Republicans are in a panic. One wing of their own leadership is engaged in a full throated attack on Mitt Romney’s private equity background. Their argument is more articulate and aggressive than anything the left has come up with, which one has to admit is a bit embarrassing.
Now, however, mainstream Republicans are responding by trying to defend Mitt’s version of capitalism as against that of Barack Obama.
Well, the argument that Obama engages in a kind of “crony” capitalism is certainly right. He cuts deals with anyone he can to keep the system alive. He bribed the UAW leadership so successfully they were willing to help cut auto workers wages in half! He then pumped billions into the dying banking industry instead of nationalizing the banks and making sure that they served their role in providing needed finance for a deeply troubled economy. Now we are mired in a seemingly endless economic crisis akin to the BP oil spill. Let’s not even raise the Solyndra problem, where Obama insisted on touting a troubled startup in the face of stark warnings from the company’s own auditors.
But the idea that private equity is not a crony game is absurd. Of course it is. After all, why is Silicon Valley located in Silicon Valley? So that the cronyism that makes capitalism possible can succeed. It’s not what you know that counts, but who you know. And it helps if you live in reasonable proximity to the action.
By definition, all capitalism is crony capitalism. It is not transparent, it is not subject to democratic accountability, it is not subject to genuine oversight by society as a whole.
Consider one small example: A few years ago, Cal/PERS, the giant public sector pension fund controlled largely by public sector unions, had to be sued by a journalists’ advocacy group before it would reveal the fees it paid to private equity funds.
Why such resistance? Because Cal/PERS feared it would be excluded from cutting edge high tech investment opportunities if it exposed its buddies in Silicon Valley. Even the Wall Street Journal admitted: “The clubby venture-capital business has a long tradition of keeping information close to the vest.”
Some VC funds retaliated by telling pension funds that they were no longer welcome as limited partners if they also had to disclose their fee structures.
In other words, go along or get lost.