“The system is rigged.” 

It’s a common complaint, and at first glance, it’s hard to argue with. We’ve all experienced it: the internet service provider with terrible service but no real competition. The airline that loses your luggage but faces no consequences. The big tech platform that seems immune to user complaints. If capitalism is supposed to be about competition and consumer choice, why do these situations persist?

The answer is pretty simple: many of these frustrating scenarios aren’t actually examples of capitalism at work—they’re examples of capitalism being prevented from working.

Remember what we established in our earlier discussions about capitalism? At its core, it’s about voluntary exchange and individual choice. When you truly have the freedom to choose where to spend your money, companies have to compete for your business. They need to offer some combination of better products, lower prices, and superior service to earn your dollars.

But what happens when government regulations, subsidies, or other interventions distort this natural process? We get what economists call “regulatory capture,” though you might have heard it referred to as “cronyism.”

This happens when regulatory bodies—generally government agencies—become dominated by the very industries they’re charged with regulating. This can happen in a variety of ways, like guaranteeing a lucrative private-sector job once a regulator leaves their agency, for example. But the end result is that instead of a regulatory body looking after public interests, it operates in ways that benefit the established players in that field.

Cronyism tends to look like this. Large, established companies use their resources and influence to shape regulations in ways that benefit themselves while making it harder for new competitors to enter the market. They might lobby for complex licensing requirements, push for regulations that are expensive to comply with, or secure special tax breaks or subsidies that aren’t available to everyone. After all, they claim, as the experts in their fields, regulators and rule-makers should rely on their advice.

Businesses that would compete with one another under other circumstances frequently band together to pool their influence resources to make these changes happen—not because they are looking out for each other but because they don’t want even more competitors in their respective fields, disrupting their comfortable status quo. 

A lot of times, these proposals are sold to lawmakers and consumers alike as safety mechanisms or quality control. This is one of the reasons occupational licensing has become so prevalent. But does your hairdresser really need more hours of training than your local police department in order to correctly wash and trim your hair?

And it’s not only controlling who can be employed in a certain field, either.

Take the internet company example we mentioned. In many areas, internet service providers enjoy local monopolies because local governments granted them exclusive rights to operate in certain territories. This isn’t the free market at work—it’s the opposite. In a genuine free market, other companies would be able to lay their own cables or develop alternative technologies to compete for your business.

Then there’s the banking industry. After the 2008 financial crisis, thousands of pages of new regulations were created, supposedly to prevent future crises. But who had the resources to handle all this new red tape? Surprising absolutely no one, it was the same big banks that were at the center of the crisis. Meanwhile, smaller community banks have been disappearing, leaving consumers with fewer choices.

This distinction between genuine capitalism and cronyism is crucial. When critics point to examples of “rigged” markets, they’re often actually pointing to markets where government intervention has prevented real competition from emerging. It’s like blaming a car’s poor performance on its engine when someone has actually stuffed a potato in the tailpipe.

The irony is that many proposed solutions to these problems involve adding even more regulations, potentially making the original problem worse. It’s like trying to fix that car by stuffing in a second potato.

In fact, if you look at the industries with the highest prices, lowest satisfaction, and persistent supply shortages, they’re generally the ones with the most regulatory interventions at every level of government. Healthcare, education, housing, and child care all fit these descriptions.

So what’s the solution? While some basic rules are necessary (like protecting property rights and preventing fraud), the key is to ensure these rules apply equally to everyone and don’t create artificial barriers to competition. When new competitors can freely enter markets, when businesses have to earn their success through innovation and customer service rather than political connections, that’s when capitalism actually works as intended.

The next time you encounter a frustrating situation where it seems like the “system is rigged,” ask yourself: Is this happening because of too much market freedom or too little? Are there regulations or other government interventions preventing better alternatives from emerging? Considering these questions is crucial for identifying real solutions rather than doubling down on what caused the problems in the first place.

So, yes, in a way, the system is, in fact, rigged. But the system in question isn’t capitalism. It’s cronyism. The best way to “unrig” it isn’t to abandon capitalism and lean even further into governmental control of markets—it’s to remove the obstacles preventing capitalism from working properly in the first place.

Learn more about capitalism here.