The scourge of the rent-seekers

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Thursday, 9 August 2012 15:27 by Ad astra
When we were young there was no such word as ‘rent-seeker’. In fact the word was not coined until 1974. Wikipedia informs us that the term derives from the far older practice of appropriating a portion of production by gaining ownership or control of land. In economics, rent-seeking is an attempt to obtain ‘economic rent’ by manipulating the social or political environment.

In our earlier days, we recognized rent-seeking in other ways. Classically, farmers were seen as the ones who regularly complained about their lot and pleaded for, indeed demanded, government help such as tariff protection and subsidies. The phrase ‘the squeaky wheel gets the oil’ was used to describe their behaviour, reflecting as it did the truism that people who complain the most will get attention, and often get what they want. Today, political aficionados know the term well, can quote many instances of rent-seeking, and name many rent-seekers. This piece argues that rent-seekers are a scourge on the body politic because the loudest of them, those with the squeakiest wheels, too often get the oil, while the wheels of the more worthy go unlubricated through lack of a voice, lack of enough squeak. It argues too that rent-seeking is essentially self-serving, self-centered, and unconcerned with the lot of others, and that it is exercised most robustly by the rich and powerful.

While rent-seekers have always been around, during the life of the Rudd/Gillard Governments they have been in our face week after week, pleading their case, predicting dire consequences should they not get their way, and wrapping their arguments in the soft and often disingenuous cloak that unless they get what they want, ordinary people will suffer, prices will skyrocket, jobs will be lost, industries will collapse, businesses will go to the wall. Their arguments draw on the reasonable concept of ‘the fair go’, particularly ‘the Aussie fair go’, and insist that this is what they’re not getting.

Wikipedia has this to say about rent-seeking. It is “spending resources in order to gain by increasing one's share of existing wealth, instead of trying to create wealth. The net effect of rent-seeking is to reduce total social wealth, because resources are spent and no new wealth is created. It is important to distinguish rent-seeking from profit-seeking. Profit-seeking is the creation of wealth, while rent-seeking is the use of social institutions such as the power of government to redistribute wealth among different groups without creating new wealth. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity. The origin of the term refers to gaining control of land or other natural resources. An example of rent-seeking in a modern economy is political lobbying for government benefits or subsidies, or to impose regulations on competitors, in order to increase market share.”

We don’t have to go back far to see flagrant examples of rent-seeking. Take the Emissions Trading Scheme. Remember how those dependent on coal-mining trenchantly opposed its early manifestations. Why? Because they would be required to pay for polluting the planet’s atmosphere with carbon dioxide. It would cost them and reduce their profits. Of course we never heard that point argued; who would care if they made less profit but the owners and shareholders? Instead, they argued that it would make them less competitive internationally, that jobs would be lost and go offshore, and that the pollution would continue there unabated. Their argument was that there was no rational reason for the ETS and its imposition of a price on carbon. The risk to the planet of carbon pollution and the consequential global warming with all its dangers was not mentioned, or if it was, it was minimized. The rent-seekers were silent about the risk to agriculture, food production and water supplies. They had nothing to say about the danger of rising sea levels and increased acidity, with its effect on coral reefs; indeed some denied them. Had they mentioned those risks, public sympathy might not have gone their way in opposing the ETS. So they pleaded their case for special consideration, for relief from this imposition, using heart-tugging arguments: loss of thousands of jobs, families left on the breadline, industries and towns decimated, dramatically rising electricity costs, and the ‘unimaginable’ flow on effect to the cost of everything we buy or use. Remember Barnaby Joyce and his $100 roast.

Mining rent-seekers took out full-page ad after full-page ad in major newspapers condemning the idea of an ETS and a price on carbon, pointing to the terrible damage it would do. Mitch Hooke, chief executive of the Minerals Council, was on every TV outlet pleading his case, with his ‘ain’t it awful’ demeanour, castigating the Government for being unreasonably hard on the miners, who after all ‘create enormous wealth’ and ‘employ lots of people’. They don’t actually, but the assertion was plausible. Supported by a compliant media that gratefully sucked up the advertising revenue and hoped for more, and backed up by an aggressively opposed Coalition, the miners’ argument gradually won public support, and persuaded the Government to modify its stance. Great wealth, the opportunity for nation-wide publicity through the media megaphone, spending millions to get it, enabled the mining rent-seekers to at least partly get their way.



The same thing happened with the MMRT. Mitch Hooke was out again. Full-page colour ads festooned the dailies, and the world’s richest woman, Gina Rinehart, bedecked with Paspaley South Sea pearls, accompanied by Twiggy Forrest, featured at a rowdy rally in Perth advocating that the tax be axed. ‘Axe the tax’ they chanted. Their case was that the Government was unfair to impose the tax because the miners took the financial risk, and they already paid ‘enough’ tax in State Government royalties, company tax and on profits. Tony Abbott insisted they already paid ‘too much tax’. Their story resonated with the people. What’s more, they told them, they were the geese that were laying the golden eggs, heaps of them, eggs that they claimed kept our country out of recession, and of course they employed countless people. In fact, mining income played little part in our GFC survival, constituting as it does only 9% of GDP. Mining employed only 135,000 in mid 2009, less than two percent of total employment, and jobs were shed, not increased, during the GFC.



Although much of the miners’ story was shonky, with the golden eggs imagery, the rent-seekers did strike gold, and sympathy rose for the poor miners facing an intolerable and unfair Great Big New Tax. Billionaire Clive Palmer gave weight to their cause. After all, he was a miner too and threatened by the GBNT. The MSM was out there with supportive editorials, and the ever-reliable Tony Abbott chimed in with loud support, backing his opposition to the MMRT with a promise to repeal it if elected. If he was prepared to forego the revenue it generated and still hand out from Joe Hockey’s magic pudding all the benefits it funded, the tax was obviously unnecessary, an intolerable impost on a struggling industry – just another Labor GBNT.

Wayne Swan came out twice tackling these three miners, accusing them of wielding disproportionate power, enabled solely because of their massive wealth, billionaires all. He pointed out that the ordinary man in the street could not afford full-page ads in papers around the nation to plead a cause, no matter how worthy. The ordinary man could not mobilize a powerful and wealthy body like the Minerals Council to plead a cause, could not mobilize such a body to intimidate the elected Government and even threaten to bring it down. The ordinary man could never expect support from the media to shore up a cause, unless it happened to suit it. The billionaires had it all – untold wealth, influence with powerful industry bodies, and a compliant media.

In just the last few days we have seen yet another example of rent-seeking: Peter Anderson, chief executive of the Chamber of Commerce and Industry fronted the cameras with an unhappy face, declaring that the recent independent panel's review into the Fair Work Act that found no major problems, “will be a bitter disappointment to many in the Australian business community.” The panel did not give them what they wanted: the magic ingredient in industrial relations – ‘flexibility’ – which business believes would solve many of its labour problems, but workers believe would leave them shortchanged. Nobody has ever fully defined ‘flexibility’; it remains what Tom Watson would likely label a ‘weasel word’.

Almost every day rent-seekers ply their wares on TV, radio and in the press. You have seen them over and again.

Returning to Swan’s comments about the billionaire miners, he never argued that individuals or groups were not entitled to put a point of view, to press their case, even to take radical action to achieve it. Nor does any reasonable person. After all, many worthy causes have rent-seekers pleading their cause. Unions too have taken all manner of rent-seeking action from negotiation to strike action, sometimes radical and disruptive, evoking a strong counter-action, as we saw in the infamous 1998 waterside dispute. But that dispute was between workers and employers, as most union disputes are. The billionaires and their corporate supporters are not in dispute with workers; they are in dispute with the Government of this nation. Swan’s complaint was that they are exercising a disproportionate influence because of their great wealth and their influential connections. They are rent-seekers writ large, using their corporate muscle ruthlessly.

Less obvious rent-seekers are the battalions of lobbyists that infiltrate parliaments. They are more numerous than the politicians. Each is a special pleader for a cause, a group, a movement, an institution, a company, or an industry. In the US they swarm about the Congress and Senate consuming the time of members and their staff. The tobacco lobby pressures and cajoles those representing tobacco growing states to support their industry, to remove or reduce restrictions, and threaten the withdrawal of their considerable financial and political support; oil lobbyists press for lower taxes, higher concessions and better access to markets, and lubricate their advocacy with mega dollars.

Lobbyists are here too, not in the same grotesque numbers, but certainly in the thousands, making lobbying a multi-billion dollar a year industry. So overpowering are they that their number and behaviour has had to be regulated with a register of lobbyists and a code of conduct.

In my view, there are two objectionable aspects of rent-seeking. First, it evokes questions of fairness and equity, and second, it encourages the disproportionate exercise of power.

In the prologue to his book: Barack Obama The Audacity of Hope (The Text Publishing Company, 2006), in describing what the book was about, Obama writes that it offered: “personal reflections on those values and ideals that have led me to public life, some thoughts on the ways our current political discourse unnecessarily divides us, and my own best assessment…of the ways we can ground our politics in the notion of the common good.”

It is ‘the common good’ that is at the nub of the rent-seeking issue, yet that notion is distant from the minds of rent-seekers, focussed as they are on their own wants and needs, or those they represent.

Fairness and equity
Rent-seekers by definition attempt to gain advantage for themselves, irrespective of any disadvantage that it might inflict on others. The notion of fairness, equity, and sharing is lost in the clamour for benefits for themselves. While this might pass unnoticed when the cause is a laudable charity, it nonetheless exists, and diminishes the worthiness of the cause. It is a case of ‘look at me’, ‘give me what I want’, but don’t worry about those who will miss out if I do get what I want.

But when the rich and powerful are the rent-seekers their efforts seem obscene. Why are billionaires rent-seeking for benefits, in their case paying less or no tax, when the benefits of the tax are to be distributed to a wide audience of those less well off? When the taxes are to fund better superannuation, elevate the tax-free threshold, reduce company tax, give benefits to small business? Foregoing all of that seemed to be of no concern to the mining rent-seekers in pursuit of their ‘axe the tax’ agenda. They showed no concern for the ‘common good’.

Disproportionate exercise of power
It was this disproportionality that Wayne Swan found to be offensive, unfair, and contrary to the common good. He saw miners like Gina Rinehart, Clive Palmer and Twiggy Forrest as not just putting their case, as any group is entitled to do, not even putting their interests above all others as many others do, but using their immense wealth and power to push their case in a way denied those with lesser means. Twiggy Forrest is even using his vast wealth to fund a High Court challenge to the MMRT, something the ordinary man cannot do.

Swan was angry that they were using their wealth and power to influence public policy, policy designed to redistribute the wealth derived from the mining boom to a wider audience, to those not now benefitting from it, to those less well off. He was angry because the miners’ self-interest, indeed their selfishness, was contrary to the common good. I for one applaud his stand.

Of course Joe Hockey and Tony Abbott labelled Swan’s stand as ‘class warfare’, demonizing the rich, pitting the poor against the rich, penalizing success. All the tired old clichés were trotted out. Swan’s move had nothing to do with class warfare; it had everything to do with fairness, equity and the common good.

While no one would promote a ban on advocacy, especially for laudable causes, we should acknowledge that it comes at a cost, a cost to those who miss out, or receive less because of the success of others.

The cost seems grotesquely obscene when those that miss out do so because of the wealth, power and influence of the vastly rich, because those with disproportionate clout born of their affluence exercise it ruthlessly with no concern for the common good. The three mining billionaires are unseemly examples.

Rent-seekers are a scourge on us all.


What do you think?