The corrupting effects of government (industrial policy, subsidies, protectionism) on corporate behavior are backed by decades of scholarship

See Scott Lincicome warns of the cronyism which is inherent in industrial policy from Cafe Hayek. 

"Scott Lincicome warns of the cronyism which is inherent in industrial policy. Two slices:

On one hand, it’s just common sense that cronyism and corruption concerns might arise at a giant company making a heavily regulated product and benefiting from massive amounts of government support (subsidies, contracts, etc.). Regardless of the merits of that regulation and support, the sheer amount of taxpayer and corporate money involved, as well as the political and bureaucratic processes required to obtain it, make some amount of cronyism all but inevitable. (Incentives matter!) And, as we’ve discussed with Big Steel, Big Ship, Big Sugar, and their corporatist friends, it’s often simply cheaper and easier to hire lobbyists and use the political process to pad your bottom line than it is to compete and innovate in a relatively free market.

But the corrupting effects of government on corporate behavior aren’t just common sense—they’re backed by decades of scholarship in the United States and abroad. In a 1997 paper, for example, economists Alberto Ades and Rafael Di Tella examined 32 countries and found that ones with “active industrial policies” (e.g., government procurement preferences and subsidies to Japanese and South Korean “national champions” during the latter half of the 20th century) were more likely to suffer from corruption, which in turn undermined the efficacy of the industrial policies at issue. More recent work found that EU development subsidies and procurement contracts substantially increased corruption risks in Eastern Europe in the 2000s, and that public procurement (and the sectors, such as transportation and construction, closely tied thereto) is disproportionately vulnerable to corporate corruption problems.

Similar findings hold for tariffs and other kinds of protectionism. In a 2009 paper, Pushan Dutt and colleagues examined numerous trade and industrial policies during the 1990s and found “strong evidence that corruption is significantly higher in countries with protectionist trade policies”—a problem amplified when bureaucrats are granted wide discretion in implementing the interventionist policy at issue. Elsewhere, Aneesh Raghunandan found that U.S. companies receiving state-level subsidies, especially tax breaks, are more likely to engage in financial fraud than are nonrecipient firms—a result likely driven by “lenient” enforcement in subsidy-providing states.

More broadly, The Economist found last year a statistically significant relationship between a country’s level of nationalism and both its perceived and actual level of corruption.

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Examples abound outside the U.S. too. As the Mercatus Center’s Veronique de Rugy reported last year, the heavily subsidized European planemaker Airbus “got hit with a $3.9 billion fine in 2020 for using hundreds of intermediaries to bribe public officials in numerous countries—including Japan, Russia, China, Libya, and Nepal—to buy its planes and satellites,” and “also faced an American inquiry over possible violations of export controls.” Corruption at the company—which is Europe’s “national champion” and Boeing’s biggest rival, by the way—was in the words of a U.K. regulator, “endemic,” and the decades-long bribery scandal has since become a “case study” in corporate fraud. At the time of the announcement, the Guardian reported, the Airbus anti-corruption settlement had become the U.K.’s biggest ever, topping the previous No.1: British national champion Rolls-Royce, which enjoyed broad U.K. government support and then succumbed to its own government contracting scandal."