"Such profit-loss signals coordinate millions of sellers and buyers in the complex, evolving modern economy. The 'dollar democracy' of the market ensures that buyers get more of what they want and expend fewer resources on what they do not want. Competitive prices thus work like radio signals; they are easy to perceive, and we do not need to know where they came from. There is no need to...
Lobbying & Rent Seeking
According to a Gallup Poll regarding the public opinion of 22 different professions, lobbying is perceived as the least honest and ethical, right after car salesmen. Congressmen rank a few places higher, but still three levels lower than lawyers. Furthermore, according to Pew Research, 81% of Americans believe that bribery is a common practice between lobbyists and congressmen. Obviously, the public opinion of lobbying is not high, but does the responsibility of such a negative opinion fall solely on the backs of the lobbyists and the companies for which they work, or is the problem deeper than that?
In simple terms, the practices of lobbying and rent seeking are forms of petitioning the government. The right to petition the government can be traced back to the Magna Carta, the document which King John of England was forced to sign at the edge of a sword by those unhappy with his dictatorial rule. Several centuries later, the enforcement of this right also played a major role in the American struggle for independence. Due to their unpleasant experience with England in this matter, the American Founders established the right “to petition the Government for a redress of grievances” in the First Amendment of the Constitution’s Bill of Rights.
Lobbying conducted by individuals, businesses, or a group of businesses for the purpose of securing some sort of economic advantage over their competitors through legislative channels rather than through private innovation and competition is known as rent seeking. Among other things, the economic advantages that rent seekers try to obtain often include government-sanctioned monopolies, tax breaks, loans, and subsidies. For example, a pharmaceutical company might seek to have its product mandated, thus creating a continual demand for it while simultaneously squelching competition from other companies. The consequences of such rent seeking actions were once humorously demonstrated by Frédéric Bastiat when he suggested that French legislators ban the light of the sun in order to promote the candlemaking industry.
The practice of rent seeking has been around as long as there have been government funds to be had; however, it was not expounded on until 1967 by Gordon Tullock in The Welfare Costs of Tariffs, Monopolies, and Theft. Tullock declared that many studies which examined the economic impact of tariffs and monopolies - two of the possible goals of rent seeking - failed to show the many hidden costs involved with these issues. As Tullock pointed out, one of these hidden costs can come through increased consumer prices on imported goods. For instance, when a particular business uses rent seeking to secure a protective tariff against its foreign competitors, the market price of that product will be artificially increased over the base cost of the lower-priced imported good. Additionally, the government’s enforcement of the tariff means increased taxes for the consumer.
Several years after Tullock’s paper was published, Anne Krueger coined the term “rent seeking” while elaborating on his idea. Krueger’s little phrase has come to be defined as "the use of resources for the purpose of obtaining rents for people where the rents themselves come from some activity that has negative social value." The costs for rent seekers are the time and money they expend on their efforts; if unsuccessful, their rent seeking expenditures are irrecoverable. The costs to society are the resources expended opposing the rent-seekers' objectives and the loss of socially more beneficial activities such as product and service innovation.
Thus, while lobbying and rent seeking are legal practices, they are not the most productive use of resources. In fact, more often than not they have a negative effect on the economy as a whole. To view this wastefulness as wholly the fault of the lobbyists is misguided, however, for rent seeking and lobbying are based on the ability and willingness of the government to confer advantages on the few at the expense of the many. As Steven Horwitz stated:
"The problem is not regulatory or ethical, but institutional. If you want to change the pattern of outcomes, change the rules. The only possible way to end the corporate control over the state is to reduce the state's sphere of influence down to as little as possible and ideally nothing. As long as there's the dead animal of the state (really: the citizenry) to feed on, the vultures of the private sector will keep showing up to get their share."
This topic looks at the historical and philosophical underpinnings of lobbying and rent seeking, and the inner workings of both. Additionally, it covers the good and bad effects lobbying and rent seeking can have on the economy, government, and the average citizen, as well as discussions of reform options.
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