Wednesday, November 21, 2012

The Taj Mahal And Crony Capitalism

John Kay visited the Taj Mahal on his visit to India.  He admired its beauty like most people, but he also saw it as enormous drain on the economy.  He estimated that building the Taj Mahal absorbed 40% of India's GDP.  It was also an example of crony capitalism which led to the overthrow of the regime.  It also reminds him of the crony capitalism that he sees in India today and in the rest of the world.  With the exception of the information technology industry, most of our industries are afflicted with crony capitalism and rent seeking.  Governments and corporations work together to protect the existing firms from competition and the pace of innovation declines.  The banking industry is perhaps the worst among them.  It devotes most of its resources towards the trading of existing securities, and less of its energy is spent on allocating capital to its most productive uses.  This is a perversion to a vision of capitalism that fosters innovation by enabling the new to replace the old.  Crony capitalism may take us to the same place that it took the builder of the Taj Mahal.

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