I don’t understand the term “rent seeking.”
James Madison used the term quite a bit. It refers to manipulating government to grant privileges — explicit or implicit — that provide an economic advantage over others. It’s government putting its thumb on the scale.
It’s used by economists all the time. It is the use of government to rig the market so a favored class can get above market returns. It can take the form of regulations that create high barriers to entry into a market or restrictive licensing to eliminate competitors. Back in the seventies, the Supreme Court ruled that state bar rules that prohibited advertising by attorneys were a violation of antitrust laws. The rules made it more difficult for potential clients to find attorneys and made entry into the local legal market harder allowing established attorneys and law firms to make higher profits.
>>I don’t understand the term “rent seeking.”<<
Think Elon Musk. He’s got it down pat.
Wikipedia has a pretty understandable summary on the concept:
It comes from a branch of economics called Public Choice Economics, or Constitutional Economics. James Buchanan and Gordon Tullock are the two economists who developed it. They were at George Mason University for many years, the same university where Walter E. Williams has been a professor.
“Rent seeking” means: lobbying or influencing government officials to try and get excessive regulations passed which protects the lobbying industry or firm from competition.
“Rent” is the net gain from successful lobbying to secure artificial monopoly power via economically inefficient, protectionist favors. “Rent seeking” is contrasted with efficient and normal “profit seeking” behavior, where businesses earn a legitimate short-term profit only by providing a lower cost product or a better product that attracts customers in free markets.
An example of “rent seeking” is the gains cab companies enjoyed from government restrictions on new entrants into the taxi cab service market in NYC. Cabs needed a “medallion” on their cars to operate, and the number of them issued was restricted. If you did not have a medallion you could not operate a cab. When Uber started, it killed that protectionist arrangement. Customers benefited from increased competition, more free enterprise, better service and lower prices.
definition: A search for privilege and private gain through governmental process without any investment or reciprocation.
Remember the table game “Monopoly”? When you land on the square for Boardwalk or Electric Company or Water Works and have to pay a rent just to pass through, that is rent seeking. Think of a toll booth where you have to pay a toll fee just to pass through and you have no choice but to pay it.
Someone who seeks to be paid by other persons for their necessities.
It’s not a literal term, as in rent my house out. It is sort of a metaphor for parasites who find a way to have government divert a share of the proceeds of a legitimate industry to them.
IE, a requirement that you buy health insurance with coverage “X Y and Z”. Or banks that use government connections to strip mine citizens through things like TARP and bank bailouts and “too big to fail”.
That’s what he terms “rent seeking”. Think of it as we are playing monopoly. They have government create a square for them. When we land on it, they demand “rent”.
"Rent seeking behavior" refers to the use of the power of government to create economic rents not supported by a free market, e.g. complicated tax regulations forcing you to pay a tax prepare for an otherwise simple tax return. Or forcing you to get expensive environmental inspections of a car to register the car. Every time you pay someone for service that you would not of your own free will pay for rent seeking is involved.
There are basically two distinct meanings; one for the most part benign, the other objectionable.
The more benign meaning is simply looking to rent out property or equipment or machinery or intellectual property for income. Now, the very 2 dimensional view is that the owner “already has” this thing, this building, so trying to collect rent on it is not really producing something new. That’s a somewhat dimwitted view, IMO, because the owner of an item that is in demand but many people cannot buy themselves usually entails the owner/buyer taking on some risk. So a landlord who buys a building to rent out has to deal with repairs, and taxes and bunko tenants and etc; etc.
“Rent seeking” in this context refers to a line of activity, a directional motivation designed to get as close to the government money spigot as possible. Not to create the best product possible, not to create the most competitive product or service, but to be first in the ear of the person who controls the valves of the government monies. This way, the rent-seeker gets his word into the ear of the disburser before anyone else. And as far as government disbursements, there is essentially never a profit motive, nor is there much concern as to conserving funds, indeed, many times there is motivation to blow as much money as possible so that your budget gets cranked next year. There are few controls and there is generally no kind of clawback mechanism nor is there any responsibility for the funds unless and until clear fraud is revealed. And even then. There is a routine expansion of the expenditures past what is budgeted in the form of overruns and there are infinite excuses for spending more and more money. Nothing you and I have not seen a hundred times.
It’s basically a matter of getting next to the biggest pipe.
rent-seeking is when companies try to secure profits in excess of what free market competition would enable them to earn. Usually, rentseekers employ a market-dominance (trust building) type approach....always trying to prevent new entrant competitors while striving to undermine and destroy any existing ones (often by both legal and illegal means).
Very often nowadays (as contrasted with a century ago when this approach was very much more difficult to use, if only due to the then-limited size and powers of government).... today’s rent (or excess profits) seekers will make use of governmental powers (buying laws they need thru sold-out congresscritters....laws such as may limit new entrants in various ways, laws that may impose greater operating costs on existing competitors, laws that may “rig” the trading system or the tax code to differentially advantage the market-dominant companies, also of course sweetheart contract deals with the government itself, and so forth).
In other words, manipulating government and the “use” or purchase of governmentally-mandated differential advantages by the dominant firms... is just nowadays a “business strategy”...indeed it is taught as such in MBA school...
(with of course the obvious caveats about how not to get caught breaking the laws, etc.... but why break the laws when you can buy the laws or buy what you want from corrupted “regulatory commmissions and boards and agencies”? this is the new paridyne and it works beautifully...)
Let me give you two examples of rent seeking:
Someone buys a piece of land that is zoned for a single family dwelling. They get the city council through some means to give them a variance that previous owners were denied. And they can now build a six flat condo.
The owner paid for a single but was able to make far more money than others because the government changed the rules. Previous owners sold the property for less than they could if the government had allowed a larger building. And neighbors land value goes down as the neighborhood gets busier.
A second example of rent seeking: The Gershwin family owns the rights to several songs by George Gershwin. George had no children. But his heirs have been making money off his songs ever since he died in 1937. Rhapsody in Blue which was written in 1924 is still under copyright because the Gershwin family lobbies congress to keep lengthening the copyright. When written the copyright would have expired in 1974. Fifty years after it was produced.
George’s heirs were not skilled in any way musically. They were skilled at lobbying congress. And congress increased the value of their copyrights by hundreds of millions of dollars.
Does the economist include lawyers? If he doesn’t, he’s not worth a dang. The ultimate rent seekers—lawyers make the laws that benefit lawyers.
Kind of like ambulance chasing.