by Jon Guze
Senior Fellow, Legal Studies, John Locke Foundation
In a recent column that appeared in the London Times, Matt Ridley reviews a new book by Brink Lindsey and Steven Teles called The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality. Here are some excerpts from Ridley’s review:
While the world economy continues to grow at more than 3 per cent a year, mature economies, from Europe to Japan, are coagulating, unable to push economic growth above sluggish. The reason is that we have more and more vested interests against innovation in the private as well as the public sector. …
In most western economies, it is once again more rewarding to invest your time and effort in extracting nuggets of status wealth, rather than creating new contract wealth, and it has got worse since the great recession, as zombie firms kept alive by low interest rates prevent the recycling of capital into new ideas. … [Lindsey and Teles argue] that “rent-seeking” behaviour — the technical term for extracting nuggets — explains the slow growth and rising inequality in the US.
They make the case that, in four areas, there is ever more opportunity to live off “rents” from artificial scarcity created by government regulation: financial services, intellectual property, occupational licensing and land use planning: “The rents enjoyed through government favouritism not only misallocate resources in the short term but they also discourage dynamism and growth over the long term.”
[H]idden subsidies ensure that financial services are a lucrative closed shop; patents and copyrights reward the entertainment and pharmaceutical industries with monopolies known as blockbusters; occupational licensing gives those with requisite letters after their name ever more monopoly earning power; and planning laws drive up the prices of properties. Such rent seeking redistributes wealth regressively — that is to say, upwards — by creating barriers to entry and rewarding the haves at the expense of the have-nots.
Although the column is written from a British point of view, but it’s still worth reading in full.