Rent Seeking: Not All It's Cracked Up to Be
Washington lobbying is an ugly cycle. The more that government grows, the more that previously recalcitrant members of the private sector feel the need to get paid representation in the nation's capital, lest they find themselves caught in a legislative ambush down the line.
Given enough time, that defensive posture often morphs into affirmative rent-seeking, producing the crony capitalism that's been at high tide over the past few years. If you're a free-market type, viewing the system up close can lead you to utter despair (depressives may want to avoid the single best book on the topic, Jonathan Rauch's "Government's End").
Perhaps, however, this bit of news will slow, if not reverse, the cycle. From Politico:
In a surprising finding, a new study shows that massive lobbying in D.C. and campaign donations by corporations are linked with worse market performance.
The Rice University study looked at the amount of money spent on lobbying and campaigning donations by 943 S&P 1500 firms between 1998 and 2008 and found that so-called political investments lead to weaker performance in terms of stock value and return on assets
Further, the report showed that firms that placed former public officials on their boards were worse off than those without these kinds of board members.
Contra Politico, I can't say that I'm surprised. Companies that go fishing for Washington largesse often overlook a key consequence: while short-term benefits may accrue from federal legislation, the insulation from competition tends to make them sclerotic in the long term (not to mention the enervating effect that excessive regulation and subsidization have on the wider economy).
There's an interesting caveat, however:
...When the study looked only at highly regulated industries, corporate political giving was connected to better market performance.
“If you’re regulated and for many years you keep repeatedly investing in (political activity), then you’ll realize some return on your investments. Then and only then it makes financial sense,” Michael Hadani, another co-author of the study, told Reuters.
This, of course, sounds like nothing so much as "regulatory capture", the tendency of heavily-regulated industries to co-opt the bureaucrats responsible for regulating them.
Like I said, depressing. But also an important reminder: the smaller the government's influence, the more limited the capacity for corruption.
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Comments:
Dec '10
Re: Rent Seeking: Not All It's Cracked Up to Be
It's just another area of competition among businesses. Kevin Williamson wails on the concept here.
May '10
Re: Rent Seeking: Not All It's Cracked Up to Be
I think it is a self-selection phenomenon of chicken-egg. Firms with good businesses in growing markets sell their products. Firms with declining markets or problems with foreign competition come to the Feds to obtain salvation. In other words, the healthiest companies stay away, because they perform well.
The study has cause and effect mixed up, sort of like the idea that Congressmen vote because of donations instead of getting donations because of their pre-existing philosophy (Nancy Pelosi would not vote for Keystone due to a donation fron Koch, Cantor wouldn't vote against Keystone becvause of a donation from the Sierra Club).
Jun '10
Re: Rent Seeking: Not All It's Cracked Up to Be
James Piereson, a thoughtful conservative writer,wrote an excellent article for this month's New Criterion that describes the nature of rent-seeking and which concludes that the Democratic party is "a coalition of rent-seekers." I gave a link to his article and a summary of his key points here.
Re: Rent Seeking: Not All It's Cracked Up to Be
Duane Oyen: I think it is a self-selection phenomenon of chicken-egg. Firms with good businesses in growing markets sell their products. Firms with declining markets or problems with foreign competition come to the Feds to obtain salvation. In other words, the healthiest companies stay away, because they perform well.
The study has cause and effect mixed up, sort of like the idea that Congressmen vote because of donations instead of getting donations because of their pre-existing philosophy (Nancy Pelosi would not vote for Keystone due to a donation fron Koch, Cantor wouldn't vote against Keystone becvause of a donation from the Sierra Club). · 18 minutes ago
Duane, the chicken-egg thing explains the worst examples (Solyndra), but there also plenty of strong industries that get into the game, often defensively (see Silicon Valley).
Your second point, though, is extremely well-taken and is a bugbear of mine too. While donations will occasionally swing positions, it usually occurs on very tiny issues the public isn't aware of. The rest of the time, the money follows the ideology and not vice versa.
May '10
Re: Rent Seeking: Not All It's Cracked Up to Be
I thought of the exact same article. I haven't been a long-time subscriber, but that was the single best piece I've read in National Review. I was practically cheering out loud by the end of it.
Jan '11
Re: Rent Seeking: Not All It's Cracked Up to Be
Rent-seeking is the flip side of political blackmail. Nice business ya got there. Shame if anything happened to it.
And, like blackmail, it's never a one-time payment. Pay once and the game is rigged forever.
Mar '11
Re: Rent Seeking: Not All It's Cracked Up to Be
Consider it avoided.
Apr '12
Re: Rent Seeking: Not All It's Cracked Up to Be
Entrepreneurs v Rentrepreneurs. Our nation won't heal up, till we encourage and incentivize the former and discourage, shame and/or outlaw the latter.
May '10
Re: Rent Seeking: Not All It's Cracked Up to Be
Troy Senik, Ed.
Duane, the chicken-egg thing explains the worst examples (Solyndra), but there also plenty of strong industries that get into the game, often defensively (see Silicon Valley).
Your second point, though, is extremely well-taken and is a bugbear of mine too. While donations will occasionally swing positions, it usually occurs on very tiny issues the public isn't aware of. The rest of the time, the money follows the ideology and not vice versa. · 1 hour ago
Let me revise and extend my remarks.
"In other words, the healthiest companies stay away, because they perform well" until they are targeted by less successful competitors seeking government assistance to help them compete.
As with the cyclamates ban, the Microsoft antitrust suit, etc.
Dec '10
Re: Rent Seeking: Not All It's Cracked Up to Be
I used to work for a very competitive small business that encouraged middle managers to find ways to make a profit. Used to, because two things changed.
1] We had once been encouraged to find a way to make money, competing; and
2] We had once cared about profit and cost-cutting to earn business.
We slowly evolved into a firm that was content to earn, maybe, 6 or 7 percent on huge government projects. I had been able to earn as much as 25 percent, sometimes 50 percent on competitively bid contracts, the highest earning person in the firm.
My company became addicted to government projects that we, theoretically, earned 6 or 7 percent on.
Why? Because my $50K to $500K projects became dwarfed by $5M projects.
My projects put more money into partner's pockets, but government projects provide new vehicles for all employees, plus an additional 20 0r 30 percent employed, to make incremental amounts on.
Gone, went the ideas that made money for us, and saved money for clients. The new reality became throwing the most people at the worst ideas, the worse the better.
We became an implementation firm, as opposed to an innovation firm.
May '10
Re: Rent Seeking: Not All It's Cracked Up to Be
The very human propensity to "take the path of least resistance" and fight for those economic rents will indeed leave you in a state of despair.And speaking of regulatory capture, was it Milton Friedman who talked about how the free market needs to be saved from those who have already enjoyed some success, lest they try to engineer the regulatory regime to disable or destroy their smaller competitors?