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Donald Trump: Crony Capitalist Par Excellence

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The Wall Street Journal has just run a lengthy, front-page article entitled "Trump and His Debts: A Narrow Escape." The article makes clear that Trump is a crony capitalist par excellence.

It's a well-known fact that Trump was in deep financial troubles in the 1990s, including with $830 million of debt that violated the First Law of Borrowing: never give personal guarantees! The article makes clear that, when the going gets tough, Trump's first instinct has always been to turn to the government.

In a dispute with the wealthy Pritzker family over their joint ownership of the Grand Hyatt Hotel in New York City, Trump filed a civil racketeering suit against his partners, somehow mistaking the Chicago-based Pritzkers for that former resident of the Windy City, Al Capone. The case was dismissed.

In the sequential bankruptcies of his casinos in Atlantic City, he used the leverage arising from his state-granted casino licenses to wheedle payments out of the bankrupt companies - totalling $160 million between 1990 and 1996 - and retain partial ownership after they had been taken over by lenders. Meanwhile, the contractors and other creditors had to take a haircut on the amounts owed them.

In a dispute with Citibank over the Plaza Hotel in New York City, where he defaulted on a loan, Trump objected to a sale of the property to foreign investors that would have left him with no management or other role in the hotel. When Citi kept pursuing the sale in order to minimize the loss on its loan, Trump pushed a labor union to oppose the foreign investors and raised concerns about the hotel's structure with the city's buildings department.

"I drove [Citibank] nuts. I did a number on them that you wouldn't believe," said Trump about his efforts to scuttle the sale by invoking government help.

Trump has spent his entire professional career in real estate development and casino operations. There are no two fields of business more infused with crony capitalism than these two. And Trump makes no bones about it. In fact, as he has sometimes remarked in the Republican debates, he is proud of his ability to do political deals. And his history of promiscuous political donations attests to his willingness to pay for them when necessary.

Real estate development requires government permission at virtually every step. This makes it very difficult to be successful without being an accomplished crony capitalist, particularly in large cities like New York. But Trump has taken his willingness to use the government for his private benefit a step further.

In 1994, Trump entered into an agreement with the city of Bridgeport, Connecticut, to build a $350 "national tourist destination." The inconvenient fact that he intended to build on occupied land would be overcome through the city's power to condemn the businesses of the existing occupants. The plan fizzled.

In the mid-1990s, Trump famously tried to use Atlantic City's power of eminent domain to take the property of an elderly widow who lived near his casino. Trump wanted the land as a parking lot and a waiting area for limousines. When the occupant, who had lived there for over 30 years, refused to sell, Trump turned to the city. He argued, as crony capitalists always do, that her obstinacy prevented him from expanding his business and paying more tax. The attempt was thrown out by the courts.

In fact, Trump is so fond of the power of eminent domain that he is a big fan - "I happen to agree with it 100 percent" - of the Kelo v. City of New London decision of the Supreme Court in 2005. This decision greatly expanded the power of eminent domain, constitutionally granted only for the taking of land for public purposes, to include private purposes so long as the end result is greater tax revenue. The developer gets more land. The government gets more tax. The property rights of the original owner are trampled.

More recently, Trump has sued in Scotland to block a windfarm located 2 miles from the Turnberry golf course he has bought. Trump claimed that the windfarm was an "eyesore," a term that could be applied to almost anything Trump has built, and he attempted to have it blocked by invoking, among other things, the European Convention on Human Rights. The Convention is a notorious cover for creeping government intervention and is one of the reasons the UK wants to distance itself from the EU. Trump's legal challenge was thrown out by the courts.

As bad as general real estate development is, casinos are a step worse. All the usual favors have to be called in for the development of the property, but you also need a license to operate the casino. And this is adds another layer of cronyism to an already deeply compromised business.

Trump supporters often cite his wealth and his self-funded campaign as proof of his independence. His supporters rightfully decry the cosy relationship between big government and big business, a crony capitalism that is often detrimental to the rest of the country. Amazingly, they fail to see that Trump, their champion, has been one of the leading practitioners of this dark art. If they think that, once ensconced in the White House, Trump is going to turn against the habits of a lifetime, they are deluding themselves. Trump doesn't strike me as the kind of humble, introspective guy who would start to question late in his life the rules that helped him climb to the top of a dung heap.

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