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42
Then as the condition of demosclerosis becomes more per-
vasive and critical, rent seeking develops into part of the
normal course of business. Firms begin to see various
taxes, both explicit and implicit (i.e., via regulation, liabil-
ity rulings, takings, inflation, etc.) as normal expenses,
along with the increased expense of hiring professionals to
minimize these taxes. Thus, they seek means to secure
rents from the political process that either offset or exceed
the tax expense. Once an economy is inundated by rent
seeking, the level of distortion in the economy and the level
of resource misallocation will be so high that it will be
hardly possible to measure the social costs of rent seeking.
43
ments of French politician Frederic Bastiat in 1850, who
might be considered a forerunner to public choice theorists.
The law has been used to destroy its own objective [to
serve as a defense of life, liberty, and property]: It has
been applied to annihilating the justice that it was sup-
posed to maintain; to limiting and destroying rights to
which its real purpose was to respect.
This fact [that force is entrusted to those who make the
law], combined with the fatal tendency that exists in the
heart of man to satisfy his wants with the least possible
effort, explains the almost universal perversion of the
lawinstead of checking injustice [it] becomes the in-
vincible weapon of injusticeThis is done for the bene-
fit of the person who makes the law, and in proportion to
the power he holdsthe few practice legal plunder on
the many
It is impossible to introduce into society a greater change
and a greater evil than this: the conversion of the law into
an instrument of plunder.
As long as it is admitted that the law may be diverted
from its true purposethat it may violate property in-
stead of protecting itthen everyone will want to par-
ticipate in making the law, either to protect himself
against plunder or to use it for plunder.
The person who profits from this law will complain bit-
terly, defending his acquired rights. He will claim that
the state is obligated to protect and encourage his par-
ticular industry; that this procedure enriches the state be-
cause the protected industry is thus able to spend more
and to pay higher wages to the poor workingmen. Do
not listen to this sophistry by vested interests. The ac-
ceptance of these arguments will build legal plunder into
44
a whole system. In fact, this has already occurred (Bas-
tiat 1990/1850, pp. 9, 11, 12, 18).
45
ent with public choice theory in the sense that he recognizes
the natural tendency of men to use the political process for
their own gain. It is not that some men are particularly evil
and thus they seek rents, but because the natural course for
any person, either in business or in politics, is to avail him-
self of profitable opportunities. The fact that Bastiat points
out this very thing over a century prior to the advent of pub-
lic choice theory demonstrates both his insightfulness and
the fact that rent seeking problems have been pervasive and
onerous. As Buchanan notes, the existence of rent seeking
today should come as no surprise to economists.
46
Suppose that, instead of discovering a new commodity or
service or production process, an innovating entrepreneur
discovers a way to convince the government that he de-
serves to be granted a monopoly right, and that govern-
ment will enforce such a right by keeping out all poten-
tial entrants. No value is created in the process; indeed,
the monopolization involves a net destruction of value.
The rents secured reflect a diversion of value from con-
sumers generally to the favored rent seeker, with a net
loss of value in the processRent seekingrefers
tothe activity motivated by rent but leading to socially
undesirable consequences (Buchanan 1980, pp. 50, 51).
47
persing the booty to increase expenditures or cut taxes (Tol-
lison 1982, pp. 578-579). However, Tollison argues that rent
seeking is not always analogous to profit seeking, and that
rent seeking has both positive and normative elements.
48
Rent seeking may be distinguished from profit seeking
because the rent seeking operation creates artificial scar-
city by the state and thus monopoly profits are available
for capture. Yet, aspiring monopolists employ no real re-
sources to compete for the monopoly rents...these expendi-
tures create no value for a social point of view. It is this ac-
tivity of wasting resources in competing for artificially con-
trived transfers that is called rent seeking (Tollison 1982,
p. 577). Consequently, a link is made with the Austrian idea
of competition as rivalry and the dynamic market process
driven by entrepreneurship.
14
Also congruent with Austrian thinking, Tollison notes that advances in economics do
not naturally have to flow from a highly mathematical or statistical approach to the
subject. pp. 597-598.
49
Tollison, concurring with Peltzmans implication, con-
tends that the costs to consumers from rent seeking are not
inconsequential, as a vote-maximizing regulator trades-off
industry price and profits between consumer and producer
forces (Tollison 1982, p. 582). The cost of rent seeking
monopolization is thus increased by the cost of rent-
seeking by producers as well as any blocking investment
made by consumers (Tollison 1982, p. 583). Since con-
sumers face an upward sloping supply curve, they will have
an interest in forming a buyers cartel in order to mo-
nopsonize against producers (Tollison 1982, p. 584).
50
Rent seeking costs or problems and rent dissipation
51
Producing pressure efficiently involves controlling free rid-
ing among members, and thus increasing the optimal sub-
sidy or tax reduction available to the rent seeker. Policies
that raise efficiency [that is, lower deadweight costs] are
likely to win out in the competition for influence because
they produce gains rather than deadweight costs, so that
groups benefited have the intrinsic advantage to groups
harmed (Becker 1983, p. 396). Subsequently, government
favors to pressure groups are determined by a competitive
process. The separation of ownership and control in the
principal-agent problem gives government significant po-
litical power (Becker 1983, p. 396). However, Tullock con-
tends that Beckers analysis is partly defective.
52
ing are both the deadweight costs and the entire amount of
potential monopoly benefit spent by interest groups that
compete for it (Tollison and Wagner 1991, pp. 60-61).
Price
PM
T ullock
Rectangle Harberger
Triangle
PC Marginal Cost
Demand
QM QC Quantity
Marginal Revenue
53
usually intentional results of rent seeking rather than acci-
dental) may be justified from a factional or private-interest
perspective, but not from a utilitarian or general interest
perspective (Tollison and Wagner 1991, p. 66). In addition:
54
sipation occurs there is a social loss, which Higgins and
Tollison say is understated by simply looking at welfare tri-
angles.
55
lishes special privileges. Obtaining this rent is quite a feat,
since manipulating the government is difficulteven the
most potent organized pressure group cannot completely
control it. Worse yet, the transitional gains obtained by the
initial rent seekers are similar to bait in a trap. New en-
trants into an affected market only receive normal profits,
but surviving original owners have opportunity costs
equivalent to the price of the entry barrier and consumers
16
are worse off (Tullock 1975, pp. 671-675). After the tran-
sitional gains have been dissipated, there is both a dead-
weight social loss and many people who will lose consid-
erably by ending the program originally established because
of rent seeking. (They have invested capital in the privi-
lege.) Thus, reform is costly since it may well require
compensating those who would be harmed. As Tullock de-
scribes:
16
Noting the medallions required to drive New York City taxis, former blue laws (pro-
hibiting commerce on Sunday), and labor unions are examples of the trap.
56
In a recent restatement of the trap, and implying the rela-
tionship between rent seeking and demosclerosis (without
mentioning it specifically), Tullock remarks:
The problem posed by the transitional gains trap is the
ratchet-like nature of rent seeking. Once a rent has been
successfully sought out through government lobbying, it
is very difficult to remove even after it has ceased to pro-
duce positive profits for its rent-seeking beneficiaries.
Its elimination almost always implies losses for those
who now exercise the privilege. To avoid such losses,
they will rent seek yet again to retain the privileges.
Politicians are rightly reluctant to inflict direct losses on
specific sections of the electorate inevitably a vote-
losing strategy (Tullock 1993, p. 68).
57
They are the result of lobbying activities on the part of re-
cipients, combined with ignorance and/or political weak-
ness on the part of those individuals who supply the trans-
17
fers (Tullock 1993, p. 15).
Rent seeking can take either legal or illegal routes, as
Krueger has pointed out, (Tullock 1993, p. 19) and in some
countries it has had a devastating effect. Tullock observes:
58
that while voters are pleased with the rents their favorite
special interest groups are able to secure, they also have
reason to be unhappy.
59
yet. However, he believes that there are good reasons to
suspect the costs are high and hidden in
60
In Competing for Aid (Tullock 1975), I illustrated my
thesis by reference to public road building programmes.
I discussed a situation, common in the United States, in
which a higher level of government programme provided
assistance to lower-level government organizations in
accordance with their need. I showed how lower-level
organizations would respond to such a set of incentives
by deliberately neglecting road repairs in order to qualify
for higher-level subsidies. My arguments were not hypo-
thetical. I showed how the city of Blacksburg had delib-
erately skewed road repair contracts away from its most
damaged roads in order to be targeted for repair by the
Commonwealth of Virginia. I showed how the devel-
opment of divided centre, limited access toll highways
during the early 1950s was almost completely self-
aborted once President Eisenhower introduced the feder-
ally-subsidized interstate system. The local community
that allows its road system to deteriorate in order to qual-
ify for state subsidies or that runs down its hospital sys-
tem in the expectation that the federal government will
replace it is in exactly the same situation as the Chinese
beggar who mutilates himself to obtain [more] charity
from passers-by. In both cases, the action is rational. In
both cases, the effect is to lower the welfare of those in-
volved (Tullock 1993, pp. 17-18).
61
[B]ureaucrats themselves actively rent-seek through the
political process, often conspiring with powerful interest
groups and relevant congressional committees. In some
cases, this rent seeking results in excessive rates of out-
put, in others in bloated budgets and in yet others in
manifest laziness and ineptitude. It should be kept in
mind, however, that bureaucrats are often manipulated by
other rent seekers, and that they certainly could not rent-
seek as effectively as they do without the widespread
compliance of politicians and the rational ignorance of
much of the electorate (Tullock 1993, p. 58).
62
ployment costs that were already 60 percent higher than
those operating in other manufacturing industries
(Mitchell and Simmons 1994, p. 104).
63
monopolist and a potential free-rider (Mitchell and Sim-
mons 1994, p. 122-123). While they complain that their
salaries are low, in fact their opportunity cost is usually not
that high (except perhaps in a few disciplines like business,
law, and engineering) and the number of days they work
each year is far less, perhaps one-twelfth, of their typical
professional counterparts in the private sector. Accordingly,
Mitchell and Simmons propose some analysis.
64
18
(Mitchell and Simmons 1994, p. 136). It is plausible that
such reformers (as Tollison and Wagner call them) are
likewise pursuing a rent seeking agenda and must, there-
fore, be scrutinized like other participants in the political
process. Government does not consist of publicly-interested
people, so consumers ought to be wary of their benefac-
tor (Mitchell and Simmons 1994, p. 139). The state is not
necessarily their ally. Instead, Mitchell and Simmons con-
tend that the consumer ought to be concerned over the real
19
monopolists, our 80,000 governments that simultaneously
oversupply some services and fail to provide for many other
important daily wants (Mitchell and Simmons 1994, p. 139).
Perhaps ironically, Mitchell and Simmons point out an
insidious element of rent seeking by political actors.
Those who benefit most from any specific policy are rarely
those who have fought for it, and those injured are rarely
those who opposed it or even know that they have been in-
jured. And of course the unborn cannot possibly oppose
their masters (Mitchell and Simmons 1994, p. 112). Indeed,
when looking at a rent seeking society, we do not see a
pretty picture. Alternatively, we see a picture of venality,
economic distortions and misallocations of colossal propor-
tions caused by government failure.
Nevertheless, Tullock suggests that there is a potential
partial solution to the problem of rent seeking.
18
However, Mitchell and Simmons find it odd that consumers of private goods are as-
sumed by Naderites to be incapable of assessing their own risks but highly capable of
voting for public officials who can assess those risks for others (p. 136).
19
Mitchell and Simmons note the inefficient or ineffective provision of roadways, mail
delivery, public schools, poorly maintained parks and other facilities, national defense
and social security (p. 139).
65
(1987, 1988) has argued, the parchment of the Constitu-
tion itself is vulnerable to the guns of special interests
unless the Constitution itself can be protected by those
general interests that find it so difficult to engage in de-
mocratic politics (Tullock 1993, p. 51).
While recognizing that government is an instrument of
force and compulsion and is thus evil Tullock is
hopeful that some good will, paradoxically, come out of it
(Tullock 1993, p. 78).
References
66
ory of Rent-Seeking, in Charles Rowley, Robert Tolli-
son, and Gordon Tullock, eds., The Political Economy of
Rent-Seeking, Kluwer Academic Publishers: Boston, pp.
147-157.
High, Jack C., and Coppin, Clayton A. (1988), Wiley and
the Whiskey Industry: Strategic Behavior in the Passage
of the Pure Food Act, Business History Review, vol. 62,
pp. 286-309.
McChesney, Fred S. (1987), Rent Extraction and Rent
Creation in the Economic Theory of Regulation, Jour-
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Mitchell, William C., and Simmons, Randy T. (1994), Be-
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reaucracy, Westview Press: San Francisco, California.
Stigler, George J. (1985), The Origin of the Sherman Act,
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Tollison, Robert D. (1982), Rent Seeking: a Survey, Kyk-
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67