The return of crony capitalism

The intricate relationships between business tycoons and political powerbrokers have shaped economies and societies since the dawn of modern capitalism. Over centuries, these alliances have taken many forms — some enhancing economic development while others extracting parasitic rents. Yet all of them effectively concentrate power and influence within a privileged club of elites, who co-mingle private capital and public policy in a symbiotic process through which they further their mutual interests.

The MAGA movement’s recent embrace of crony capitalism is consequently just a symptom of a deeper historical trend. From the Medici and the Rockefellers to the Castors and the Gandhis, many powerful families throughout history have hitched their fortunes to those of the ruling class— or even transcended to become rulers themselves. The security, stability and influence that come with access to power has been a treasured asset for those brave enough to seek it, those fortunate enough to secure it and those skilled enough to sustain it. But it can also become a dangerous liability when regimes suddenly fall.

How these cronies move into positions of power ultimately depends on their core values and ideologies about the role of private enterprise in society — especially whether they are inclined to protect their own narrow interests or share the spoils more broadly. Their enduring success also depends on their ability to anticipate the winds of change, particularly in situations where greater political polarization inevitably is likely to produce larger ideological swings.

Countries where political elites have taken a more mutualistic approach to partnering with enterprising families (like the chaebol in South Korea) have achieved extraordinary economic and social progress. Those where the relationship is based on a more parasitic pay-to-play subservience (like the oligarchs in Russia) often flounder in arrested development, as the private benefits of increased commercial activity are captured by extractive elites, inhibiting more inclusive economic progress.

The more parasitic, pay-to-play form of political symbiosis is especially pervasive in emerging and frontier economies, where trust is elusive and institutions are ineffective. In these environments, oligarchic dynasties and familial networks create and sustain privileged microclimates of abundance — though mostly for their own exclusive benefit.

Contrast this with countries like the United States, where a more mutualistic species has dominated economic affairs since the end of World War II, contributing to one of the most dynamic and affluent societies in history. In fact, for nearly a century, the mutually beneficial relationship between business and government has been one of the defining features of the most advanced economies. 

Since the end of the Gilded Age over a century ago — back when the U.S. was still an emerging economy — Americans have been less exposed to the more parasitic form of cronyism than was rampant during the Industrial Revolution. Like many developing countries today, that era produced explosive innovation, economic progress and staggering degrees of inequality. It also led to persistent market failures and corporate abuses, triggering an age of widespread social activism and political reform.

Reacting to this concentration of wealth and power, a progressive movement emerged, advocating for new public “institutional” stabilizers like labor rights, women's suffrage, estate taxation, social security, antitrust legislation and effective regulation. These stabilizers were designed explicitly to constrain the dynastic families who ruled the commanding heights of America’s economy at the time — including the Vanderbilts in railroads, the Carnegies in steel, the Rockefellers in oil and the Guggenheims in mining, among others. 

Some of these families, like the Rockefellers and Carnegies, embraced these changes and became extraordinarily civic minded, creating national parks through massive donations of land, building universities and museums around the country and funding the national system of public libraries. Whether this philanthropy was designed to appease resentful citizens or motivated by genuine care for their communities is debatable. But their contributions to various critical public goods are undeniable, and they left behind many institutions dedicated to many noble ends.

Others, like the Vanderbilts, transitioned from industrial titans to social elites, focused more on maintaining their extensive real estate holdings, cultural patronage and social status rather than direct business expansion. Still others, like the Goulds, were more thoroughly displaced from their previous position of economic influence as a byproduct of market reforms.

In the decades that followed, as economic growth fueled greater tax revenues, increased funding for these public institutions helped to suppress market failures, address social tensions and invest in critical infrastructures that encouraged speculators to invest, businesses to grow and families to thrive. The shared prosperity generated by this unique mix of public and private sector forces made the American economy the envy of the world, lifting per capita incomes and general wellbeing, and exporting this stability globally.

However, over time the foundations of these critical stabilizers have been eroded by subsequent generations of policymakers and lobbyists, keen to extract greater private benefits from the system at the expense of the public good. Recent campaign promises from the MAGA movement echo earlier conservative slogans to “starve the beast.” They openly call for the defunding of public institutions that were responsible for stabilizing both domestic and international affairs —and for creating the conditions necessary for them to accumulate these vast fortunes in the first place. They essentially want to shut the gate behind them now that they’ve reached the promised land, and are now deploying their vast reserves of capital to remake the system in their own image — and mostly for their own benefit.

In many ways, we now appear to be approaching the end of a second Gilded Age, with ominous implications for stability in the years to come. Emboldened by these developments, a new generation of robber barons has recaptured the commanding heights of America’s economy, this time monopolizing information rather than industry. Elon Musk is the de facto leader of these so-called “broligarchs”, both in total wealth and proximity to power. His $259 million investment in building a cozy relationship with Donald Trump has already yielded billions in value for the companies he controls — and that’s before the new president even takes office. Others like Mark Zuckerberg are paying millions of dollars to attend the inauguration, in exchange for favors yet unspoken but which will undoubtedly arrive in the months to come. 

As American politicians increasingly look to tech titans and venture capitalists for leadership in economic and political affairs, we should all consider whether these symbiotic relationships are more likely to share prosperity with the many or consolidate it further in the hands of the few. The answer to that question will determine whether the U.S. continues to be a driver of economic development and social progress that sets an example for the rest of the world. Or whether we race toward another quarter century of depression and conflict — operating more like the emerging economy that prevailed at the turn of the 20th century, when stability was still elusive and cronyism was rampant.

Many leaders in New York, London, Toronto, and Sydney — who have been born and raised in a privileged bubble of stability and prosperity — are unfamiliar with how to operate under these more turbulent conditions. They’re accustomed to reliable access to capital, labor, justice and infrastructure, and have little intuition for how to survive and thrive without access to reliable public institutions.

Those looking for guidance and inspiration (or cautionary tales) would be wise to study other parts of the world where institutional voids are pervasive and consequently political symbiosis is commonplace. On the frontiers of capitalism, nurturing relationships with government officials is often a core competency, or even an existential imperative.

To be clear, under ideal conditions, these cozy relationships don’t need to be exclusively extractive — to borrow a term from Nobel laureates Daren Acemoglu and James Robinson. In these contexts, some enterprising families are also the primary drivers of inclusive economic development wherever they operate.

In South Korea, the country’s sprawling family-run conglomerates turbocharged the "Miracle on the Han River" by marshaling capital, technology and labor to industrialize the country at breakneck speed. Similar cases of enterprising families driving economic development can be found in every economy on the planet — from the Carvajals in Colombia to the Tatas in India to the Ayalas in the Philippines. These partnerships have not only generated enduring commercial success for the families themselves, but also accelerated economic development.

Naturally, these benefits are not free, and don’t last forever. Such Faustian bargains always come with strings attached. In South Korea, the collusive links between chaebol families and powerful politicians have recently triggered a string of scandals, culminating in the impeachment of a former president and the arrest of Samsung's family leader for bribery. As it did in America during the early 20th century, public discontent with flagrant corporate abuses often fuels tough new antitrust regimes, threatening the privileged status of these political symbionts after decades of partnership and growth. Well-connected elites like Musk and enabling politicians like Trump would be wise to take note.

As we enter a New Age of Uncertainty, with ominous parallels to the last era of sustained polycrisis a century ago, dynastic families and political elites will both be faced with a stark choice. Do they help to define a new social contract between private citizens, private businesses and public institutions? Or do they make hay while the sun is shining, and keep the firewood piled high, then brace for impact and wait for the long winter to pass?

In moments like this, our research suggests that leaders and organizations committed to continuity have much to learn from enterprising families in emerging and frontier economies, where uncertainty is the rule rather than the exception. Their strong values-based cultures, deep commitment to their communities, and longer-term investment horizons, act like ballasts on a ship — working together to absorb shocks and navigate through treacherous waters. 

Any organization can embrace this same frontier mindset. The reward is not only a greater chance at long-term success, but also superior long-term performance. Unfortunately, many traditional corporations have forgotten that commercial success is fundamentally interconnected with community well-being. Or as one Latin American leader shared with us: “There cannot be a healthy business in a sick society.”

Public institutions must also do their part and learn to evolve with the times. There is no doubt that governments that effectively attend to the needs of their people and help solve tangible problems are better. Paying taxes is a demoralizing act when the general perception is that these vast resources are being squandered by inefficiency and graft. In that sense, Musk’s “DOGE” is a step in the right direction, though with many caveats. The work in making government more efficient needs to be done with a scalpel, not a chainsaw.

Most fundamentally, the private and public sectors must learn to coordinate and collaborate more effectively. Restoring trust requires capable, accountable institutions that can set fair rules, mobilize collective investments, encourage private risk taking and protect the common good. The business community also has a central role to play in rebuilding our collective faith in a more inclusive and sustainable form of capitalism — like the more enlightened robber barons at the end of the last Gilded Age.

After all, we all do best over the long-run when we’re aligned with our most important stakeholders — both private and public — in service of a common goal. In that sense, the most enduring enterprises, especially those that operate outside of advanced economies, are a natural role model for the type of organizational resilience and agility that we’ll all need to navigate the turbulent times that lay ahead.