Film and television production tax credits and rebates. The same films that pay superstar actors and actresses in excess of $20 million for a single movie also receive massive handouts directly from the taxpayers for the privilege of having a film produced in a certain area.

  *The entire “qualified production activities” loophole. It’s a farce that has always begged for crony exploitation (such as the above film production example). An abstract carve-out that was wrongly designed to serve as a narrow exception for manufacturers became an even worse carve-out when exploited by a plethora of peripheral business sectors.

  And those are simply a few of many federal examples. I would need multiple volumes to record examples of cronyism embedded in many city, county, and state tax codes. Sometimes local abuses become national stories, often when involving professional sports stadiums or similar high-profile projects. But even in cases with a smaller profile, city councils and county supervisory boards routinely cut sweetheart deals and use their jurisdiction over zoning laws and entitlements to their benefit. They use local treasury coffers as discretionary slush funds to benefit rich and powerful interests who, not coincidentally, a
re generous campaign supporters. Corporate special interests are not limited by geography or the size of the jurisdiction.

  The conservative reply to the outcry over exceptions to the tax code is often to claim that these companies are merely victims of a punitive tax code. Believe me, I sympathize with their plight. However, cronyism is not the idea of a lower tax burden for all (a concept I vehemently support); cronyism means “lower taxes for me, but not for thee.” Cronyism happens when the government uses the tax code to choose which favored activities, sectors, and businesses will receive opportunities for a reduced tax burden, The appropriate conservative policy aspiration—and moral ambition of a good civic society—is a level playing field.

  At the moment, there is a bipartisan love affair with another prime opportunity for cronyism—infrastructure investment. Yes, there are significant areas of need within our national infrastructure. The majority of these needs reside at local and state levels; however the need for upgrades to various bridges, airports, and tunnels is valid and accepted. But when we hear talk of a “public-private partnership” to meet some of these infrastructure needs, we’re hearing an invitation to the worst form of cronyism. Given the bipartisan support for such boondoggles, I can see a lot of it coming down the pike in the next year or so. (Incidentally, it should be no surprise that large developers, construction companies, and engineering firms are often the worst of the crony advocates).

  Getting It Right, Right Now

  As I said earlier, we must get this message and subsequent policy changes right at the local and state levels to avoid catastrophic results. In city and county politics, concerns over cronyism dominate elections and will dictate the direction of localities for the next generation. Special and targeted incentives are the ultimate slippery slope.

  The silly defense I most often hear for government making sweetheart deals with business is that Republicans are supposed to be defenders of business and promoters of growth. Of course, that is correct. However, targeted incentives that favor a particular company or sector fool nobody. They don’t promote growth; they reward the powerful who already have the lobbyists, lawyers, and influence to ride the gravy train. Local and state politicians should be fostering a pro-business culture—through universally low tax rates for all, not special, lower tax rates for a particular company. They should be lowering regulation, not writing waivers for this or that business.

  The Right must be committed to stopping it all, from deplorable stadium deals for billionaire sports team owners to appalling tax favors for connected real-estate developers. Equal opportunity for all means one set of rules for everyone. A city council or a county board defies any reasonable definition of equality under the law when it selectively decides to credit back tax dollars.

  There is a concerted effort to manufacture ambiguity about the difference between crony capitalism and legitimate government support for business and growth. Not surprisingly, that ambiguity comes from crony capitalists. Too many Republicans eagerly indict Fannie Mae and Freddie Mac as a perilous example of business and government in bed together; nevertheless, they suddenly become paralyzed with confusion and start babbling about nuance when a big company wants a special tax break to build a new factory or hotel.

  To resolve this lack of trust in our cultural institutions, we cannot afford to impose a double standard. We cannot oppose subsidies when we don’t like the company, product, or sector in question, but then change our minds when subsidies favor our friends. Likewise, the decision by an employer or a developer to build a project or invest in a community only if it receives special treatment is corrupt at its core. Local government can support the free market by not distorting it. City councils should find ways to remove impediments to growth and business for all from their regulatory framework. If they do, they will create fifty times more economic benefit than they could ever do with all the special tax breaks they could ever dream up.

  Republicans who believe defeating liberals at the ballot box is our highest ethic (it isn’t) must realize the electoral truth. Crony capitalism has been the basis for more Republican election losses in the last forty years than every social issue combined. We can be highly supportive of business and growth in a non-crony way: combine a very low tax base, because of a very nonintrusive government (nonintrusive governments cost less), with very light regulation. Low tax, low regulation—for everyone. It’s not complicated.

  When these basic right-wing orthodoxies are fairly and consistently upheld, they create even playing fields and promote the dignity of the open marketplace. Whether they’re called subsidies, mandates, incentives, or loan guarantees, crony privileges have no place in local, state, or federal politics. It’s not only because they make for bad government. They make for a bad society.

  This chapter about cronyism belongs in a book about personal responsibility because the perceptions and realities of crony capitalism are helping to disintegrate Main Street’s trust in “the system.” The underlying message for a path to prosperity is this: we must cultivate and fertilize hard work, innovation, risk taking, and enterprise. Consequently, those people being encouraged to follow that path must believe they are operating in a fair environment. The very rich and powerful do not need extra incentives and carve-outs from the tax code to do well. They’re almost always extremely capable and resourceful people who need no special advantage. Our founders’ vision of “equal under the law” requires a level playing field in the public square and demands the right-sizing of government. Reduce the size of the government engaged in one side of the cronyism and we’ll reduce crony capitalism.

  The public’s faith in the stewardship of the public’s assets will only be restored when that faith has been deserved. Without that restored faith, we’ll feed the beasts of cynicism and distrust that tear down the norms and conventions vital to a free society. With that rejuvenated faith, we’ll enhance the relationship between citizen and state, and feed the engines of entrepreneurial endeavors that create prosperity.

  Will people continue to tend to want a king? Sure. But the less corrupt cronyism they see, maybe, just maybe, the less they’ll want to choose the leviathan.

  7

  EMPOWERMENT THROUGH EDUCATIONAL CHOICE

  The Great Civil Rights Issue

  of Our Day

  The most promising alternative to top-down efforts to create accountability is school choice. School choice is accountability. When parents have the power to remove their children from a school that is failing them, without financial penalty, not only are they better served, but so is the school they abandon. The threat of losing funds gives failing schools an incentive to improve.

  –MICHAEL VAN WINKLE

  We have been successful because Americans have known that one’s status of birth is not a permanent condition. And your greatest ally in controlling your response to your circumstances has been a quality education. The crisis in K-12 education is a threat to the very fabric of who we are. We have to have high standards for our kids, because self-esteem comes from achievement, not from lax standards and false praise. And we need to give parents greater choice, particularly poor parents whose kids, very often minorities, are trapped in failing neighborhood schools. This is the civil rights issue of our day.

  –CONDOLEEZZA RICE

  Full disclosure: I attended private faith-based schools with high academic standards throughout my entire K-12 school experience in Orange County, California. I owe a good deal of my intellectual and spiritual development to that experience. Some schools were better than others, but they were all good schools. I felt safe, the teachers cared about the students, and the instruction was both academically rigorous and practical to prepare for life in the real world.

  Full confession: I could have never attended these schools based on the economic resources of my family. Were it not for my dad’s employment with the school I attended or the assistance he received as a minister and educ
ator in the community, I would have been denied that opportunity.

  Now my children all attend high-quality private schools, as well. I am a founder and trustee for a private high school in the affluent community of Newport Beach, California. I’m a highly compensated business owner and professional. I have the disposable income to finance the choice my wife and I have made regarding our children’s education. In other words, this chapter about school choice is not about me. As a child, I had a backdoor way into a private education because of my dad’s service and, as an adult, I now enjoy the economic resources to make the choices we deem best for our family.

  This chapter is also not a creed against public education. Yes, the federalization of public schooling has been an unmitigated disaster. It violates the constitutional role of government and pollutes the proper relationship between states and the federal government in a self-defeating effort that requires localism to succeed. The basic principle of subsidiarity teaches us that highly localized, bottom-up empowered structures will support a more productive, efficient, and desirable outcome. We could introduce other concerns into the conversation, but the societal ill we address in this chapter is not the existence of a highly centralized public school system itself.

  Rather, the great civil rights issue of our day is the lack of choice granted to those who need it most, by those who say they believe in choice the most. The incredible irony is that the people most vehemently opposed to choice in education also proudly and emphatically don the pro-choice brand on one particular issue: abortion. The inverse correlation between those who identify as pro-choice (on matters of abortion) and pro-school choice is stunning. But, I digress.

  There can be no denial that academic freedom connects directly to the social and cultural “coming apart” that is central to this book. We face a growing gap between different socioeconomic strata, a gap exacerbated by the difference in available educational options. Of course, thousands of public schools are not feeding this great divide, but rather providing stellar educational opportunities to students. But if the greater societal problem is a system often defined by those who think they are on the outside looking in, we have a moral duty not to further handicap those most prone to being “on the outside” by denying them suitable school choice.