Cronyism, growth and inequality

Current explanations for long-term prosperity revolve around either the importance of secure property rights or appropriate government interventions in the marketplace. This chapter sets up the theme of the book by highlighting the importance of an often-overlooked element in this debate: state-imposed transaction costs. It shows how high transaction costs damage the business environment and sow the seeds of crony capitalism. A costly business environment hinders material prosperity by making capital less productive and reducing the pool of value-creating entrepreneurs. If excessive transaction costs have detrimental effects, why do governments impose them? And why do societies fail to enact reforms that would reduce them? This chapter poses these central questions of the book and connects them to the case of Brazil, a large economy riddled with state-imposed transaction costs that result in a typical case of crony capitalism.