It's a mad, sad, rent-seeking world we're in

Latest article by John Blundell in The Scotsman

IF YOU dip into any of the top academic journals in business or economics there are barely any without the highly fashionable phrase "rent-seeking behaviour". It is a piece of jargon designed to bamboozle the rest of us, but it is a notion sweeping through all the disciplines that study business behaviour.

The term is derived from the noted economist Professor Gordon Tullock. My own hunch will be that it must earn him the Nobel Prize for Economics.

His admirers and his critics have a sort of self-interest in awarding him the accolade because they, like the rest of us, are "rent-seekers".

Prof Tullock’s reputation is built on a lifetime of high-grade learned articles, but they all flow from an essay in the Economic Journal of 1967 with the austere title The Welfare Costs of Tariffs, Monopolies and Theft.

Prof Tullock, whose family roots are in Moray, has created a new way of observing economic behaviour - particularly economic behaviour where it touches upon government. His basic theory is that when businessmen get near to political authority, they seek favours and privileges. After all, life is much easier with a subsidy and easier still if you can get the state to bar your possible competition.

The breakthrough Prof Tullock has made is a critique of the effects of such privileges and the reality of the rewards to the politicians who deliver the favours.

A current example of rent-seeking behaviour is the huffing and puffing to secure subsidies from the Scottish Executive to erect a single track railway to Galashiels. Local politicians are lobbying hard to compel the taxpayer to fund the new railway even though its chances of commercial success are slim. Prof Tullock says that trading activity, of a sort, is going on. What is being traded is not the usual lubricant of commerce, money, but favours perceived as future votes.

The decision of the Executive to erect and fund a national theatre for Scotland is no more than political rigging of the game. Prof Tullock leaves us wondering if the politicians authorising this new folly are purely interested in "the arts" or simply seeking votes.

Students of rent-seeking offer an insight into why the defence establishments of the US and the UK needed to depose Saddam Hussein. The threats were illusory, but the benefits seemed handsome. It can be dressed up as liberating the oppressed Iraqis, securing the oil of the Gulf or, perhaps, a positive need for the military and their suppliers to create a war to legitimise their own roles.

This is not to be prissy. It seems to me an appreciation of "rent-seeking" only describes the world as it is and human nature as it is. When the Scottish Parliament was created, there was a flurry of new arrivals under the umbrella term of "interest groups" or "lobbyists". They camouflaged their efforts always in terms of that wonderful abstraction "the public interest" but every MSP was really being button-holed to seek the preservation of privileges or the authorisation of new ones.

Should Scottish businesses apply themselves to sucking up to Scottish politicians? It is probably a waste of time. All substantive matters are not devolved. MSPs and even ministers have few favours to grant.

There is little to lobby for.

If you apply "rent-seeking" analysis, outfits such as Scottish Financial Enterprise have very little to do as all the real policy decisions reside in Brussels and London. They can warble about our quality of life or acute minds but no fund manager can do anything in Scotland with his money different from his rivals in Norwich or London. Now, if Scotland cut 3p off income tax, the game would change overnight.

I must be careful not to claim that Prof Tullock’s subversive ideas lead to any particular policy prescriptions. He remains neutral. All he offers is a set of tools that explain what is really going on in the corridors of power.

Last week were all told to be alarmed by the prospect of a national mail strike. In his gentle but trenchant manner, I imagine Prof Tullock asking why we couldn’t just have an open market in letters as we do in parcels?

Privileges are a sort of economic poisoned pill. The real language of commerce is price, learned from the discovery procedure of competition.

John Blundell is director general of the Institute of Economic Affairs.