Important terminology for understanding the impending US-Asian hit the wall maladjustment Train Wreck, to header:
Corruption and Crony Capitalism
Rent-seeking - obtaining profit by influencing government officials to use the power of the state to create artificial shortages. Examples of rent-seeking include (1) obtaining an exclusive government franchise to produce a good or services, (2) obtaining protection from international competition in the form of a tariff, or quota, (3) obtaining an exemption from antitrust legislation, and (4) obtaining an artificially high, guaranteed (supported) price for a good or service. (Note: rent-seeking entails both legal and illegal means of influencing government officials. Legal means include bonafide political contributions and other forms of legitimate political support. Illegal means include bribes and extortion.) Rent-seeking opportunities are most pronounced in economies where the state plays a key role in directing and regulating the economy. In such rent-seeking societies, the source of wealth-creation is not investment designed to enhance productivity and create product and process innovation but instead investment designed to influence government officials - the key to success is not what you know but who you know and how well you are connected politically. Rent-seeking endeavors, then, consume (waste) resources (capital and human ingenuity) which could have been used to create new products and more efficient production processes.
Corruption - public corruption entails the use of state power by a government official to benefit himself or herself at the expense of the public. Examples of public corruption include (1) siphoning off public funds (tax revenue or borrowed money) into a private bank account or into other private uses, (2) accepting a bribe or a "kick back" from a rent-seeker in return for the unwarranted special privileges, (3) demanding bribes or "kick backs" from individuals for the performance of normal job functions such as granting a building permits or performing inspections. Private corruption occurs when an individual takes advantage of an information advantage in an illegal or immoral manner. Examples of private corruption include (1) insider trading where corporate insiders buy or sell stock based on information not available to the investing public, (2) companies withhold information regarding poor financial performance from their investors, (3) companies sell products or services based on fraudulent information
Crony capitalism - a variety of capitalism where the dominant political leaders use the power of the state to advantage family and friends who receive government created rents and/or the proceeds from corrupt behavior. Examples of crony capitalism include (1) a company owned by a member of the family of the dominant political leader that is granted an exclusive license to import automobiles, (2) a construction company owned a friend of the dominant political leader that always wins state contracts to build public infrastructure projects, and (3) a bank owned by a member of the family of the dominant political leader that receives domestic or foreign loans on favorable terms not available to other banks. [Some authors consider crony capitalism to include circumstances which features a very close relationship between government and favored big business conglomerates where government essentially serves as handmaiden providing subsidies, tax breaks and protection from competition to the favored companies.]
Transparency - a condition where the activities and the financial condition of public and private organizations are open to public scrutiny. Examples of transparency include: (1) a bank (or business firm) that regularly makes its financial condition known its investors, its creditors and its depositors (2) a government agency that makes its rules and procedures clear and known to all those who use its services (3) government agencies that make available regular reports on their revenues and expenditures.
Moral hazard - the propensity to engage in risky behavior when insurance or other guarantees protect the actor from the natural consequences of that risky behavior. Examples of moral hazard include (1) an individual fails to lock his car routinely after he buys insurance that will cover the loss of the car if stolen, (2) a bank loan officer loans out depositors' money to a high-risk project at a high interest rate knowing the bank's depositors are covered by a government-sponsored deposit insurance program, and (3) foreign investors, assuming the host government will "bail out" failing banks, loan money to a bank the financial condition of which is suspect due to a lack of transparency.
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