The Cronyism Culture: It wasn’t always this way

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Early in Mississippi’s history, its people understood the dangers of government being too cozy with business.

Back in 1817, when Mississippi was admitted into the Union, Mississippians went to great efforts to prevent taxpayer dollars being used to benefit private interests rather than the general welfare. In fact they even wrote it into Mississippi’s first constitution (emphasis added):

Article I

Declaration of Rights

That the general, great and principles of liberty and free government may be recognized and established, We Declare:

Section 1. That all freemen, when they form a social compact, are equal in rights, and that no man or set of men, are entitled to exclusive, separate, public emoluments or privileges, from the community, but in consideration of public services.

Section 2. That all political power is inherent in the people, and all free governments are founded on their authority, and instituted for their benefit; and, therefore, they have, at all times, an unalienable and indefeasible right to alter or abolish their form of government, in such manner as they may think expedient.”

The idea that government is for the good of the whole and not just special or private interests was continued in Mississippi’s current constitution, the Constitution of 1890, which states in Article III that:

Sec. 5. All political power is vested in, and derived from, the people; all government of right originates with the people, is founded upon their will only, and is instituted solely for the good of the whole.

Sec. 6. The people of this State have the inherent, sole and exclusive right to regulate the internal government and police thereof, and to alter and abolish their constitution and form of government whenever they may deem it necessary to their safety and happiness; provided, such change be not repugnant to the constitution of the United States.”

Indeed, in Article 7, Section 183, counties and municipalities are prohibited from loaning money to corporations, and from buying stock in them:

No county, city, town, or other municipal corporation shall hereafter become a subscriber to the capital stock of any railroad or other corporation or association, or make appropriation, or loan its credit in aid of such corporation or association. All authority heretofore conferred for any of the purposes afore said by the legislature or by the charter of any corporation, is hereby repealed. Nothing in this section contained shall affect the right of any such corporation, municipality, or county to make such subscription where the same has been authorized under laws existing at the time of the adoption of this Constitution, and by a vote of the people thereof, had prior to its adoption, and where the terms of submission and subscription have been or shall be complied with, or to prevent the issue of renewal bonds, or the use of such other means as are or may be prescribed by law for the payment or liquidation of such subscription, or of any existing indebtedness.

Arguably, it’s safe to say that quite a few people in Mississippi’s history were leery of having government too cozy with business. Unfortunately, in modern Mississippi quite a few people seem to have forgotten the danger of using taxpayer dollars for private interests, otherwise known as cronyism. As the economist Henry Hazlitt writes in 1946 in Economics in One Lesson,

“The proposal is frequently made that the government ought to assume the risks that are ‘too great for private industry.’ This means that bureaucrats should be permitted to take risks with the tax payers’ money that no one is willing to take with his own.

Such a policy would lead to evils of many different kinds. It would lead to favoritism: to the making of loans to friends, or in return for bribes. It would inevitably lead to scandals. It would lead to recriminations whenever the taxpayers’ money was thrown away on enterprises that failed. It would increase the demand for socialism: for, it would properly be asked, if the government is going to bear the risks, why should it not also get the profits? What justification could there possibly be, in fact, for asking the taxpayers to take the risks while permitting private capitalists to keep the profits?” (emphasis added)

Will every instance of government support for business lead to the problems listed above? Certainly not. Some individuals will point to popular examples in U.S. history such as the internet or the telegraph. These examples are used to crush any attempts to question the wisdom of taxpayer dollars being used to help a specific business. Once there are successful examples of government aid to a business, then the original principle of government being only for the “the good of the whole” is tossed aside. “Do you really want to prevent the next internet?” becomes a rallying cry for every business and interest that wants government support.

The problem is that we as a society and government then enter into a murky area of politics, lobbying, backroom negotiations, and PR campaigns to determine which businesses government should aid. As you can probably guess, the longer such activities continue the more likely we are to see the problems of favoritism, bribery, fraud, scandals, wasted taxpayer money, and more. Here are a few:

  • Mississippi Beef Processing Plant – Mississippi granted the company over $71 million in subsidies to ensure Mississippi beef producers would be more competitive and to create 400 jobs. Three months after the beef plant began operations, it was in partial shutdown. Only $4 million has been recovered.
  • Magnolia Venture Capital – Financed by $20 million in taxpayer money, the corporation was supposed to foster small, start-up businesses. It assisted one business, and then went bankrupt.

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