Here is how Wikipedia defines rent-seeking:
In public choice theory, rent-seeking is an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. One example is spending money on political lobbying in order to be given a share of wealth that has already been created. A famous example of rent-seeking is the limiting of access to lucrative occupations, as by medieval guilds or modern state certifications and licensures. People accused of rent seeking typically argue that they are indeed creating new wealth (or preventing the reduction of old wealth) by improving quality controls, guaranteeing that charlatans do not prey on a gullible public, and preventing bubbles.
That’s as a good definition as any. Today there is some fast and loose use of the phrase at the AFR as Chris Joye discusses any potential Son of Wallis inquiry:
This is why we need an independent, vigorous and transparent public examination of how to prepare Australia’s economy for financial storms that originate closer to home. And it is what makes the Funding Australia’s Future Project contributions to this debate so timely.
When six economists wrote to Wayne Swan in July 2009 proposing that a root-and-branch inquiry into Australia’s financial system, along the lines of Campbell in 1981 and Wallis in 1996, was warranted to interrogate the many vulnerabilities unearthed by the GFC, the Treasurer responded it was all unnecessary.
…Assuming the Coalition comes to power, there are many defining policy questions the new inquiry will have to tackle. The risk is this reform agenda gets hijacked by the vested interests that dominate Australia’s multi-trillion dollar financial system, including super funds, financiers and bureaucrats.
…two controversial issues that rent-seekers will want to see neglected.
The first is on what grounds governments should interfere with freely functioning private markets to subsidise the participants in them, and how we can mitigate the moral hazards and competitive distortions that ensue. This is an awesomely complex question that few really understand.
The second is how Australia’s system of compulsory saving can be enhanced to materially improve the funding available to banks, corporations, households, and the infrastructure required to support 36 million people by 2050. Here, most roads lead back to trustees’ asset-allocation decisions.
Now look, Chris is a good commentator. He is technically miles ahead of his peers at the AFR and often champions causes that are in the public interest (including being one of the six economists the call for the inquiry). But let’s not muck around here. Around the topic of financial reform he is not objective and could be accused of seeking rents himself. As his AFR byline says:
Christopher Joye is a leading economist, fund manager and policy adviser. He previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of YBR Funds Management Pty Ltd.
He currently works with Yellow Brick Road which, in another part of its business mix, is actively seeking to break into mortgage issuance in partnership with Macquarie Bank via securitisation. Chris has also written extensively on how Australian securitisation markets should be restructured along the lines of the Canadian system with government guarantees extended to residential mortgage backed securities. He is also the inventor or various mortgage securitisation products through his former firm Rismark.
Nor do I think Greg Medcraft is good choice for any inquiry. Medcraft is on record as a supporter of securitisation and:
In 2002, Greg co-founded the American Securitization Forum and was its Chairman from 2005 until 2007 when he returned to Australia. The American Securitization Forum is an industry group representing some 350 member institutions comprising all major stakeholders in the US$1 trillion US securitisation market. In January 2008, he was appointed Chairman Emeritus of the Forum.
In effect, Medcraft ran the US lobby for American shadow banks as they created the greatest financial meltdown in history. That is not to say that he or the Forum were to blame, nor necessarily that his special insights into the extraordinary failures of American shadow banking would not be valuable to an Australian inquiry, but that contribution can be made from his current position at ASIC.
If this inquiry is to go ahead it needs a head that is beyond both bank, non-bank influences, and past Australian regulatory failures. A guy like Professor Frank Milne has the right profile.
