Imagine various conversations at a board of directors meeting of a major corporation. For example: Trying to save money by paying women less, trying to please customers by not hiring blacks, contemplating intellectual-property theft, discussing a new found way they can literally defraud customers, etc. These would all obviously be wrong and would not be within the scope of fiduciary duty or any reasonable ethical framework. I put cronyism in the same category. Contemplating how to get special favor and rent seeking from the government is unethical.
I've been thinking about this post for some time. It started five years ago reading this article.
Recently there have been several things that have me thinking on this again--making this as fine a time as ever to actually complete this post.
Michael Munger has been thinking about this for some time. This EconTalk is a great discussion with him laying out the problem. And this more recent appearance on Free Thoughts is great as well. Still another discussion highlighting the nuances and difficulty of this topic is with Rebecca Henderson recently on EconTalk.
The question that I think doesn't get asked enough is: At what point does activity like developing and utilizing business relationships, networking, and advocacy cross over to be cronyism? It is difficult to disentangle behavior and results between these two worlds. In fact people participating in the activity during or after the fact would find it quite challenging even if they could put their natural bias to the side--the bias to believe they were acting in good faith and to good ends using good information and sound logic.
Use of other people's money is a big key, but it isn't necessarily a smoking gun. For example, Facebook uses cash (shareholder funds) to hire lobbyists to advocate for A) onerous regulations for social media companies or B) a continuation of the protections it enjoys under Section 230 of the CDA. The first case (A) is likely a blatant attempt to use the power of government to prevent startup competitors from challenging their market position. The second case (B) is likely a reasonably good protection of their shareholder's and other stakeholder's interests as well as actually a good protection of free speech and enabling force for social media in general.
Other people's money can come not just from taxpayers and owners (shareholders in public companies most commonly but not exclusively) but from employees as well. Imagine employees of Facebook being asked to participate in a letter writing campaign to Congress.
It is not so simple to assume that a company can or should endeavor to right the wrongs of society. Not everyone sees the problem the same way. And not everyone will agree on the means even when they agree on the side to take in the cause. I higher a business to do what they do best--make shoes, install tires, store my money, serve me food, etc. I will do my own charitable giving, thank you very much. This is one of many reasons why Friedman was right.
How do we get out of this downward spiral? I don't believe it is easy. In fact it is quite challenging. Education and communication are likely keys. Transparency helps as well. But as long as government is both powerful and trusted, these problems will persist.
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