Want to end Corruption? End Cronyism

Several employees of the Export-Import Bank (Eximbank) where recently suspended for accepting bribes from recipients of Eximbank funding.  Supporters of Eximbank will say that the action of these "bad actors" does not discredit the program. But these cases are far from isolated incidents. In fact, according to Diane Katz of the Heritage Foundation: “There have been at least 74 cases since April 2009 in which bank officials were forced to act on the basis of ‘integrity’ investigations by the Office of Inspector General..."

This should not be surprising since, as Veronique de Rugy points out, corruption is inevitable when business success depends on staying in the good graces of politicians and bureaucrats, instead of pleasing consumers:

Corruption: Political allocation of capital incentivizes both the politicians/bureaucrats and the company hoping for a handout to engage in corruption. First, a company may try to secure funding by offering politicians and bureaucrats something they may want in exchange for being picked for a handout. But policymakers and bureaucrats may also be tempted to use their position of power to direct funding in ways that are contrary to the standard set for the allocation in the first place — instead, based on friendship, political connections, or bribes.

Eximbank is far from the only example of crony capitalism and corporate welfare leading to corruption. As I wrote last year, Virginia’s economic development programs played a role in the scandal plaguing former Virginia Governor 'Tax Hike" Bob McDonnell:

Governor McDonnell’s defense is that promoting Virginia businesses is simply part of his job. In fact, the Virginia legislature has created a raft of taxpayer-funded programs designed to “encourage” Virginia businesses. Many of these programs, such as the Governor’s Opportunity Fund and the Governor’s Agriculture and Forestry Industries Development Fund, distribute funds “at the discretion of the Governor.” And what businesses is the governor likely to “discreetly” support? Businesses which never support him that are run by complete strangers or businesses run by big donors and/or close friends? To paraphrase writer Michael Kinsley, what is really outrageous about the corporate state is not what is done illegally but what is perfectly legal.

Campaign for Liberty continues to work to repeal Eximbank and all forms of corporate welfare and crony capitalism.


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