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In the long-run, the Rent Seeker will be dead

Jim Riley

18th September 2013

The concept of the 'rent seeker' is one of the most valuable in the whole of economics. The activity of rent-seeking involves obtaining money by manipulating the social or political environment in which economic activity takes place, instead of getting paid for creating new wealth. It is a part of public choice theory, for which James Buchanan was awarded the Nobel Prize in Economics.

Proposals to create a permanent, rent-seeking bureaucracy for the G20 were raised once again at last week's meeting, as they have been at every single one. So far, the majority has wisely resisted the call.

Once in place, rent seekers are very difficult to prise out of their nests.

The OECD in Paris is a case in point, created in 1961 at time when, ludicrous though it may seem now, there was widespread fear in the West that the Soviet Union would overtake us economically. Its website boasts that its purpose is to 'to boost prosperity by helping to knit a web of compatible policies and practices across countries that are part of an ever more globalised world.'

One way it boosts prosperity is by paying its own staff tax-free salaries, whilst at the same time calling for stricter international measures against tax avoidance. Its original purpose is long gone, but its bureaucracy goes from strength to strength. Britain's contribution to this outfit is one public spending cut which would not go amiss.

But there are signs of hope in the ceaseless struggle against rent seekers and their political allies.

In the Australian general election on Sunday, the Labor Party received its lowest share of the vote since 1903. In Europe, the French Socialist President, Francois Hollande, has failed abysmally in his attempts to remodel the whole of the EU along French lines. The wages and salaries of public sector employees as a percentage of GDP are almost 25 per cent in France, compared to just less than 20 per cent in Germany. Even after the years of the Brown Terror, the comparable figure in the UK is 22 per cent.

With French levels, we would have an extra £50 billion a year to fork out in tax.

The most encouraging news is in the attitudes of Generation Y, those born between 1980 and 2000. This is the most thorough going consumerist generation in history. They are not free market Thatcherite ideologues. But they expect good quality services, products which do what the makers claim, and value for money. As more and more of them start to pay tax as they enter employment, these opinions carry across into the political sphere. A new survey for the think tank Demos, for example, shows that this generation is far less likely to support the principles of the welfare state than older voters, and wants to see more benefits linked to contributions.

There is a long way to go, and substantial parts of the UK with many voters only function economically by extensive rent-seeking. But perhaps in the long-run the rent seeker will be dead.

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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