While much has been said in the media about income inequality, misconceptions abound about the root of the cause of the widening wealth gap between rich and poor. But a recent article by the New York Times has finally shed some light over an often-ignored cause of the rising inequality: cronyism. For years, The LIBRE Initiative has warned that cronyism is being used to rig the economy in favor of some businesses to the detriment of all others, helping to create a two-tiered society. Now, it appears, this trend is finally being given the attention it deserves.
As the article explains:
“Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition.”
This is important, especially because these findings come at a time when some policymakers are blaming trade, automation, and even immigration as the culprits of the economic divide. But as the article explains, the groups that comprise a disproportionate share of the top 1 percent of earners since 1980 tell a different story. These include physicians, executives, managers, sales supervisors, and analysts working in the financial sectors, as well as professional and legal service industry executives, managers, lawyers, consultants and sales representatives.
Moreover, these findings provide food for thought for all of those—typically on the left—that point to Northern Europe as an example of a more equitable society. In fact, as the article highlights, “Without changes in these largely domestic services industries — finance, health care, the law — the United States would look like Canada or Germany in terms of its top income shares.”
Interestingly, as the article notes, this trend is being noticed by other analysts as well. Two books, The Captured Economy by Brink Lindsey and Dream Hoarders by Richard V. Reeves have identified some of the factors driving the economic divide between rich and poor. And they are not at all what politicians usually talk about. They include: subsidies for the financial sector’s risk-taking, overprotection of software and pharmaceutical patents, the escalation of land-use controls that drive up rents in desirable metropolitan areas, favoritism toward market incumbents via state occupational licensing regulations.
The trend is clear and should not be ignored. More and more, large, well-connected industries are lobbying the government to enact regulatory barriers that directly benefit them, while all the others are being left behind. If allowed to continue, this dynamic has the potential to cripple the American dream and fundamentally reshape our country from a land of opportunity to a place where the only way to prosper is to rig the rules of the game. Through the years, millions of immigrants have come to America to escape places where only the politically connected where allowed to opportunity to succeed. Once in America, those seeking relief from such a system have often been able to flourish beyond their wildest expectations because hard work has always paid off in this country. But this might no longer be true if we allow cronyism to rig our economy. If we replace hard work with the power to influence the rules in one’s favor, we all lose.