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Crony capitalism

Crony capitalism is a variant of capitalism in which the opportunity to open or succeed in business is heavily dependent on one's connections. This results in business decisions being powerfully influenced by business friendships and family ties rather than by impersonal market forces. The term is almost uniformly used perjoratively and is generally used as an explanation for why a superficially market-based system fails to generate economic growth. The term has been used to describe the economic systems of Japan, Indonesia and the United States.

Crony capitalism is partially explainable by using the principles which govern any network. As government and business leaders try to accomplish things they naturally turn to other hubs (powerful people) for support in their endeavors. In a developing country those hubs may be very few thus concentrating economic and political power in a small interlocking group. In a fully developed country, wealth may have become concentrated in a small group with the same result, reduction of the number of hubs or influential persons and institutions.

Critics question the meaningfulness of the concept by pointing out that personal factors influence business decisions in all economic systems and that the existence of these factors, per se, is insufficient as an explanation for why certain economic systems work better than others.

In Russia and the other successor states to the former Soviet Union, and in China, government connections are almost indispensable to business success.

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See also: oligarchy



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