Crony capitalism is widely and publicly derided as the worst form capitalism. It is considered to be injurious to the long term prospects of an economy and also to the welfare of the mases. And yet, it is a widespread phenomenon in the Global South.

The main reason is that crony capitalism meets the need for investments in capital-starved countries in the Global South, says Stanford University political scientist and historian, Stephen Haber.

Crony capitalism is seen as a source of bribes, of funds for electioneering, and of black money for political leaders who are in politics mainly to line their pockets. It functions as an engine for the parallel economy.

In his introduction to The Political Economy of Crony Capitalism, Haber says that crony capitalism is frequently offered as an explanation for the inefficiencies of economic systems in the developing world. But the phenomenon has its functions, he argues.

Haber asks the following basic questions: Why do crony economic systems come into being? If crony capitalism is bad for growth, then why has it survived for so long?

Crony capitalism is defined as a system in which those close to the political authorities (politicians who run the government at any given point of time) receive favours that have large economic value. These favours allow the politically connected economic agents to earn returns or profits above those that would prevail in an economy in which the factors of production are priced by the market and not by political leaders.

The pre-eminent factor of production in the case of crony capitalism in the Global South is capital or credit, more precisely, cheap credit. In India, cheap credit is obtained by crony capitalists from the Scheduled Commercial Banks (SCB) as well as State Banks (SBs) through political contacts. Cheap credit, thus obtained, is funnelled into their enterprises.

Even private banks can be induced to provide credit to politically- backed capitalists if these banks get some sort of economic entitlement from the government.

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