by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
My recent research update stressed learning the difference between cronyism and market competition. The two are diametrically opposed, so it’s a key difference to know.
Cronyism is a kind of competition, just not market competition. In a cronyism-based competition, you’re not trying to win over consumers. You’re trying to win over government officials.
Economists, not always known for their immediately intuitive terminology, call the expenditure of efforts and resources in trying to win over government officials rent-seeking.
It’s a strange-sounding term. Here are some attempts to make it clearer:
Duke Prof. Mike Munger:
When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation. … An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don’t create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.
Concise Encyclopedia of Economics:
People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. (David R. Henderson)
Forbes columnist David John Marotta:
Rent-seeking frequently requires spending your own resources so you own someone else’s surplus in the end. … Rent-seeking doesn’t add any national value. It is coerced trade and benefits only one side.
Marotta goes on to discuss rent-seeking in the form of pirates seizing the profits of merchant ships. The analogy is apt, as the rewards of piracy is also coerced trade that benefits only one side. The pirate puts capital and labor in the effort and leverages violence or the explicit threat of violence to succeed.
Similarly, the lobby puts capital and labor in their efforts. Winning subsidies, tariffs, regulations against competitors, and other government policies work in their favor through the implicit threat of government violence against noncompliance.
Basically, rent-seeking is spending some of your resources to capture others’ resources without producing anything of value to the others.