A good sports match involves strong, skilled opponents facing off to prove who is best. The strength, finesse, speed and precision required by a soccer star explain why the sport has been dubbed the “beautiful game.” The fans who watch the game enjoy seeing the skill of the players and the battle between the teams.

But no fan wants to watch a game when the playing field is manipulated through game rigging, bribes and other corruption. The game becomes ugly — the value and appreciation of the players is depreciated and the winners are a farce.

In the same way, cronyism undermines the natural capacity of a free economy to create value by destroying competition among the players — businesses, in this case. The fans who don’t enjoy watching a rigged game are like the consumers that no longer benefit from competition between businesses. However, just as cheating in sports is diverse and sometimes hard to spot, so is cronyism—but knowing its basic traits can help people begin to spot its ugly presence.

Is Justice Blind?

Cronyism occurs when individuals or organizations collude with government officials to create unfair legislation and/or regulations that give them forced benefits they could not have otherwise achieved voluntarily. These benefits come at the expense of taxpayers, consumers, and everyone else working hard to compete in the marketplace. In its most basic form, cronyism undermines access to a fair and impartial rule of law. Economic freedom and the growth it produces rises and falls with an impartial rule of law, and without a legal system that transparently executes the law, economic freedom is lost.

When Lady Justice loses her blindfold the scales inevitably tip and the necessary environment for healthy economic competition is lost. This can happen in different ways, but two very common ways are the use of political favoritism and the exploitation of political processes.

The Political Favorite

Cronyism occurs when certain businesses have an advantage in the marketplace over others due to political favoritism. In practice, this situation manifests itself in a cozy relationship between business leaders and government officials where favoritism in the distribution of legal permits, government grants, special subsidies and tax advantages take place. And it creates an ongoing special interest in continued favoritism from government, leading to further lobbying for unearned benefits.

When a business is able to use political power or connections to create strategic advantage in the marketplace, at the expense of benefits from value-creating competition, it directs that business’ incentive away from ventures that create value for society to unproductive undertakings that misuse and needlessly waste resources.

The Political Exploiter

The list of corrupt politicians in the history of the United States is uncomfortably long. As political elections are intensely competitive, some politicians will resort to giving out political favors to organizations, businesses and industries that are hoping to limit their exposure to the relentless competitive forces of the market in exchange for support. These sorts of favors are often very subtle and hard to detect, but the end result is the same as when the playing field is manipulated to pre-determine the winner before the ball is put into play. Elected officials have incentives to regulate or pass laws that give certain companies or groups an artificial competitive edge. As a result, those industries thrive not because of value created, but because they have friends in high places.

The Emperor Has No Clothes

Cronyism will at times parade itself as a champion of free-market capitalism, but it is a charade. In fact, cronyism is detrimental to the economy because it is detrimental to the principles of freedom and fairness in society. Our economy suffers when firms use resources to get favorable treatment instead of putting those resources toward developing products and services that benefit consumers. In order for a society to meet its full potential for prosperity, businesses must compete on an even playing field.