Cronyism is partiality to long-standing friends, especially by appointing them to positions of authority, regardless of their qualifications. Hence, cronyism is contrary in practice and principle to meritocracy.
Cronyism exists when the appointer and the beneficiary are in social contact; often, the appointer is inadequate to hold his or her own job or position of authority, and for this reason the appointer appoints individuals who will not try to weaken him or her, or express views contrary to those of the appointer. Politically, "cronyism" is derogatorily used.
The word crony also appears in the 1811 edition of Grose's Vulgar Tongue with a decidedly non-collegiate definition, placing it firmly in the cant of the underworld. Another oft-quoted source is the supposed Irish term Comh-Roghna[koˈronə], said to translate as "close pals", or mutual friends. However, this term apparently originated with Daniel Cassidy (fabricator of many fake Irish terms) and is completely unknown in the Irish language. (See Ó Dónaill's Irish-English Dictionary p. 288, where the term is conspicuously absent).
Governments are particularly susceptible to accusations of cronyism, as they spend public money. Many democratic governments are encouraged to practice administrative transparency in accounting and contracting, however, there often is no clear delineation of when an appointment to government office is "cronyism".
It is not unusual for a politician to surround him- or herself with highly qualified subordinates, and to develop social, business, or political friendships leading to the appointment to office of friends, likewise in granting government contracts. In fact, the counsel of such friends is why the officeholder successfully obtained his or her powerful position – therefore, cronyism usually is easier to perceive than to demonstrate and prove. However, "The practice of favoritism based on relationships and connections - rather than someone who demonstrates top credentials and well-suited experience – ultimately results in vastly inferior government service to the public."
In the private sector, cronyism exists in organizations, often termed "the old boys club" or "the golden circle", again the boundary between cronyism and "networking" is difficult to delineate.
Moreover, cronyism describes relationships existing among mutual acquaintances in private organizations where business, business information, and social interaction are exchanged among influential personnel. This is termed crony capitalism, and is an ethical breach of the principles of the market economy; in advanced economies, crony capitalism is a breach of market regulations, e.g., the Enron fraud is an extreme example of crony capitalism.
Given crony capitalism's nature, these dishonest business practices are frequently (yet not exclusively) found in societies with ineffective legal systems. Consequently, there is an impetus upon the legislative branch of a government to ensure enforcement of the legal code capable of addressing and redressing private party manipulation of the economy by the involved businessmen and their government cronies.
The economic and social costs of cronyism are paid by society. Those costs are in the form of reduced business opportunity for the majority of the population, reduced competition in the market place, inflated consumer goods prices, decreased economic performance, inefficient business investment cycles, reduced motivation in affected organizations, and the diminution of economically productive activity. A practical cost of cronyism manifests in the poor workmanship of public and private community projects. Cronyism is self-perpetuating; cronyism then begets a culture of cronyism. This can only be apprehended by a comprehensive, effective, and enforced legal code, with empowered government agencies which can effect prosecutions in the courts.
All appointments that are suspected of being cronyism are controversial. The appointed party may choose to either suppress disquiet or ignore it, depending upon the society's level of freedom of expression and individual personal liberty.
Some instances of cronyism are readily transparent. As to others, it is only in hindsight that the qualifications of the alleged "crony" must be evaluated.
Cronyism can exist anywhere, in both free and not-so-free states. In general, authoritarian and totalitarian regimes are more vulnerable to acts of cronyism simply because the officeholders are not accountable, and all office holders generally come from a similar background (e.g., all members of the ruling party). Some situations and examples include:
Appointing cronies to positions can also be used to advance the agenda of the ruler responsible for the appointment, and it can also spectacularly fail to do so. In medieval England, King Henry II arranged the appointment of his good friend Thomas Becket to be Archbishop of Canterbury. Henry believed that Becket would promote the king's agenda but was dismayed to see Becket adhere to his own conscience. Becket eventually excommunicated the king and the king allegedly incited three knights to murder Becket in response.
Examples of cronyism can be found historically in a number of communist states. The cultural revolution in China was initially popular due to the perception that Mao Zedong was ridding the state of a number of officials who had obtained their positions by dint of friendship with communist authorities. The nomenklatura system, which existed throughout the life of the Soviet state and came to prominence in the time of Leonid Brezhnev is another notable example.
The Warren Harding administration has become a schoolbook case of cronyism. Harding appointed his old college friends as members of his cabinet, resulting in several scandals. The term Harding cabinet has become synonymous for rotten and corrupt administration.
Paul Wolfowitz was mentioned in connection with cronyism after the World Bank committee charged him with violation of ethical and governance rules as bank president by showing favoritism to his companion in 2005. The report noted that Mr. Wolfowitz broke bank rules and the ethical obligations in his contract, and that he tried to hide the salary and promotion package awarded to Shaha Riza, his companion and a bank employee, from top legal and ethics officials in the months after he became bank president in 2005.
Bertie Ahern, former Irish Prime Minister, Taoiseach, was mentioned on several occasions to have taken sums of money and kickbacks from property developers during the Celtic Tiger. Allegations that he had received payments from developer Owen O'Callaghan were brought up in the Mahon Tribunal, the largest, longest and most expensive tribunal in the history of the Irish State. The tribunal began an investigation of the finances of former Taoiseach Bertie Ahern. Ahern denied that any such payments had taken place. Details of specific transactions under investigation were leaked to the press and questions were asked in the Dáil. The tribunal later revealed that an unprecedented level of corruption and bribery occurred under Ahern's rule, with at least 15 of his political colleagues involved. most of the illegal transactions were "brown envelope exchanges" from property developers. Bertie Ahern also claimed to have never had a bank account when he was accused of not telling the truth over payments worth more than £275,000 which were passed through bank accounts connected to him, including during the period he was Ireland's finance minister. Ahern was also quick to silence media attention on the collapse of the property boom in Ireland to protect his developer friends and interests, such as his infamous panning of UCD economist Dr Morgan Kelly PhD and author David McWilliams, once suggesting that Morgan Kelly should commit suicide, when he warned of an impending Irish property crash and recession in 2007. Bertie Ahern also lied on public television on several occasions, most notably in his 2006 RTÉ interview with Bryan Dobson in which he denied having received illegal payments from property developers. Ahern was also criticised by the Moriarty Tribunal for signing blank cheques for former Irish Taoiseach Charles Haughey, without asking what those cheques were for, while he was still in office. Fearing a rebuke from his schemes, On 2 April Ahern announced his intention to resign from the position of Taoiseach, effective 6 May 2008 and resigned from politics altogether in March 2012 before he was expelled from Fianna Fáil.
Begley, T., Khatri, N., Tsang, EWK. 2010. Networks and cronyism: A social exchange analysis. Asia Pacific Journal of Management, 27:281-297
Khatri, N., Tsang, E.W.K., & Begley, T. 2006. Cronyism: A cross-cultural analysis. Journal of International Business Studies, 37(1): 61-75. [Also in T. G. Andrews and R. Mead (Eds.), Cross Cultural Management, Volume 2 -The Impact of Culture 1: 126-150. Routledge, UK.]
Khatri, N., Tsang, E.W.K., & Begley, T. 2003. Cronyism: The downside of social networking. The Best Papers Proceedings of the Academy of Management, Seattle
Khatri, N. & Tsang, E.W.K. 2003. Antecedents and consequences of cronyism in organizations. Journal of Business Ethics, 43: 289-303.