Alongside “alternative facts” and “night Twitter,” “crony capitalism” has become a key phrase for the Trump era. The term describes a market where success is determined by political favor rather than consumer choice. Modern Russia is a classic example: if you want to succeed in the Russian oil business, you’re better off making friends with Putin than studying up on drill mechanics. The US isn’t quite there yet, but when Trump starts badgering companies to keep factories in the US — while refusing to divest from his own globe-spanning real estate business — many see a new era of US crony capitalism in the making.
Picking winners and losers is a troubling government practice for lots of reasons, but it’s particularly embarrassing for the businesses playing the game. If a company spends enough energy currying favor with the government, it starts to look like it’s doing so at the expense of its own product. What’s the point of building Google when the government can force everyone to use Alta Vista?
It’s surprising, then, to see Elon Musk working so hard to make friends with Donald Trump. Musk is usually held up as a model entrepreneur — someone using bold ideas and compelling products to tackle some of the world’s most urgent problems. But since Trump was elected, he’s been behaving an awful lot like a crony capitalist. The Tesla and SpaceX CEO joined the president’s Strategic and Policy Forum in December, and raised eyebrows among climate hawks by defending Exxon CEO Rex Tillerson’s bid for secretary of state the following month.
More recently, Musk joined CEOs from across the industry in condemning Trump’s haphazard immigration restrictions, but it came just as Musk was joining up to Trump’s Manufacturing Jobs Initiative. Thus far, he’s shown no sign of withdrawing from the initiative, or the larger advisory forum. Even Travis Kalanick, usually cast as the Lex Luthor of the tech world, bowed out of the president’s advisory group after facing boycotts from riders and drivers alike.
Musk has also bowed out of some of the new administration’s biggest legal fights. On Saturday, 97 tech companies filed a joint amicus brief against Trump’s immigration ban, a tangible show of legal resistance against the controversial order. Signers included Apple, Google, Microsoft, Uber, and even Musk’s old home PayPal. Tesla and SpaceX were notably absent from the list. Suddenly, Musk is the only tech CEO working to stay on the new president’s good side. (Update: Tesla and SpaceX joined the lawsuit on the afternoon of February 6th, after this piece was published.)
Activists should be pushing for more moderates to advise President, not fewer. How could having only extremists advise him possibly be good?— Elon Musk (@elonmusk) February 5, 2017
Musk has defended his advisory role as a way to influence Trump for the better, particularly on issues of climate and space travel. Over the weekend, he touted two small successes, adding the travel bans to the agenda at a White House meeting and raising the issue of climate change to the same group. In each case, it’s hard to say how effective he was at influencing policy. Given the largely ceremonial role of both groups, there’s plenty of reason to be skeptical.
There’s also a more cynical explanation. Musk’s businesses have long benefited from government support, and given Trump’s eagerness to throw elbows, there’s reason to think that support might melt away if the president felt slighted. That’s not normally how we think of Musk, who’s more associated with startup self-reliance than government largesse — but the dynamic was in place long before Trump arrived on the scene. Musk always had the soft power of government on his side, and it’s been an important force in making his ambitious bets pay off. The political winds may have shifted, but Musk can’t. This is the logic of crony capitalism: if you want to survive, you have to stay on the ruler’s good side.
For Tesla, government support is often quite direct. Right now, every Tesla buyer in the US walks off the lot with a $7,500 federal tax credit, with additional credits ranging up to $25,000 depending on the state and model. A similar credit lets you deduct up to 30 percent of the cost of home solar panels, a tax break that has fueled the growth of Musk’s SolarCity business, which recently merged with Tesla.
There are good policy arguments for each credit — particularly the solar installations, which can play a crucial role in the larger power grid. But those federal tax breaks have been central factors in Tesla and SolarCity’s success, and both businesses will be badly damaged if the measures are revoked. With Trump and congressional Republicans eager to roll back environmental measures, it’s not hard to imagine those tax breaks coming under fire in the next budget.
Beyond the federal subsidies, Musk’s businesses have benefited from a number of local tax breaks and one-off grants, with some estimates putting the total amount of government subsidy as high as $4.5 billion. There’s also SpaceX, which relies heavily on federal contracts as well as the broader push toward privatized space flight.
Those aren’t necessarily bad deals for the government, and I don’t bring them up to cast Musk as a freeloader. Tesla and SpaceX really do create jobs and solve problems that governments otherwise couldn’t. But the sheer scale of the subsidies shows how much Musk would have to lose in a protracted feud with the president, and how vulnerable he is to the logic of crony capitalism. If Trump ever turned on Musk, the damage to his companies would be immediate and disastrous. Like a Russian oligarch, his success depends on staying in the government’s good favor.
Musk is not alone in this. Nearly all of the businesses he’s disrupting are more reliant on government support — most notably the Detroit automakers, the United Launch Alliance, and the oil industry in general. Most major corporations benefit from government policy in some way, if only through trade and tax deals. We’ve seen CEOs from Ford, AT&T, and Boeing all playing nice with Trump for similar reasons.
But while it’s common in the business world at large, that dynamic is still rare among recently founded tech companies, which often take a more adversarial stance toward the public sector. The comparison to Uber is instructive: having spent years waging total war against municipal governments, Kalanick and his company now have more to fear from drivers and customers than the president.
It’s hard to say how this bargain ends. Trump’s executive order on immigration was his administration’s first major flash point, but less than a month into his first term, it won’t be the last. The threat to Tesla and SpaceX will remain constant, while the cost of aligning with Trump will only grow. Musk’s bet may still pay off like he wants, with greater influence and better policy, but it seems less likely by the day. Instead, he may join Chris Christie and Ted Cruz as would-be advisors who lost their dignity trying to stay in Trump’s good graces. For a business hero like Musk, that would be a long way to fall.
5:49PM ET: Updated to reflect SpaceX and Tesla’s newly announced participation in the lawsuit challenging Trump’s executive order.