Wednesday, November 2, 2011

Business Power and the Revitalisation of Rent-Seeking

Increasingly the best writer on economics in the major papers is Jessica Irvine. Going through my google news alerts I found this cracker of an article about rent-seeking and the negative effects of lobbying, especially in relation to the mining tax. It also covers pretty well why I favour freer trade over protectionism.

Some of the salient points of the article

Australia is in the grip of a rent-seeking epidemic and the rent-seekers are winning. Sure, seeking special protection and privileges from government for one's own industry is a long-standing tradition among Australian business. They used to seek tariffs on imported goods and other protectionist shelters. Today, they mostly seek ways to pay less tax.
The thing is, all government interventions in the economy create winners and losers. But often it is a small group of potential losers that have the self-interest and resources to mobilise against the changes, while the winners, for example the millions of consumers who benefit from lower import prices under trade liberalisation, are disparate and not as inclined to organise in favour of the change.
Every dollar spent on rent-seeking is a dollar less reinvested in expanding business or investing in new technology. So this new outbreak of rent-seeking not only duds taxpayers out of money, it threatens our future wages and living standards, too.
Rent-seekers have adapted cannily to the politics of the day. As politicians have moved to a poll-based ''we want what the people tell us they want'' credo, big business has begun to pour money into expensive advertising campaigns to sway popular opinion; witness the anti-mining tax and anti-carbon tax campaigns.
The mining industry's investment of $22 million for an advertising campaign to sway public opinion against raising an extra $60 billion in tax from highly-profitable mining companies is surely the most successful rent-seeking mission in Australian history.
Unions can rent-seek, too, seeking higher wages without offering higher productivity or government mandates that mining companies should use their services.
All this rent-seeking used to take place away from the public eye through hidden political donations and good old-fashioned long lunches. But today, thanks to new rules around donations and lobbyist registers, rent-seeking is increasingly played out in the public sphere, spearheaded by a proliferation of telegenic ''spokespeople'' working for business associations.
There's the Business Council of Australia, the Australian Chamber of Commerce and Industry, and the Australian Industry Group, as well as state-based business chambers. Each battles with the other for supremacy.
They are supplemented by a multitude of industry-specific associations. The retail industry is a good example. Retailers can be represented by the Australian National Retail Association, the National Retail Association, the Australian Retailers Association, the United Retail Federation, the National Independent Retailers Association or the Bulky Goods Retailers Association, to name but a few. And yes, they are all separate bodies.
Politicians and the media cop most of the blame these days for the dumbing down of the political debate. But let's not forget this entire industry of rent-seekers who are doing the best they can to muddy the waters of good public policy and confuse everyone.
Politicians need to wake up to the way they are being played. The public needs to switch on their rent-seeking bullshit-ometers when watching the next round of self-serving business advertising and learn to think: ''Well, they would say that, wouldn't they?'' And the media needs to rediscover its love of man bites dog tales and stop giving these guys a free kick. [listen up The Australian]
Australians have invented our unique brand of corporate rent-seekers, and far from standing up against them, we've often been complicit tools in their trade, shifting our opinion on public policies in response to their self-interested advertising campaigns.
When government thinks it's doing what the public wants, but what the public wants is in fact what big business wants it to want, we have a problem.

For more on rent-seeking see here.

And to finish off with a pertinent song by The Hives

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