Rent-seeking, again

A bit more on rent-seeking, to see if I can draw out what I’ve been trying to get at. There’s the claim that any person who petitions government is acting, at least in part, out of self-interest. A tendency to rent-seek, it’s said, may simply be a fact about people generally; hence everyone who approaches government should be regarded as a would be rent-seeker. (Rob made this position clearer in comments on the last post on this.) A person holding this view may go on to say that if there’s a normative evaluation to be carried out, that evaluation should take into account not the petitioner’s motive but the petitioner’s situation.

Consistent with this is the view that any legislator may be party to a rent-seeking transaction. The way it goes is, a person petitions government, looking for some special benefit; the self-interested legislator replies (he’s only human): sure, but what are you going to do for me?

I think what’s missing here is an acknowledgement that some forms of petition are desirable and some aren’t. It’s not OK to offer a bribe; it’s not OK for a legislator to take a bribe. Naturally, we may have laws that forbid bribery.

Conversely, it’s not only OK to vote, it’s considered desirable; it’s also considered desirable for legislators to campaign for votes, to write manifestos, etc. Some countries even have laws that mandate voting.

Our designs for our institutions can only anticipate certain cases; any framework of laws will have a normative underpinning. We may think that it’s wrong for a legislator to accept favours from big business after he or she retires as a legislator, even though no law forbids it. We may also think that it’s wrong for an organisation to invent a new incentive along those lines. Conversely, we encourage people who want to go into politics to first acquire an education, experience in business, etc., even if no law requires it. We also like it when voters are well informed. There’s a gradient of desirability, from immoral graft to virtuous example-setting.

If you bundle up all of these activities into something called ‘rent-seeking’ – choosing from then on to look at the situation of petitioners to the exclusion of the character of their petition – you close the door on something important. There may be a difference between a defence contractor petitioner and a homeless person petitioner that isn’t to do with their relative advantages. Not all vote getting is vote grubbing. To approach government and ask for something isn’t to rent-seek.

24 thoughts on “Rent-seeking, again

  1. No, it isn’t. But I must note that the defense contractor at least delivers something back.

    The problem seems to be that there’s a point somebody finds it more advantageous to use political pressure than to implement real world measures to realize his desires. And this turns live into a zero-sum game.

    Even worse, if group A managed to implement its goals detrimental to the common interest, should the next influential group rationally seek to overturn that decision? I don’t think so, they’d better secure themselves similar advantages.

  2. “I think what’s missing here is an acknowledgement that some forms of petition are desirable and some aren’t.”

    I think you’re making your argument too strong. The point that most who advance the rent seeking argument would like to make is that we should examine each petition to see if it is indeed rent seeking (in the narrow sense).

    To advocate for war against Hitler probably isn’t rent seeking….even if the advocate is a dispossessed Jew whose family might survive if the war is short and swift but won’t if it is delayed.

    But the man who advocates for war against Hitler knowing that he owns the only merchant fleet that Britain can use for convoys….well, we should at least be a little bit more aware of his motives.

    To return to more real world concerns….there are those who argue for more regulation: of business say. This may or may not be a good thing. But the argument that big business is quite happy for such regulation to be imposed, may even agitate for it….well, we need to understand that this will privilege big business as against small business because big has staff that can negotiate the regulation, small does not.

    So the support of big business for more regulation needs to be seen in this light: are they really advocating more red tape so as to protect the consumer or are they doing so to strangle their competition?

    That’s really what the “rent seeking” argument is about. Sure, there are many things done through hte political process which are just and righteous: but we must always be open to the possibility that something is being proposed in order to get one over, not for the public good.

    One that’s paying out in the NHS debate at present. Those advocating the break up into foundations, trusts, etc, have as part of their desire the abolition of national pay bargaining (and I say good thing too). Those opposing it have as part of their desire the aim of not getting rid of national pay bargaining.

    National pay bargaining can be seen as rent seeking by the unions…not for their members so much as because without such bargaining unions themselves have less importance. They like and desire the structure that requires unions to conduct such bargaining. A rent in short: unions gain members because of the political system that states that there will be national pay bargaining with unions.

  3. The problem seems to be that there’s a point somebody finds it more advantageous to use political pressure than to implement real world measures to realize his desires. And this turns live into a zero-sum game.

    Again, this ignores what I’ve been trying to draw attention to. Around here, at least, we don’t attempt to bribe public servants to win contracts, and not just because we find – on balance, and perhaps in the belief that all of our desires are commensurable – that we get less of what we want that way. We don’t even look there. This isn’t unusually saintly of us: it’s how things work generally. After all, we never get said public servants dropping hints about brown envelopes. Now this culture could change, maybe.

  4. Tim, the context for what I’m saying includes this:

    “Gordon Brown has a simple strategy to win the next election: to bribe his areas of traditional strength with money pinched from Tory-voting shires,” Mr Dunne told the Telegraph.

    “Central government grants of all kinds to councils and other public bodies have increased far faster in cities and big towns than they have in country areas.

    “We have witnessed a deliberate policy of switching taxpayers’ money from the country to the city. It has been done in secret, with no announcement, no public debate, no explanation and no justification.”

    I know you want to steer things around to your preferred application of ‘rent-seeking’ – trade protectionism, etc. – but the paragraphs I’ve just quoted show what some MPs in the current UK ruling party are spreading around the place. Tories who repeat the ‘Labour clientele’ mantra are in effect promoting the belief that to attempt to govern with a view to fairness is to do something immoral.

  5. Bribing and rent seeking aren’t exactly two side of the same coin. You can still be rent seeking (for example trying to eliminate your competitors through narrowly crafted laws that only you happen to be able to easily fulfill) without engaging in ‘bribery’ of any kind. Rent seeking can go on through entirely legitimate petition channels. The channel is mostly irrelevant.

    I think a more fruitful approach might be to ask “does this proposal (being made by petitioner A) have a larger component of rent seeking than it does public interest”?

  6. I think a more fruitful approach might be to ask “does this proposal (being made by petitioner A) have a larger component of rent seeking than it does public interest”?

    The assumption, which I don’t question here, is that all petitioners may be rent-seeking in the sense of being self-interested. If that’s so, then what’s there to be weighed up? Wouldn’t you be well advised to take account of the ‘petition channel’, as you put it? Our system is democratic and majoritarian; it must be relevant whether or not people have openly petitioned for something, and in what numbers, and I’d expect constituency MPs to be allowed to at least try to take account of such without being accused of working against ‘the public interest’.

  7. Eh? But it is electoral bribery. “Vote for me and you’ll be farting through silk! We’ll take the money off those bastards over there!”.

    You could run absolutely any politician on that platform….and regrettably many of them run on no other.

    But what it isn’t is rent seeking (except in the very minor sense that an MPs salary is a rent gained through politics and compared to the damage they could do in the real world it’s a cheap price to pay).

  8. “The assumption, which I don’t question here, is that all petitioners may be rent-seeking in the sense of being self-interested. If that’s so, then what’s there to be weighed up? Wouldn’t you be well advised to take account of the ‘petition channel’, as you put it? Our system is democratic and majoritarian; it must be relevant whether or not people have openly petitioned for something, and in what numbers, and I’d expect constituency MPs to be allowed to at least try to take account of such without being accused of working against ‘the public interest’”

    Well I certainly think that most petitioners ‘may’ be rent-seeking, in the sense that it is almost always a possibility that should be considered.

    As far as the majoritarian bit, a lot of rent seeking isn’t for the majority public good. A lot of laws are not for the majority public good. A lot of laws are more specifically tailored to some minority interest or another. That doesn’t make them ‘bad’ necessarily, and they may contribute to the overall public good. So I’m not sure that is really the dimension of analysis that is helpful.

    Take tax policy. You can want to lower taxes out of a rent seeking impulse (I want more of my money) or out of a public good impulse (the tax rate is too high and is slowing overall public growth). Or you can want to raise taxes out of a public good impulse (the government can do better with the money over *here*) but you can also do it out of a rent seeking impulse (I want more out of the government and I want *other people* to pay for my desires).

  9. In the purer, most positive of definitions (i.e no corruption etc.), similarities between the homeless person and the arms contractor:

    Both may then vote for that same political party.
    Both petitions are in overall public interest (one to provide a roof and hence social stability, the other to defend everyone’s existing roofs).
    Both access the pool of public finance.

    Differences:

    The homeless person has temporary access to a roof instead of sleeping on the doorstep of an empty building.He makes no net material gain (given he has not saved money that he does not have that he could have spent on rent.) Maybe the better comparison in this case would be a landlord or building contractor asking government to pay them to allow the homeless to use their property. They make the rent.

    The possibility of future corruption or misuse of power is vastly greater where larger individual sums of money, the misapplication of the use of armed force etc. are concerned.

    So maybe it is where the money exchanged, and hence the say it gives, ends up rather than the actual transaction in itself that is of importance in defining who is actually rent seeking. An interesting overview of money can be found at

    http://globaleconomicanalysis.blogspot.com/2007/06/why-does-fiat-money-seemingly-work.html

    which looks at some of the origins of money – payment of taxes being amongst those, which is also related to land ownership land ownership etc.

  10. “Conversely, it’s not only OK to vote, it’s considered desirable”
    That statement is only valid if you support the political idea’s of at least one of the parties enough to give them your vote.
    Ron.

  11. The assumption, which I don’t question here, is that all petitioners may be rent-seeking in the sense of being self-interested. If that’s so, then what’s there to be weighed up? Wouldn’t you be well advised to take account of the ‘petition channel’, as you put it?

    A proposal serves the common good to a degree independent of its source or transmission channel. Of course its source will tell you whom it is most likely to benefit, but doesn’t tell you it is a bad proposal.
    The consequences still need to be examined.

    But why do you insist on the channel mattering?

  12. The only sort of circumstance that I can think of the channel mattering would be the difference between the following :

    By signed petition , the residents of # borough has moved the house to consider introducing a bill that entitles the homeless to immediate accomodation.

    The ministry of defense has decided, after its review of the operational effectiveness of her majesty’s armed forces, that they will require ten more medium range fighter bomber aircraft. The contract will be tendered to our usual partners.

    So I suppose the channel can suggest to a certain degree the ‘transparency’ of the motion, and help determine source of the incentive (or not as the case may be) ?

  13. So I suppose the channel can suggest to a certain degree the ‘transparency’ of the motion, and help determine source of the incentive (or not as the case may be) ?

    Yes, I think so. If the policy being called for will either benefit the position of many or most citizens or else leave them unaffected, and they agree to it, then I think it’s correspondingly less appropriate to describe what’s being called for as ‘privilege’ (and to call the petitioners rent-seekers). Of course it’s difficult to come up with policies that meet this requirement; this is what drives some special interests to use non-democratic methods, I’d guess.

  14. Tim,

    I think it’s worth pointing out that if trades unions are engaging in rent-seeking by trying to preserve a situation which increases their threat advantage in wage bargaining, then presumably hospital managers and private health contractors who are likely to increase their threat advantage by breaking up national wage bargaining are also rent-seeking, since decreased wages for their employees will presumably mean increased wages for them. Politics is about distributing the benefits of cooperation, and since most people tend to prefer more benefits to less, they tend to try and get them which of course has costs for others: even if politics is a positive sum game, it’s not an infinitely positive sum game. So of course political struggles are about who gets what: it’s just you seem to conveniently forget that that applies equally to privatizations or decentralizations as to any other decision about political structures. As I said in the last post, this encodes a normative assumption that is clearly distinctly to the benefit of capital and the better-off.

  15. “then presumably hospital managers and private health contractors who are likely to increase their threat advantage by breaking up national wage bargaining are also rent-seeking, since decreased wages for their employees will presumably mean increased wages for them.”

    Or perhaps it will mean less tax needing to be paid to pay those wages?

  16. > I think what’s missing here is an
    > acknowledgement that some forms of petition are
    > desirable and some aren’t.

    A wish to have the State act means a wish to have via the agency of the State an action enforced upon others without their consent. That’s not freedom.

    (Of course, it might be that this unethical action is taken in *response* to a third party attempting a non-voluntary, non-well-informed contact, in which case it becomes self-defence; but it seems to me the State is vastly more used to enforce non-voluntary, non-well-informed contracts than used a self-defence mechanism; so you’re far worse off with a State than without).

  17. I suppose that because democratic government has the mandate of a majority, it is in some form entitled to make decisions it considers for the better of all (this may be in the face of facts like only 50% of the population may vote , and only 50% of those vote for that party, which hence is supported by only a quarter of the population… while it is making promises).
    Bear in mind the governments are often the special interest groups in themselves eg: The US government is being asked to authorize a 60 bn dollar arms sale to Saudi from companies it subsidizes. Is this a financial transaction alone solicited by Saudi, part of US strategy to use the region as an arms consumer, the balance for allowing Israeli planes to pass through Saudi airspace to Iran, a nescessary defensive measure by Saudi in the face of increasing Iranian might , a commitment to geopolitically ally another country so pushing forward security limits etc. etc. … and at what point do we judge if such a transaction is of benefit to society as a whole – if they aren’t used they are a waste of money/have been an effective deterrent, if they “have to be used” they are an effective use of money / cause war.
    Short of locking all world leaders in a room till they all shake hands and agree on every point of contention between them maybe…or a single world government or no governments (though with 6 billion people roaming around the planet, and a large supply of arms already distributed , things might get a bit tricky).

  18. “Or perhaps it will mean less tax needing to be paid to pay those wages?”

    Then it’s rent-seeking by those who would benefit from those who would, net, benefit from decreased taxes. A public power is a chance to use that power to set the terms of interaction to your benefit, Tim, and control over tax policy is a public power whether you use it to raise or lower tax rates.

  19. Unless of course we view it from the point of view of the taxpayer trying to make the services he subscribes to more rentable through standard competitive practice and efficiencies.That would not make him a rent seeker either, he is paying. So again the order or channel of the initiative may be significant.

  20. And even then the taxpayer would be wise to look at reforming relevant labour law when privatising a sector, to compensate for individual rights conceivably lost in the process and so maintain the attractiveness of a post, as well as wage arbitrage and how exactly, and who, will decide the wage scale to be set, to avoid for example, all the more qualified workers moving to work abroad etc. A politician aiming to slash the budget might overlook some of those concepts while selling the idea.

Comments are closed.