RENT SEEKING

Rent seeking by vested interest groups has a considerably damaged economic and social progress in Ireland

Rent seeking by vested interest groups has a considerably damaged economic and social progress in Ireland

Introduction

Rent seeking is the competition for politically protected transfers of wealth. The typical rent-seeking scenario includes a “prize” and a set of actors that create, capture, and finance the prize. The government creates the prize by setting, for example, a public subsidy, an import license, or a monopoly protected by legal entry barriers. Interest groups struggle to influence the government and capture the prize, a contest that may include lobbying, public-relations campaigns, and bribery. Unorganized segments of the public complete the rent-seeking picture, for they are the actors from whom resources are extracted to finance the prize, via taxes or higher, monopolistic prices (Hayek, 2004, 111).

The basic foundations of rent seeking were summarized with considerable independent additions in Tollison. Almost all of the early work can be found in Buchanan, Tollison & Tullock and Rowley, Tollison & Tullock. The result of this discovery has been that rent seeking is now found in almost every issue of modern economic journals. This is, of course, a radical change from the previous situation, and nobody, so far as we know, doubts that it is a significant improvement. We now have a strong theoretical explanation for the existence of the lobbying and pressure group industries. This explanation will surprise no one but it is better to have a formal theory than to depend on general opinion.



Rent-seeking in practice

The logic of the argument clearly has a much wider application than simply to licensing systems. In Krueger's words "when economic policies produce something that is to be owed at less than its value by any sort of government procedures, resources will be used in an effort to capture the rights to the items of value".

In Ireland the circumstances are not by any means as extreme, but (like most industrial countries) we do have a history of more-or-less well-meaning government interferences to advance growth and living standards and to decrease unemployment. After all, the transfer of viewpoint which that theory enjoins on us radically alters our perception of the possible and certainly likely damage of a variety of government instruments which have been widely used in Ireland over the years.

"What's wrong with rent-seeking anyway"

We need to be careful about bandying around this term, rent-seeking. According to some appreciated point of view, the entire process of economic growth is based on the attempt of entrepreneurs to create and exploit rents. Thus, by embryonicing new products, opening up new markets, and enlightening methods of production, firms improve productivity in order to gain economical advantage which translates into profits, a process which current finance theory tends to call "creating value". Derivative behaviour and opposition erodes the advantage soon enough, and the advantage of the new products, markets and processes is thereby passed through to the consumer usually. As the key to growth in efficiency and living standards, ...