Government Cronyism and the Erosion of the Public's Trust

Abstract

Large governments with broad powers engender competition for influence over those powers. This leads to cronyism, where certain groups obtain special privileges in exchange for political support. The academic literature indicates that, in addition to other negative effects, cronyism can cause public mistrust in government that limits the effectiveness of core government functions such as maintaining property rights and other individual rights. Survey data show a large decline in trust in government, much of which has occurred while government grew rapidly. Evidence indicates that government growth has been associated with rent-seeking and cronyism, leading to a withdrawal of trust. Thus, cronyism—bad government— can undermine even the appropriate functions of government. The literature also suggests that trust can be restored by the practice of good government. It seems that the best way to do so is with a smaller, more focused government that is centered on carrying out its core functions and to steer clear of cronyism.

Introduction

Large, centralized governments with broad powers and discretion over taxation and regulation naturally engender competition for influence over these powers. This competition goes by many names—lobbying, influence peddling, special interest influence, rent-seeking—and has recently come to be expressed by the term “government cronyism.” Essentially, this term means that government bestows privileges such as preferential tax treatment, preferential regulation, influence on policy, subsidies, and subsidized loans upon favored groups in exchange for their political support.

Much has been written about the negative consequences of government cronyism.[ 1] This essay explores an often overlooked adverse outcome—the squandering of the public’s trust in government—that should concern everyone, especially those who endorse greater government power and spending.

Public trust is crucial to effective government.[2] However, numerous measures of trust in government have declined to all-time lows. If trust is essential for government to function effectively, then the present situation is disconcerting.

But trust cannot be recaptured by the wave of a magic wand or by the urgent pronouncements of public officials. A growing literature on trust, reciprocity, and cooperation indicates that trust in and cooperation with government is earned by the practice of good government. Cronyism undermines this practice.

Calls for greater government power promise that it will bring great things. Sadly, the result of greater power is often political competition for favors and some form of cronyism. There is evidence that a good deal of the U.S. government’s growth over the past 50 years is related to cronyism, which may explain at least part of the contemporaneous decline in the public’s trust. This paper shows that the United States may be descending into growing cronyism and a greater mistrust of government, which impedes even the essential functions of government: establishing and enforcing property rights and other personal rights, maintaining good contract law, promoting competition, and managing public goods and externalities.[3]

The remainder of this essay presents measures of the decline in trust of government and reviews the literature on why trust in government matters. It discusses literature illustrating that individuals withdraw trust and cooperation from entities perceived to be behaving ineffectively and/or inappropriately, including government entities. It reviews the undesirable outcomes generated by cronyism with a focus on the possible withdrawal of the public’s trust, subsequent decline in government effectiveness and citizen welfare, and increased social discord. Some aspects of the current situation are presented, as well as the dismal possibility of a downward spiral in government effectiveness, public trust, and economic productivity.

The literature suggests that cronyism creates serious problems. One lesson that policy makers ought to learn from these considerations is that it is important for government to nurture the public’s trust and cooperation. While big government is often viewed as a solution to numerous problems, a smaller, narrowly focused government that presents few opportunities for cronyism may be the best prospect for regaining the public’s trust and ensuring the effectiveness of government.[4]

Continue Reading