Smart businesses don’t adapt to crony capitalism

On February 27, Defense Secretary Pete Hegseth took the unprecedented step of designating a U.S. firm—Anthropic—as a supply chain risk. Anthropic’s crime? It refused to violate industry-wide protocols against using AI for mass surveillance or autonomous weapons.

Hegseth’s designation, which has until now been reserved for foreign firms, bars U.S. military contractors from doing business with the company. President Trump also vowed to excise Anthropic’s products, which are often regarded as superior for government applications, from federal agencies altogether. He also smeared the company’s leaders as “Leftwing nut jobs.”

This style of harsh retribution is emblematic of crony capitalism, which appears to be infecting the U.S. economy from the top down. The Trump administration seems to be reshaping the market via executive actions that include a chaotic tariff scheme filled with favoritism; priority regulatory approvals for political allies, such as in the sale of TikTok to political donors; seemingly compelled business contributions to personal and political causes, including the new White House ballroom; taking government equity stakes in companies like Intel and U.S. Steel; and punishing companies like Anthropic that resist his demands.

All the while, the president and his family have reportedly profited by billions of dollars. The Wall Street Journal recently discovered a $500 million investment from the United Arab Emirates into the Trump family crypto business—just weeks before the administration granted the U.A.E. access to closely controlled AI chips. The U.S. recently fell to its lowest-ever ranking in a leading global corruption index.

CRONYISM AND CAPITALISM

This behavior risks grave economic consequences. From the Heritage Foundation to the Cato Institute, analysts agree: Crony capitalism is bad for business. By short-circuiting market-based competition, it shrinks investment, derails innovation, and weakens the overall economy. As it eliminates traditional boundaries between government and business, the administration seems to be taking the U.S. down a path increasingly like authoritarian governments like Hungary and Russia.

Symptoms of crony capitalism include:

• Meritocratic capitalism, disrupted: Competition no longer drives success. Instead, investment is determined by connections and political alignment.
• Authorities asking favors: Political leaders provide compliant companies with benefits such as insider contracts, licenses, or regulatory loopholes.
• A culture of corruption: Businesses focus on demonstrating loyalty to leaders to secure benefits.
• Regulatory favoritism: Regulators protect crony companies rather than applying the rules fairly.
• Government bailouts: Instead of being allowed to fail, favored companies get subsidies, regulatory interference on their behalf, and tax breaks.

Crony capitalism has crippled entire countries. Hungary, once a leading Eastern European economy, now suffers from low growth and talent flight as the president’s cronies appear to mismanage national industries. Turkey, once a promising market, now contends with hyperinflation as the president’s seemingly under-qualified allies fill key banking and corporate roles. And Russia, whose industries are controlled by Putin’s oligarchs, has less economic output than Texas or California.

HOW BUSINESSES ARE APPROACHING IT

American business leaders are taking different approaches to the problem. Some are seeking advantage by playing the game. In crony capitalist economies, a few favored companies may surge temporarily. But they eventually get burned. Crony participants risk a ruined brand, a talent exodus, or a change of fortune under an erratic leader or a future opposition government.

Other leaders are hoping to wait out the storm, while privately lamenting a system that feels increasingly arbitrary, politicized, and unsafe to challenge. In an October 2025 Leadership Now Project/Harris Poll, 84% of executives said they were concerned that the political and legal climate was impacting their business and injecting harmful uncertainty into markets. Citadel CEO Ken Griffin recently summed up the sentiment, noting that “most CEOs just don’t want to find themselves in the business of having to…suck up to one administration after another to succeed in running their business.”

But publicly, most executives stay quiet, fearing retaliation. More than a third of those we surveyed admit they are very or somewhat uncomfortable speaking publicly on policy. Yet nearly all—93%—believe companies should push back against damaging government actions.

THE ROLE OF INDUSTRY ASSOCIATIONS

Fortunately, there’s an answer: Business leaders can activate their industry associations. We believe the time is right for business leaders to protect their industries and our democracy by taking three powerful steps:

1. Make a clear statement opposing cronyism. For example, “Our industry commits to doing business in the following fair and constructive ways, and we are united against the following anti-competitive government behaviors.” To get wide exposure, associations can harness their public policy committees, PR professionals, legal advisory, and media access.

2. Encourage members to reinforce this message. Association leadership can encourage member companies and executives to publicly support the association’s statement. They can facilitate this by providing talking points, PR support, and publicly standing behind members’ comments.

3. Include a statement supporting election legitimacy. As we approach the November midterms, industry leaders can reaffirm that going to the polls is a civic duty.

Though today’s circumstances are unprecedented, this isn’t a new approach. American industries have for generations relied on associations to tackle collective challenges. And associations are experienced at educating the public about policy matters. And they are already beginning to step up. Entertainment industry groups took on the Jimmy Kimmel firing. The American Bar Association addressed what it called the administration’s “law firm intimidation policy.” And the Professional Services Council, which represents government contractors, has issued warnings that the administration’s actions are undermining merit-based contracting.

Taking action as part of an association is in the interest of many companies. There is strength in numbers. And, as most executives learn over their careers, fair rules and honest referees make industries function well for all stakeholders.

With America’s competitiveness and market access under threat, we believe this moment demands a decisive response. Executives already have the tools they need to protect themselves and safeguard their industries. Working and standing together, they can help stop crony capitalism—before the contagion grows too hard to resist.

Daniella Ballou-Aares is CEO of Leadership Now Project. Marc Metzner is a retired management consulting partner who works closely with Leadership Now.