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Is the ‘rent-seeker’ dying out?

The concept of the “rent seeker” is one of the most valuable in the whole of economics. The activity of rent-seeking involves obtaining money by manipulating the social or political environment in which economic activity takes place, instead of getting paid for creating new wealth. It is a part of public choice theory, for which James Buchanan was awarded the Nobel Prize.

Proposals to create a permanent, rent-seeking bureaucracy for the G20 were raised once again at last week’s meeting, as they have been at every single one. So far, the majority has wisely resisted the call.

Once in place, rent seekers are very difficult to prise out of their nests. The OECD in Paris is a case in point. It was created in 1961 – at a time when, ludicrous though it may now seem, there was widespread fear in the West that the Soviet Union would overtake us economically.

The OECD’s website boasts that its purpose is to “to boost prosperity by helping to knit a web of compatible policies and practices across countries that are part of an ever more globalised world.” One way it boosts prosperity is by paying its own staff tax-free salaries, while at the same time calling for stricter international measures against tax avoidance. Its original purpose is long gone, but its bureaucracy goes from strength to strength. Britain’s contribution to this outfit is one public spending cut which would not go amiss.

But there are signs of hope in the ceaseless struggle against rent seekers and their political allies. In the Australian general election last Sunday, the Labor Party received its lowest share of the vote since 1903. In Europe, the French Socialist President Francois Hollande has failed abysmally in his attempts to remodel the whole of the EU along French lines. In France, the wages and salaries of public sector employees as a percentage of GDP are almost 25 per cent, compared to just less than 20 per cent in Germany. Even after the years of Gordon Brown’s Terror, the comparable figure in the UK is 22 per cent. With French levels, we would have to fork out an extra £50bn a year in tax.

The most encouraging news is in the attitudes of Generation Y, those born between 1980 and 2000. This is the most thorough-going consumerist generation in history. They are not free market Thatcherite ideologues. But they expect good quality services, products which do what the makers claim, and value for money. As more and more of them start to pay tax as they enter employment, these opinions carry across into the political sphere. A new survey for the think tank Demos, for example, shows that this generation is far less likely to support the principles of the welfare state than older voters, and wants to see more benefits linked to contributions. The latest British Social Attitudes report, released yesterday, found that just 33 per cent of people thought that welfare benefits discouraged personal responsibility in 1987. Now, the figure is 53 per cent.

There is a long way to go, and substantial parts of the UK, with many voters, only function economically by extensive rent-seeking. But perhaps in the long-run the rent seeker will be dead.

Paul Ormerod

As published in City Am on Wednesday 11th September 2012

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