COMMENTARY: From rent seeking to gift giving

I have been thinking a lot about rent seeking recently. Economists define rent seeking as the process through which individuals and groups pursue gains from governments without considering how they should pay it back or reciprocate by providing some public benefit. Lobbying, campaign contributions and endorsing specific candidates or causes are common tactics associated with the practice.

While rent seeking seems especially pronounced in recent years, the process is really inherent to human nature – or at least one side of our nature. It is the guiding force Adam Smith wrote about 250 years ago when he articulated how the public interest is served through the invisible hand as individuals each pursue their own self-interest.

We are all rent seekers to some degree. It starts when we are children and “want what we want and when we want it – Now!” It continues with age if we fail to incorporate the need to give and take in our relationships. Think of the capable spouse who refuses to work, the employee who expects a raise regardless of their performance, or the company wanting government approvals or concessions. Except in rare circumstances of extreme arrogance or childish tirades, we typically try to justify our rent seeking and convince everyone that our offer is fair and mutually beneficial.

Political constituencies inherently seek rent when voting. This is the Achilles heel of democracy. Groups that dominate and can win the vote need only to marginally justify policy actions. At the federal level, our seniors, including myself, ardently protect Medicare, believing we earned it from a lifetime of hard work and mandated savings. At the local level, neighborhood representatives vehemently oppose affordable housing as they do not want to bear the social cost of low-to-moderate income households. On an international scale, China has excelled at collecting rent from the developed world, which was justified for several decades with lower consumer prices and the hope that a developed China would adopt our system of government. At the corporate level in Colorado, we see trial lawyers pursuing self-enriching construction defects claims, thereby greatly limiting the development of condos and townhome developments when in reality most “defects” are no more prevalent (and probably less so) than in the history of housing construction.

Rent seeking is promoted by our politicians. The worst cases involve corruption. As a young CFO in my dad’s construction company, I was approached by a local politician’s lieutenant letting me know he could expedite a $500,000 construction claim with a $50,000 campaign contribution. While blatant corruption appears less prevalent in the U.S., it is hard to get elected without a substantial campaign war chest to trash one’s opponents. Most frequently, the funds come from targeted fundraising with quid pro quo expectations.

A fundamental problem with rent seeking is that it ignores constituencies with little organized political influence. People without political influence either acquiesce, connive in the background or protest and rebel while the powerful decision makers, at whatever level (society, community, group or household), typically respond by either ignoring or confronting the powerless with equal ferocity. Such leaders should be cognizant that not hearing people out as they seek to justify their own deal or oppose that of another, erodes long-term relationships. What may appear to be silent acquiescence may really be conniving, which often leads to extremism expressed as a weaponized emotional tirade. It is commonplace – from Hamas planning the attack on Israel to teenage school shooters.  In this sense, the resolution process must be pre-emptive and include empathy, respect and fairness, even if that means we all get less rent or none at all.

The extreme and overwhelming actions taking root at the federal level today are the outcome of almost a century of rent seeking. Federal governments, especially those with well-endowed economies, are in a good position to pay the rent sought by all groups with any influence at all. This is because central governments can print money, thereby facilitating deficit spending. This applies equally to the right cutting taxes and giving freer reign to big business and the left creating more generous programs for the most powerful voting blocks. When we include defined benefit pensions to government retirees, Medicare, Social Security and assistance to the poor, approximately 60% of Americans benefit from the federal government.

As I look through the rent seeking haze, it is easy to see the group who is least endowed with influence and most ignored when it comes to distributing the benefits of society. They have neither the life experience nor the money to assert themselves. This group offers far more to us than they could possibly take and thus should be viewed as rent payers. These are our children. We need to turn rent seeking on its head and begin gifting to future generations with sound policies that we know will advance humanity.