Newt Gingrich: Crony Capitalism, Predatory Politicians, And The Detroit Three.

Crony Capitalism, Predatory Politicians, and the Detroit Three
by Newt Gingrich

There’s a term that’s commonly applied to the economic systems of some Asian and Latin American countries. It’s “crony capitalism.”

Crony capitalism is when government controls significant parts of the economy. Under this kind of bureaucratic micromanagement, politicians -- not the free market -- call the shots. And that means that the decisions that control the economy are of necessity political decisions, not economic ones.

Crony capitalism is bad for government. Economic power in the hands of politicians breeds corruption.

Crony capitalism is bad for democracy. Individuals and businesses outside favored industries have an unequal voice in self-government.

Crony capitalism is bad for business. Politicians wedded to the status quo stifle growth and innovation.

And there’s one more thing about crony capitalism: It’s come to America.

Predatory Politicians Practicing Crony Capitalism Created the Economic Crisis

It’s the nature of crony capitalism to expand -- for government to acquire more and more of the economy.

The agents of this expansion are elected officials. Call them “predatory politicians.”

Crony capitalism practiced by predatory politicians is at the root of the current financial meltdown.

In exchange for campaign cash and support for favored constituents, predatory politicians aided and abetted the government-backed Fannie Mae and Freddie Mac as they created and fed the subprime mortgage market.

Now Predatory Politicians Are About to Make It Worse

And to fix the mess they created, what have predatory politicians turned to? Why, more crony capitalism of course.

First, they designed Wall Street bailouts in which a former chairman of Goldman Sachs got a blank check to disburse hundreds of billions of dollars to his former colleagues on Wall Street.

Then they took over an insurance company at a hugely inflated cost.

Now predatory politicians want taxpayers to fund a bailout of three bloated, stagnant companies that have been losing money for years, one of which is currently hemorrhaging over $1 billion a month.

The Detroit Three: An Investment Only a Predatory Politician Would Propose

To reward the unions that helped produce its electoral victory, the newly empowered Democratic Congress is proposing that American taxpayers pony up $25 billion to bail out the Detroit Three automakers, Ford, GM and Chrysler.

Democrats are using the current financial crisis as their excuse to bailout the autos. But in fact, the Detroit three were unprofitable long before the current crisis hit.

According to one economist, GM and Ford made more money-losing investments in the 1980s than any other U.S. companies. And the Detroit money pit only got deeper in the ensuing two decades. Since 1998, GM has been losing an astonishing $1.5 billion a month.

That’s an investment only a predatory politician would propose.

Bringing Fannie and Freddie Style Accountability to the Auto Industry

One of the things that makes crony capitalism so profitable for politicians is that Washington exempts itself from the economic and financial rules it imposes on private industry.

For example, in 2003, federal regulators discovered that Fannie Mae and Freddie Mac had engaged in Enron-style accounting fraud. But while executives at private companies who engaged in similar fraud went to prison -- and Congress responded by imposing the draconian and business-killing Sarbanes-Oxley bill on private businesses -- Fannie and Freddie executives barely received a slap on the wrist.

One of the reasons was House Financial Services Committee Chairman Barney Frank (D-Mass.). Frank fought tenaciously against the regulation that would have held Fannie and Freddie executives accountable and might have averted the financial crisis.

Now Chairman Frank wants to bring his particular style of crony capitalism to the auto industry.

Any Detroit Bailout Government Board Should Be Subject To Sarbanes-Oxley

On “Face the Nation” this Sunday, Chairman Frank announced that not only would he push for a taxpayer bailout of the Detroit Three during the special session of Congress this week, but he would also create a government oversight board for the three companies -- in effect, a board of directors made up of predatory politicians.

I believe that it would be a mistake for the taxpayers to be forced to bail out Detroit. Companies at which union workers make $71 an hour in wages and benefits -- compared to just $47 an hour at Toyota’s U.S. plants -- are not going to be saved by a $25 billion government check.

But if Democrats do find the votes to bring crony capitalism to Detroit, Americans should at the very least insist that any government board of directors created for the auto industry be subject to the criminal penalties and lengthy prison sentences in Sarbanes-Oxley.

What’s fair for the rest of us is fair for predatory politicians.

A Chance For President-Elect Obama to Deliver Real Change

The solution to our economic problems, be they in Detroit or on Wall Street, isn’t more crony capitalism; it’s economic growth.

While politicians in Washington are constantly calling on taxpayers to put up more and more money to bail out flagging businesses, there are practical things that wouldn't cost the taxpayers a penny that we could do to make America a better place to create jobs.

One of these things is to repeal Sarbanes-Oxley. As I outline in more detail here, Sarbanes-Oxley has had the unintended consequences of stifling innovation, killing new business start-ups and driving listings overseas.

President-elect Obama won an historic victory two weeks ago on the promise of delivering change to the American people. Bailing out the Detroit auto dinosaurs is not change. It is crony capitalism in service of a failed status quo.

President-elect Obama should stand up to congressional Democrats and say “no” -- “no” to saddling future generations of Americans with the bill for today’s crony capitalism.

That would be change we could believe in.

Your friend,



P.S. Update: Last week I told you about the anti-faith, historical inaccuracies planned for the Capitol Visitors’ Center which is expected to finally open next month. According to a recent article, Congressman Randy Forbes has received assurances of several changes to the CVC including:

Removing the references claiming "E Pluribus Unum" as the national motto and engraving in stone our national motto "In God We Trust" in a prominent location within the Center.
Also engraved in stone in a prominent location will be the Pledge of Allegiance.

While these are positive changes, they are not nearly enough to honor our Godly heritage nor have they corrected other inaccuracies. As I mentioned, Callista and I recorded a video asking Americans to sign a petition at Newt.org that calls on Congress to make sure that the new visitors’ center reflects the proper role of God and faith in our nation’s history. You can view the video and sign the petition here.

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Editor's comment: Newt is right on all the points he has made in this piece.