Crony capitalism needs to be kept under watch

To earn that tag, a country must be overloaded with billionaires, as seen in their known wealth in proportion to its gross domestic product (GDP), drawn from data crunched by Forbes magazine, and that too with their fortunes heavily made in sectors deemed “rent seeking” and therefore shady in the context of crony-profit potential. As The Economist puts it, “An economic rent is the surplus remaining once capital and labour have been paid, which, with perfect competition, tends towards zero. Rent-seeking is common in sectors close to the state, including banking, construction, property and natural resources. It can sometimes be possible for rent-seekers to inflate their earnings by gaining favourable access to land, licences and resources. They may form cartels to limit competition or lobby the government for cosy regulations. They may bend rules, but do not typically break them.” There’s enough in this to unpack for a critique. But then, any such index must assume some way to track cronyism and oversimplify its inputs. As pelf operates behind the scenes and oligarchic trends allow only an indirect gauge at best, even a smudgy outline of the shadow cast by this economic problem can act as an indicator.

The topper on crony capitalism is Russia, whose post-Soviet flipping of assets almost overnight from state ownership to private hands made it a land of oligarchs. Even though war has reduced the wealth of its billionaires, four-fifths of it is from ‘crony sectors’ and this still adds up to nearly a fifth of its GDP. In America, at No. 26, crony pile-ups amount to only 2% of GDP; if its tech sector is reclassified as rent seeking, that figure will treble, but non-crony sectors would still account for the vast majority of its billionaire wealth, as befits a market economy. At No. 21, China also looks okay, with its crony wealth placed at 2.5% of GDP, a decline. In comparison, India’s figure is almost 8% of GDP, a sharp rise over the past decade, even though the share of billionaire wealth derived from non-crony sectors thankfully remains larger. Globally, just about a quarter of the $12 trillion odd (about 12% of world GDP) held by 2,640 Forbes billionaires is money made in crony sectors. While we could argue about how sectors get labelled, which way our economy must broadly move is amply clear. We need more wealth creation in fields where state favour plays a minimal role.