Jessica Irvine has written an excellent article on The Age entitled “Enough of the pedlars in politics” that discusses the issue of ‘rent seeking‘.  Rent seeking is a word used in economics to refer to people or groups who derive benefits through the manipulation of the political or economic system, rather than purely from profits earned from productive economic activities.  A good summary of what rent seeking is can be found here – and for the record, I don’t like the word ‘rent’ either.  Anyway, this is an area I’ve been wanting to investigate for a while now.  I’d written some notes back in May of this year and thought I’d share them.

No discussion of economics and development is complete without discussing the role of lobbying in our modern world.  It’s an area that I feel is under-researched in Australia, despite the potential for perversion of policies in favour of particular interest groups.

Lobbying and the protection of vested interested is something that is often ignored when discussing the nature of our current political and economic systems.  Capitalism, like nature, is a process of life and death.  In nature, species better suited to the current state of an ecosystem replace those less well suited – survival of the fittest.

Similarly, in the capitalist economy, organisations that are better able to adapt to change should replace those who can’t adapt.  However, humans have the unique ability to control their surrounds and as a result, change that is often desirable economically is impeded by financial interests.   Lobbying can potentially – and adversely – affect the ideal capitalist process of ‘creative destruction’ whereby new companies and technologies replace old.

A perfect example of this is the intense lobbying by interest groups against a price on carbon in Australia and earlier in the year, against a new tax on minerals and mining – Jessica talks about these in her article where she writes:

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.

So why don’t people lobby for the societal benefits of a particular policy?  To begin with, costs to the lobbyists of particular policies are generally more easily quantified than benefits to society.  And people who will bear the actual costs will fight more than those who will reap the potential benefits.  This is because costs are current and certain, involving either imposed actual costs (e.g. a new tax) or the loss of existing ‘benefits’ (e.g. removal of subsidies).

By contrast, benefits to society typically occur in the future, without a clearly identified beneficiary.  Concentration of costs or benefits will therefore result in more intense lobbying whereas the spreading of costs or benefits across a large population will result in less intense lobbying.  Put another way, one person will fight for $1 million a lot harder than one million people will fight for $1 each.   I’m not sure if anybody has coined a phrase for this but I’d like to suggest something like ‘lobbying incentive asymmetry’.

I don’t have any solutions yet to this issue but it is something that the media and general public need to consider more frequently when they read about the ‘impacts’ of a particular policy and calls for compensation.  Or as Jessica Irvine put it:

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.