What’s the Difference Between Fascism, Communism and Crony-Capitalism? Nothing

The essence of crony-capitalism is the merger of state and corporate power–the definition of fascism.

When it comes to the real world, the difference between fascism, communism and crony-capitalism is semantic. Let’s start with everyone’s favorite hot-word, fascism, which Italian dictator Benito Mussolini defined as “the merger of state and corporate power.” In other words, the state and corporate cartels are one system.

Real-world communism, for example as practiced in the People’s Republic of China, boils down to protecting a thoroughly corrupt elite and state-owned enterprises (SOEs). The state prohibits anything that threatens the profits (and bribes) of SOEs–for example, taxi-apps that enable consumers to bypass the SOE cab companies.

What A Ban On Taxi Apps In Shanghai Says About China’s Economy

The Chinese mega-city of Shanghai has been cracking down on popular taxi-booking apps, banning their use during rush hour. Until the apps came along, the taxi companies, which are government owned, set the real price for fares and collected about 33 cents each time someone called for a cab. That can add up in a city the size of Shanghai. Wang says the apps bypassed the old system and cut into company revenues.Much has been made of China’s embrace of capitalism, but — along with transportation — the government still dominates key sectors, including energy, telecommunications and banking. Wang says vested government interests won’t give them up easily.

How else to describe this other than the merger of state and corporate power? Any company the state doesn’t own operates at the whim of the state.

Now let’s turn to the crony-capitalist model of the U.S., Japan, the European Union and various kleptocracies around the globe. For PR purposes, the economies of these nations claim to be capitalist, as in free-market capitalism.

Nothing could be further from the truth: these economies are crony-capitalist systems that protect and enrich elites, insiders and vested interests who the state shields from competition and the law.

The essence of crony-capitalism is of course the merger of state and corporate power. There are two sets of laws, one for the non-elites and one for cronies, and two kinds of capitalism: the free-market variety for small businesses that are unprotected by the state and the crony variety for corporations, cartels and state fiefdoms protected by the state.

Since crony-capitalism is set up to benefit parasitic politicos and their private-sector cartel benefactors, reform is impossible. Even the most obviously beneficial variety of reform–for example, simplifying the 4 million-word U.S. tax code–is politically impossible, regardless of who wins the electoral equivalent of a game show (i.e. Demopublicans vs. Republicrats).

The annual cost of navigating the tax code comes to about $170 billion:

Since 2001, Congress has enacted about one new change to the tax law per day. Pathetic, isn’t it? This tax code is a burden and a fiasco and deeply unpatriotic. As Olson’s Taxpayer Advocate Service notes, this code helps tax evaders; hurts ordinary, honest taxpayers; and corrodes trust in our system.

Here’s why the tax code will never be simplified: tax breaks are what the parastic politicos auction off to their crony-capitalist benefactors. Simplify the tax code and you take away the the intrinsically corrupt politicos’ primary source of revenue: accepting enormous bribes in exchange for tax breaks for the super-wealthy.

You would also eliminate the livelihood of an entire industry that feeds off the complexities of the tax code. Tax attorneys don’t just vote–they constitute a powerful lobby for the Status Quo, even if that Status Quo is rigged, unjust, wasteful, absurd, etc.

It’s not that hard to design a simple and fair tax code. Setting aside the thousands of quibbles that benefit one industry or another, it’s clear that a consumption-based tax is easier to collect and it promotes production rather than consumption: two good things.

As for a consumption tax being regressive, i.e. punishing low-income households, the solution is very straightforward: exempt real-food groceries (but not snacks, packaged or prepared foods such as fast-food), rent, utilities and local public transportation–the major expenses of low-income households.

1. A 10% consumption tax on everything else would raise about $1.1 trillion, or almost 2/3 of total income tax revenues, not counting payroll taxes (15.3% of all payroll/earned income up to around $113,000 annually, paid half-half by employees and employers), which generate about one-third of all Federal tax revenues and fund the majority of Social Security and a chunk of Medicare.

As for the claim that a 10% consumption tax would kill business–the typical sales tax in California is 9+%, and that hasn’t wiped out consumption.

2. The balance could be raised by a progressive tax on unearned income, collected at the source. Most of the income of the super-wealthy is unearned, i.e. dividends, investment income, interest, capital gains, stock options, etc. As a result, a tax on unearned income (above, say, $10,000 annually to enable non-wealthy households to accrue some tax-free investment income) will be a tax on the super-wealthy who collect the vast majority of dividends, interest, capital gains and investment income.

A rough estimate would be 20% of all unearned income.

This would “tax the rich” while leaving all earned income untaxed, other than the payroll tax, which is based on the idea that everyone should pay into a system that secures the income of all workers. This would incentivize productive labor and de-incentivize speculation, rentier skimming, etc.

The corporate tax would be eliminated for several reasons:

1. It is heavily gamed, rewarding the scammers and punishing the honest

2. All income from enterprises is eventually distributed to individuals, who would pay the tax on all unearned investment income.

But such common-sense reform is politically impossible. That’s why the answer to the question, what’s the the difference between fascism, communism and crony-capitalism is nothing.

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  • Here’s something interesting from Jewish comedian Lewis Black:

    Lewis Black praises socialism as ‘enforced Christianity’ in National Press Club speech

    “I do say that I’m a socialist, and I am a socialist, and that is about as powerless a position as you can be in the United States,” he said at a National Press Club luncheon in Washington, D.C.

    “And I really just wanted to start with that because the idea of calling anyone, outside of maybe Bernie Sanders, a socialist — to call Obama a socialist, you have got to be out of your godd*mn mind. There are seven socialists left in the country, and if you really want to see the leadership of the socialist party you can go to cemetery and find them.”

    “We have no effect,” Black said. “As a matter of fact, when I was a kid you actually read about them, and I can’t imagine in many of the history books, which have also kind of forgotten evolution is a real thing, that socialism is even really discussed historically.”

    “Part of the reason I believe in socialism is because if you are going to have a Christian philosophy, if that is going to be the basis of the country that you live in, and it is a Christian philosophy — and I know this because I’m a Jew — that you might want socialism, because what it is is enforced Christianity. You put your money where your mouth is and shut up. We are not going to wait on you to help the poor, you’re going to help the poor, like it or not.”


  • Charlie Primero

    Good summary. I always enjoy posts by Charles Hughes Smith because he has a knack for drilling down to the fundamentals of complex issues without wasting words.

    I wish the young hipsters and old hippies who constantly bemoan “capitalism” were not ignorant of the difference between free market capitalism and crony capitalism/fascism. This misunderstanding is not accidental. It is purposely promoted.

    • Flyover Redneck

      We’ve done away with democracy, so let’s do capitalism like China does it, in fact, this is being purposely promoted by most of the status quo, particularly both political parties. The educated, but delusional conservatives, frequently remain on the ideological defensive. Capitalism is not a socially optimal system. Class warfare is clearly understood by actual capitalists even as it remains a mystery to their academic apologists. The financial crisis (a massive capitalist coup that accelerated wealth transfer) is countered by specious hyperbole, pointing for the first time (with great drama) to failures in law enforcement, or corruption – as if those have ever been absent in this country. Chose an adjective, place it in front of capitalism. The psychic challenge for good ol’boys will be to accept that they are now in the ghetto too, and it’s always been there. Change will not come from by cheerleading the warden.

      • Dave Narby

        Guys, please look at my response above Charlie’s. Kudos!

      • Dave Narby

        For some reason, my first reply didn’t appear. I reposted it, please have a look at it. Kudos!

      • Charlie Primero

        Capitalism is a naturally occurring economic phenomena like currency or markets. It is not a social system.

        • Kerry Lewis

          Capitalism is a social system based on the principle of individual rights (allegedly) That’s the word from the greatest minds at the Heritage Foundation.
          Who’s side are you on Jethro?

          • Charlie Primero

            It’s no surprise someone promoting the national socialist Heritage Foundation doesn’t understand free market economics.

  • Dave Narby

    CHS gets it mostly right, except that a consumption tax is regressive.

    Please take a look at Georgism or Geolibertarianism as the (IMO) solution.

    Overview: http://geolib.pair.com/welcome.html also http://www.foldvary.net/

    Having read voluminously regarding the issue of taxation to
    support a minimal state, I formed the idea of a land tax (with a high
    minimum threshold) as the only fair way to: A) Collect tax in an
    unambiguous, non-preferential way and B) Address the issue of vast
    fortunes amassed over the generations by force, fraud and graft.

    Lo and behold, it turns out that I was not the first person to figure this out (shocking!). Please take a look at this

    The keys IMO are:

    A) Setting a high minimum threshold
    for the land tax. This allows for those that wish to be self-sufficient
    to live w/o any interference (e.g. your typical Amish/Mennonite

    B) Setting a maximum for the total national/state tax rate. A country
    cannot collect more than about 22% of the total economic output in taxes
    before it experiences diminishing returns. The revenue generated would
    have to be split among federal, state and local, which is a policy
    issue beyond the scope of this email ATM.

    C) The prohibition of government debt. The reason for that should be self-evident at this juncture in history.

    Please spread the word!

  • wunsacon

    >> Real-world communism, for example as practiced in the People’s
    Republic of China, boils down to protecting a thoroughly corrupt elite
    and state-owned enterprises (SOEs).

    C’mon, CHS. China stopped being “communist” decades ago. They switched to a mixed model, like seemingly everywhere else on the planet.

  • MM59

    “As a result, a tax on unearned income (above, say, $10,000 annually to
    enable non-wealthy households to accrue some tax-free investment income)
    will be a tax on the super-wealthy who collect the vast majority of
    dividends, interest, capital gains and investment income.

    A little naive. The wealthy moved their earnings from salary to unearned (capital gains, dividends, etc.) to avoid tax.
    Put in this system and they will move it back – take larger salaries. They control how they get paid – we do not.

  • Rehmat
  • DigitalBluster

    This idea of “real-world” communism is nonsense. At what point do we accept that a “real-world” example of a socio-political movement ceases to reflect the ideas that it was supposedly based on (assuming that it ever did)? Most sincere advocates of communism would accept something like the following definition for it: A classless and stateless socio-economic system based on the common ownership and democratic control of the means of production and exchange. Expecting such a person to accept China as an example of “real-world” communism is like expecting an acolyte of Ron Paul to accept the USA PATRIOT Act as an example of “real-world” constitutionalism.