The Rise Of Crony Capitalism

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Our economy reeks of cronyism and it’s not just from Boeing and GE lobbying for contracts. Government employees, employees of the largest “corporation” after all, engage in crony capitalism all the time.


A 1977 Supreme Court ruling permits public employees to be required to pay a “fair share” fee to reflect the benefits ostensibly received by them, along with all other workers, from collective bargaining. Twenty-three states have laws requiring workers to pay these fair share fees. The justification for this odd law is that collective action problems will cause workers who benefit from collective bargaining to opt-out of paying for it in the hopes of “free-riding” on the backs of their dues-paying colleagues. Back in the 1970s, it was feared that not forcing all workers to pay for collective bargaining would undermine the system of collective bargaining as well as the power of unions in the economy.

Friedrichs offers an opportunity to strike a blow at a particularly pernicious form of crony capitalism, public sector employee unions. These unions create an unholy alliance between politicians who support the unions, and the unions who buy the politicians with their members’ dues. Unlike in the private sector, where investors and entrepreneurs have an incentive to bargain with unions against above-market contracts, politicians are happy to make “concessions” to unions because these concessions do not come from the politicians own pockets: They come out of the pocket of taxpayers. This is why rich public sector union contracts are bankrupting states and municipalities.

A line is crossed when public sector unions take workers’ money for causes that even the employees themselves oppose. As Justice Anthony Kennedy observed at the oral argument, “many teachers strongly, strongly disagree with the union position on teacher tenure, teacher pay, on merit pay, on merit promotion, on classroom size.” These are “matters of public concern…. The agency fees require that employees and teachers who disagree must nevertheless subsidize the unions on these very points.”

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