“ A simple definition of rent seeking[1]
is spending resources in order to gain by increasing one's share of existing
wealth, instead of trying to create wealth. The net effect of rent-seeking is
to reduce total social wealth, because resources are spent and no new wealth is
created.” Rent seeking is not profit
sharing as profit sharing attempts to create wealth whereas rent seeking does
not do so. In economics, rent-seeking is
an attempt to obtain economic rent by manipulating the social or political
environment in which economic activities occur, rather than by creating new
wealth.”
The origin of the term is from extracting
rents due to ownership of land rather than profit from actual cultivation. The
mere possession of the given land resource entitled the holder to rent and the
holder was not obligated to work the land and create wealth. In most cases the
land was inherited wealth implying that the holder had no need to work to be in
possession of the same. Hence the land holder was able to appropriate wealth on
account of his position and not due to dint of hard work.
Rent seeking is seen in many
areas of the economic sphere and is in its most vicious form when stemming from
government regulation of free competition and thereby increasing inequality in
society. An example of rent-seeking in a modern economy is effort made by firms
and individuals to obtain control of various natural resources like mines,
urban& rural land through lobbying and leveraging political strength and
thereby corner profits from them.
Historically people and groups in
power have always tried to increase their power and wealth and in the very
least at least maintain them. They have a variety of instrumentalities to
maintain the same. In the medieval ages, the king and the nobility ensured that
they cornered a large part of the wealth of society. The religious classes also
took shelter behind holy duties to maintain wealth and power. The spread of
democracy and breakdown of medieval structures has made it difficult for these
classes to corner wealth and power with the same reasoning and hence they had
to search out justifications in tune with prevalent thought.
Post Industrial revolution the
theory of marginal productivity primarily determined individuals who would get
paid more for the work they put in. Demand and supply of labour determined the
occupations which were better paid. The list of better paid occupations was
never constant and varied with technologies of the time. Over a period of time
the better paid occupations came to depend less on physical labour and more on
brain power.
We can safely say that inequality
in society would not increase if wages were paid based on marginal
productivity. This however has not been the case and in present times the rules
of the game have been skewed greatly to favor the wealthy. These rules, which
are set by the governments and groups of individuals, affect the state of
inequality in a society greatly. A famous example in regard to unfair rule
setting is the limiting of access to lucrative occupations, as by medieval guilds
or modern state certifications and licensures (Doctors, Lawyers etc.). Restricting
entry to such professions help those that have already reached there to maintain
their incomes and avoid sharing with newcomers. In economic parlance there are milking
the rents of having already reached a given position by obstructing the cycle
of demand and supply to the profession. People accused of rent seeking
typically argue that they are indeed creating new wealth (or preventing the
reduction of old wealth) by improving quality controls, guaranteeing that
charlatans do not prey on a gullible public, and preventing bubbles.
As a country becomes increasingly
dominated by organized interest groups, it loses economic vitality and falls
into decline. [2] Olson
argued that countries that have a collapse of the political regime and the
interest groups that have coalesced around it can radically improve
productivity and increase national income because they start with a clean slate
in the aftermath of the collapse. An example of this is Japan after World War
Two. But new coalitions form over time, once again shackling society in order
to redistribute wealth and income to themselves. It looks as if a society needs
to reinvent itself at regular intervals if it wants to avoid falling into the
rut.
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