Wednesday, 7 September 2011

Rent Seeking, Identity and Politics

Rent seeking is the attempt to capture the returns to something in fixed or inelastic supply thus gaining wealth or power without actually adding value to Society. As such, Economists tend to be suspicious of rent-seeking.

Ricardo's model of the economy, featuring diminishing returns, gives rise to the fear that the landowners (assuming land is in inelastic supply) would continually get richer while the capitalists and the workers would get poorer.  This 'Classical' model lies at the heart of Marxism as well as Populist Radicalism- such as that of Henry George who wished to tax the 'unearned increment' landowner's receive thanks to the industry of others.
The problem with this line of thought is that Land isn't really inelastic in supply. Transport Technology can change the picture completely. Trains and motor cars and refrigerated ships and so on have the effect of depressing rents on land. Heavy taxes on land, however, would remove the incentive for landowners to accommodate what the market requires and new technology has made possible. The same point can be made about any other factor of production which appears inelastic in supply. Tax it to the hilt and the economy suffers. This is because all factors are elastic in the long run. There is no such thing as economic rent- only quasi rent.
Another reason to tolerate rent seeking has to do with its incentive effect. Essentially, rational agents will always strive to turn profits into rents as the latter are more secure. But anything tending to reduce uncertainty in the economy is, ceteris paribus, positively correlated with output.
Indeed, the cost of rent seeking behaviour- i.e. the things people do so as to corner a rent- may be either very positive or negative for Society.

Indeed, Public and 'Merit' Goods- things like Defence and Education and Courts of Justice or Representative institutions like Parliament- may arise or continue to be sustained by rent-seeking behaviour. The State- in so far as it monopolizes coercion- provides Justice and Defence. Generally, it raises taxes to pay for this. If people don't or can't pay enough for Law Courts and Armies they may still get it. But, at the margin, the State's willingness to combat every threat to Public Order or sovereignty is reduced to the extent that its efforts can't be sustained by taxes levied locally. Such areas may be de jure subject to the State but contain large de facto autonomous areas.
Education is linked to Credentialism- i.e. rent seeking by an artificial restriction of the supply of skilled labour such that only those with the proper paper or other qualifications are allowed to work.
Compulsory education, apart from being a rent to people in the Higher Education racket, is also a way to reduce wage competition from adolescents. If young people could start work once they hit puberty, peak disposable earnings for men would be between 16 and 22. There would be very little crime and drug addiction and so on.  Social mobility would be greatly increased. Anyone could change their class status- itself dependent on capital from savings- simply by changing their date of marriage.
In other words, Educational and other Credentialism may evolve as a first strike in a potential generational conflict. It may also be used to underline ethnic or credal or caste based divides.
I mention all this to show that Rent seeking costs are fundamental to both social stratification and class or other cohesion.
Now let us turn to Identity and the notion of Identity based Rights. The most basic sort of Identity is personal Identity. It is by no means clear that all Societies at all times have considered personal identity and individual rights to be indefeasible. In less developed economies, if I hire you as a cook but you send your brother instead, some people might think you had satisfied your contract. Similarly, if you killed my brother but hand over someone else from your tribe felt to be of equal value for my people to kill- some might think that Justice had been served.  Clearly, there are both costs and benefits to the notion of personal identity and individual rights. One might say that to insist on one's distinct, unique and individual identity is to seek a rent on oneself. It would not be rational to do so unless the potential benefit outweighed the cost.
We currently have the notion of Citizen's Rights and 'Human Rights'- including things like a Right to Sustenance, Education and so on. The individual is constituted as the owner of rents to himself. The cost of that rent-seeking would never be borne by a rational individual. Why? A superior alternative is substitutability across an Identity category- if you can afford the cost of enforcing a rent on yourself, what is to stop you enforcing it for yourself plus some weaker other. You are better off if you can collect a rent on a gross substitute and discharge the penalty of any action of your own by offering up this weaker member, or members, of your Identity category. This gives you an incentive to widen your Identity category and for others to narrow it.
We can term this sort of conflict- which is the essence of the political- contested Meta-rent seeking.
Prescriptive claims re. Universal Rights are maximally meta-rent seeking. Their contestation imposes punitive costs on the claimant's rent to himself. Universal Rights becomes a self-imposed Individual slavery and narrowing of agency. Of course, the current cost of this might be evaded by  recourse to hedging on an inflated derivatives market for Identity.
Which is why w now face this huge overhang of Toxic Rights.

1 comment:

  1. Good article here- http://faculty.biu.ac.il/~hillman/books/2010_Hillman_Rent_Seeking_PC_Companion_Nov_22_2010.pdf

    'In the case of interest group contesting benefits that are public goods (such as
    where the government will locate a highway or bridge, or other public-works program,
    or where the government will locate another type of facility that increases local
    incomes), rent dissipation is predicted to be low and insensitive to the size of the group
    Incentives appear, however, more reasonable for explaining individual
    behavior than non-incentivized voluntary personal effort.
    47 Guttman (1978) described members of interest groups voluntarily contributing to the quest to obtain
    benefits through government grants for agricultural research. Other examples of interest groups seeking
    rents were described by Potters and Sloof (1996).
    48 See the papers in Congleton, Hillman, and Konrad (2008, volume 1, part 2, Collective Dimensions).
    49 For example, Grossman and Helpman (1994). 25
    when individuals choose personal rent-seeking contributions as Nash equilibria.
    50Rent
    dissipation increases if members of the group of rent seekers seeking a public good can
    be additionally incentivized, as for example by appeal to “community spirit” or
    through common ideology.51 Expressive utility from personal identity defined with
    reference to ideology can overcome free-riding incentives associated with the publicgood benefit. The common objective may be ideological persuasion. Hence political
    campaigns can have dedicated volunteers.'

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