Rent-seeking

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The Devil’s Advocate


In which the curmudgeonly old sod puts the world to rights.

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Rent-seeking is what happens when a fellow (a “rentier” or in the JC’s own phrase, a “rentsmith”) monopolises access to property (including, for modern readings, intellectual property) and takes profits out of it that arise purely because of that monopoly right (or barrier to entry).

It comes in many guises:

  • Physical property: you know, literal rent-seeking
  • Intellectual property: Rather than using the fruits of your blood, toil, tears and sweat you use antediluvian[1] intellectual property rules to gouge everyone else. In this way Mick Jagger and Keith Richards can extract tens of millions over 60 years from 15 minutes of work — in Richards’ case, while, on his own account, he was asleep — composing Satisfaction.
  • Franchising: Taking an idea or a business model someone else has invented — McDonald’s is the best example — and paying them a franchise fee to operate it. Here is double rent-seeking: the franchisee pays the franchisor, and the customer pays the franchisee.
  • Software as a service: The simple answer to the question why is reg tech so disappointing? — is that tech businesses can’t make money if all they get paid for is writing software. This would be like Mick Jagger only getting paid for fifteen minutes’ work — where is the logic, or the justice in that?[2]
  • Regulatory rent-seeking: A regulatory fine for some impermissible behaviour which, while significant, pales into insignificance with the value accrued to the miscreant who carries out the behaviour, such that it suits both of them to carry on with the activity. Where the time don’t match the crime.

See also

References

  1. Lawrence Lessig’s Code: Version 2.0 is a compulsory read.
  2. Irony alert.