Crony Capitalism is the preferred treatment of some businesses at the expense of others. This situation is most egregious when it involves big business and government.
The Koch brothers, Charles and David, have been vilified by the left for being large contributors to conservative causes. Yet their philanthropy has been generous to many liberal causes as well. Perhaps no one is better suited to comment on the interaction between big business and government.
In a Wall Street Journal Op-ed, Charles Koch revealed the dirty truth:
“Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”
Koch also went on to say how this corruption would be imposed:
“Subsides and mandates are just two of the privileges that government can bestow on politically connected friends. Others include grants, loans, tax credits, favorable regulations, bailouts, loan guarantees, targeted tax breaks and no-bid contracts. Government can also grant monopoly status, barriers to entry and protection from foreign competition.”
In an earlier post I called ObamaCare “the largest example of crony capitalism in our government today.” That post (Physician-Owned Hospitals Deliver Quality and Value) described the cooperation of the hospital associations with the Obama administration in eliminating new construction of physician-owned hospitals, despite their better track record delivering quality and affordable healthcare.
Chris Conover, writing in Forbes, gives credit to Jeb Bush for exposing that ObamaCare was “written by special interests for the special interests.” Conover says the Obama administration guaranteed the health care industry $621 billion in added health care spending financed through a combination of subsidies and mandates. In exchange, the administration received what amounts to revenue kickbacks along with considerable industry assistance in pressing Congress to pass the law.
The major stakeholders in healthcare are Big Pharma (drug companies), Healthcare Insurers, the American Hospital Association (AHA), and the American Medical Association (AMA). Each played a vital role in the passage of ObamaCare. Conover enumerates how each was coerced to play their part:
- Big Pharma agreed to a $150 million quid pro quo in which the industry agreed to spend heavily to lobby for the pending health bill in exchange for a deal that the law would not allow price controls or allow for reimportation of drugs – both of which could have cost the industry tens of billions of dollars. In recognition of all the new business being steered their way, the industry acceded to a $27 billion tax on drug manufacturers.
- Health insurers agreed not to oppose the bill and like Big Pharma, concluded it could safely afford to agree to rebate $60 billion in health insurance revenues in light of the much larger revenue stream being guaranteed by the ACA’s mandates and subsidies.
- The AHA agreed to accept Medicare payment cuts to help make it look as if ObamaCare was budget neutral, knowing these would be more than made up for by new business generated by the law. (To make sure this was so they were guaranteed the elimination of new construction by Physician-Owned Hospitals, their chief competition.)
- The AMA agreed not to oppose the law in exchange for a permanent “doc-fix” aimed at averting a sizable reduction in physician payments required under current law. But due to the sizable cost of this provision, lawmakers cut it from the final bill. After passage of ObamaCare, on the pretense that it was “revenue neutral”, Congress passed the “doc-fix” in April, 2015 at a long-term cost of $500 billion.
Only 17% of American doctors are members of the AMA. Unfortunately, the other 83% are not represented by any one national organization that has political clout. Today, most doctors are most closely aligned with the interests of their specialty societies, such as The American Academy of Orthopedic Surgeons, of which I am a member. These specialty societies lobby for the interests of their members apart from the AMA.
Jeb Bush is right to expose the crony capitalism that birthed ObamaCare – and right to call for its repeal and replacement. Those on the left like Hillary Clinton and Bernie Sanders, and even on the right like Donald Trump, who call for “fixing ObamaCare” by more government regulation, will only perpetuate a system that was corrupt from its beginnings.