March of the rent-seekers

Obviously at MB we are more used to bashing the MSM than praising it. But, when a ball-tearing piece of analysis comes along, it behooves us to give it as much promotion as possible. And that’s the case with yesterday’s comment by Jessica Irvine at the SMH. Jessica has recently written some bold stuff, putting most of her politically and corporate bound stable mates to shame (though for some reason they seem to get better billing). None better, however, than yesterday. Frankly, I wish I’d written the following myself (republished with permission).

Enough of the pedlars in politics

There’s an old rule in journalism that ”man bites dog” makes a far better story than ”dog bites man”. Dogs bite men every day, making it a less newsworthy event. But when men bite dogs, something unusual is going on – something people might like or need to know about.

Don your newspaper editor thinking hats and answer this: which type of story is it when Business A comes out warning of dire consequences if it is slapped with a new tax?

Is that what you’d expect them to say? Well, yes, it is. Dog biting man. If Business A came out complaining it didn’t pay enough tax, that would be man biting dog.

Most, but not all, newspaper editors in Australia still appreciate and respect this distinction, treating business people’s claims with the scepticism they deserve. But newspapers are far from the only source of information these days.

The speeding-up of the news cycle and diversification of distribution platforms means news is less filtered than it once was. It now falls not just to a select number of news editors, but all citizens, to run a critical eye over the claims of various interest groups.

Which is not to say they might not have a point, just that we’ll have to judge their claims using some critical analysis, given they’re more than likely to be talking their own books.

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.

Rent-seeking destroys economic efficiency. Dollars invested in rent-seeking, through lobbying or advertising, represent a loss to the economy – focused, as they are, on shifting the distribution of existing profits, rather than creating more profit.

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.

That’s an awful lot of people employed to appoint committees and subcommittees, commission skewed economic modelling and generally pester government.

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.

Occupy Wall Street protesters in the United States are leading a global backlash against crony capitalism and special government favours for finance sector chief executives.

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.

Comments

  1. +1.! That was a good one.

    Thanks

    i missed it as i dont go to the SMH as often as I once did.

    That might need to change.

  2. That is brilliant! Great to see that the MSM is starting to get it.

    Maybe they can start looking at the Pokies reform debate as well. It is being hijacked by the rent-seeking special interest groups being described above. After reading the Productivity Commission Report into Gambling I more than ever want to “Blow up the pokies!”

  3. I think some of these private-public decisions have been more insidious that some of the stuff mentioned.

    In Vic you have the desalination plant; NOT building a rail line to the airport so that the toll road revenues don’t suffer etc.

    I’m sure NSW people can produce a long list of projects which have been a free kick to rent seekers at the expense of John Q Public.

    • StanGoodvibesMEMBER

      How about $15 for four stops on the rail line from Central to the airport, and a govt guarantee to the company that built the line that there would be no competing public transport?

    • I believe the government has contracts with the toll companies that mean they have to compensate them if profits fall below certain levels. Hence, improving public transport costs them money twice. The contracts are very long as well, probably another 10 or so years so we are stuck in a rut due to ..I can’t think of an apropriate adjective.. government.

    • I’m sure NSW people can produce a long list of projects which have been a free kick to rent seekers at the expense of John Q Public.
      .
      We are worse off – over the last 5-6 years, nothing actually got built in NSW! (except maybe the Epping-Chatswood rail link)
      .
      But that didn’t stop the government from throwing taxpayer money at various feasibility studies – a good, easy way for rent seekers to mooch off the government teat without actually building anything!

      • The Lane Cove Tunnel and the Cross City Tunnel spring to mind, along with the “traffic management” mechanisms that came into place since then.

        • Karan

          A financial analysis of these projects would show that the government gained at the expense of private enterprise. Nevertheless the banks involved were rent seekers.

  4. ceteris paribus

    Spin and PR, insidious as they are, are perhaps the most benign means, by which the industrial-military elites have been running Western “democracies” since General Eisenhower drew attention to the fact.

  5. Irvine has come out with some impressive rants lately. Perhaps she is starting to get it? Makes you wonder how long she’ll keep her job…

    But she’s not the only one to run this sort of line of late.

    Nick Greiner was on the radio in Sydney this morning talking about http://www.newdemocracy.com.au/

    Haven’t had a close look at the website yet – so it could be a fizzer. But it sure looked good on the radio!

    • From NewDemocracy:
      “The key value for realizing political ideals in this model is meritocracy”

      “Knowledge of the world, literature, language, arts, ethics and culture would be considered as important as economics and business for finding the most well-rounded candidates.”

      Like being a man? Owning land? Being educated? Earning a certain annual salary?

      Absolutely agree with the notion that Oz needs a different system, but this certainly isn’t it… Too much of a risk that politics will only position itself even further from the people.

      Should be brought closer to the people through proportional voting…

  6. 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.

    Just wanted to repeat that because it was so good.

    Thoughts Fanboy?

  7. Seems to be the subject de jour: http://www.theaustralian.com.au/national-affairs/opinion/green-capitalists-hijack-carbon-agenda-and-we-will-end-up-paying/story-e6frgd0x-1226177734981

    Don’t agree with Ms Irvine’s characterization of campaigns against new taxes as rent-seeking per se, although they clearly have similarities. However, she is right that rent-seeking is rife in Australia. Always has been, for those of us who remember the protectionist era.

  8. Good stuff. Now I await the MB bloggers to argue in favour of removing the $8.5bn per annum taxpayer-funded subsidies received by the Australian manufacturing industry.

  9. Red this on SMH yesterday, and I could hardly believe what I saw. Well done Jessica!

    The problem is if SMH hire more Jessica Irvines, less Andrew Wilsons, are they still gonna get enough ad money to survive?

  10. I think it is worth pursuing this issue of rent-seeking in Australia more deeply. Why is it so prevalent? My (tentative) thesis would be that rent-seeking prevails when it is rewarded – that is, when government gives in to, or even worse, encourages, the rent-seeking.

    I think we can assume that businesses are generally run by people who will seek the easiest way to make a buck. If that is rent-seeking, that is what they will do. If rent-seeking is unrewarding, because the government is unresponsive, then they will turn their attention elsewhere, usually to doing things better/cheaper than their competitors.

    So I blame the government. They could easily stop the rent-seeking by not paying the rent.

    PS I think maybe I should enlarge on why I think Ms Irvine has incorrectly characterized the mining campaigns against new taxes as rent-seeking. Rent-seeking is to seek more favourable treatment for your company or industry vis-a-vis other companies or industries. In the case on the miners campaign, they were seeking to prevent a more onerous tax regime on their industry than on other industries. A subtle but clear difference. One’s opinion as to the fairness or otherwise of the RSPT is irrelevant to whether it was rent-seeking to campaign against it. (Perhaps the government should have gone for a super profits tax for all industries!)

    • In regard to the MRRT, the big miners got a much better deal compared to everyone else. It definitely fits the definition of ‘rent seeking’.

      • I agree. But I took Jessica Irvine’s comments about expensive PR campaigns to be a clear reference to the campaign against the RSPT.

  11. Unfortunately Gillard et al buckled under (frankly not so much) pressure from the mining lobby and have set their precedent. Geez, show some backbone!!!

    Fed Labor has done such a poor job of defining the public perception of their policies that they’re in damage limitation mode all the time. But since rewarding Big Businessrent seekers is a core belief of the Libs I can’t see anything changing for quite awhile.

    Ms. Irvine is quite correct, but that ship has well and truly sailed. Of course the Govt could tell Big Mining/Pokie lobby etc. to pony up, but I can’t see it.

    • “Fed Labor has done such a poor job of defining the public perception of their policies”

      I think they were trying out a new strategy.

      Announce just the intention and desired goal as early as possible. S-l-o-w-l-y play test the details and work out a line of least resistance. Label it in feel good 1984 opposite speak. Slap the finished bill on the table as close as possible to the vote day.

      (Boxing up the cost benefit analysis in confidentiality is nothing new)

      Someone imagined that it would be a “brilliant new paradigm in creating invulnerable decision quantum syneries”

      Turned out to be [email protected]#.

    • You beat me to it, Bear Jew.
      Exactly. Not just the RE industry, but the property owning lobby.
      Why do certain filthy rich property magnates fund environmentalist groups? They care about the environment? Ha, ha, pull the other leg. No, the Greens are useful idiots – Green policies are the ultimate anti competitive racket.
      Bernard Freiden, “The Environmental Protection Hustle”, was published in 1977. But the mainstream media and voters haven’t “got it” yet. Unfortunately, “the property owning class” is numerous, even if the most racketeering and pork barrelling is done by the wealthiest minority, they can count on millions of greedy baby boomers backing them up.

  12. Is it rent-seeking to oppose a tax on your business ?

    I would have classified rent-seeking as actually seeking a subsidy from government, not preventing more taxes.

    I’d also wager that many people deeply mistrust tax-seeking by the different levels of government.

    • “Is it rent-seeking to oppose a tax on your business?” It is when the “tax” merely attempts to collect economic rent – especially because a successful campaign to avoid paying the rent into the public treasury will force other people to pay more tax. It’s even worse when the economic rent takes the form of increased property values caused by infrastructure paid for by other people’s taxes.

      • So the only way to avoid this hazard is to avoid governments paying for infrastructure.

        I’m not sure what you mean by “economic rent”. Is this like the concept of imputed rent where all homeowners would pay a tax on the value of the home ?

        Is this based on the socialist premise that all Australians own the resources in the ground, and the mining company is stealing from us by exploring and locating, digging, refining and shipping it to customers ?

        I don’t subscribe to this idea of collective property rights… otherwise we’d all be screaming at each other “You’re breathing my air !! Stop it !! “

        • “Is this based on the socialist premise that all Australians own the resources in the ground,…”

          It has nothing to do with socialism. The government has always owned everthing more than a short distance below the ground of everyone’s property. That’s how they can sell the mining rights to the mining companies. Often against the wishes of the property owner.

        • “So the only way to avoid this hazard” is the “beneficiary pays” principle, where the beneficiaries of infrastructure include not only the actual users, but also those whose land values are uplifted by the availability of the infrastructure. If you try to cover the cost by charging only users, you usually fall short because of the inverse relationship between pricing and patronage.

        • I don’t subscribe to this idea of collective property rights…
          .
          Your belief system does not count one bit.
          .
          What counts is what is in the constitution and the legal precedents that our judiciary has established over the years.

    • this is a good point, If my industry was being lobbied to have a tax put on it, mining for example id want the govt to stay out, not looking for special favours.. I think there should be a difference between lobbying for subsisdies (direct or indirect) vs not being slapped with any new and wonderful tax thought of by the elite out of Canberra.. also there are usually genuine rent seekers on the opposite side of the industry being taxed..

      if you wanna see the biggest example of rent seeking just look at the rort going on in the environmental/climate world.. (no matter what your opion on climate change is, theres still a massive rort going on)

    • The worst tripe in the whole thing, was the last para:

      “….If we want to solve the housing affordability crisis it’s clear we’ll have to tackle the supply side. And the only way is UP.”

      “Tripe” doesn’t do THIS justice. I won’t waste my time essaying here, about the deep unreason surrounding “anti-sprawl” policies – followers of Macrobusiness will know what I have said elsewhere.

  13. I must agree that Ms Irvine’s articles have read significantly better than those of her stablemates in recent weeks.

    The NIMBY article that cyrusp refers to wasn’t bad in itself, but the economic model it was reporting on was pretty crummy. So blame the author for choosing a bad topic rather than writing badly about that topic.

  14. The biggest rent seekers are members of our politico-housing complex that enslaved a large section of our population with massive mortgages. Financial institutions provided the means, governments at different levels their keen support with the RE and housing sectors being the main animators.

    • The single best example of rent-seeking in every economy in the world from Ireland to China.
      The classic quote on all this: Mason Gaffney, 1964:
      “…..To the dominant landowning oligarchy, few limitations on competition
      commend themselves with quite the same force of logic as limitations on the entry of new lands into urban use. It is therefore no accident that urban growth containment is the most respectable and salable kind of planning in many quarters. It harmonizes all too mellifluously with the interest of a dominant class. But from the viewpoint of social economy, of other interest groups, of the general welfare, of the region, state, and nation, and even of most urban landowners in their roles as
      workers and capitalists, negative containment is an instrument of monopoly exploitation…..”

      • Note that Gaffney, in the same chapter, advocates what he calls “positive containment” – that is, site-value taxation to force more desirable sites (closer to the CBD) into more intensive use, thus reducing the demand on the periphery, and abolition of other taxes that penalize efficient use of land.

        • Quite. So the many and vocal advocates of urban growth constraint do not advocate THIS, “because”……?
          1) they are too ignorant – no “Planning” degree course teaches ANYTHING about urban economics and real estate markets and how monopoly type gains and wealth transfers are the result of proscriptive “planning”
          2) they are corrupt, and on the take from the rent seekers.

  15. Another classic rent seeking case: rail based public transport routes and other projects that focus on a central location.

    From one of Colin Clark’s seminal books, “Regional and Urban Location” (1982).

    (Page 231)”….If rail and subway services to the centres of large cities were charged at full cost, including interest and depreciation, two consequences would follow. The employers of the lower paid service workers in the city would have to raise their wages, in some cases reduce the services offered, or move to suburban locations (for example, some of the retail businesses still carried on in city centres). Meanwhile the higher paid salaried and businessmen, who in most cases could not change their workplace, would have an incentive to move their residences closer to the centre (while at the same time having less incentive to reside close to railway or subway stations).

    These movements would have their reflections in the price of urban land. They would reduce the demand for and the price of business land in the city centre, and of residential land in the outer susburbs, particularly land now high priced because of its proximity to railway stations. There would be countervailing movements raising the price of business land in the suburbs and of residential land nearer the city centre; but these would probably be of a lesser order of magnitude. In net effect, the subsidies on rail and subway suburban transport are subsidies to the owners of certain types of land – for which there is no social justification….”

    In case you are wondering who Colin Clark was:

    http://en.wikipedia.org/wiki/Colin_Clark

    The transfer of wealth from taxpayers to property owners is surprisingly quantifiable in terms of capital gains reaped by the conveniently placed property owners. These people, of course, become a natural lobby group in favour of transit subsidies, and the whole thing becomes another example of the old, old story where the great majority of people have a little to lose “each”, but not enough to turn any one of them into a lobbyist.

    • “In net effect, the subsidies on rail and subway suburban transport are subsidies to the owners of certain types of land – for which there is no social justification…”

      Unless, of course, the “subsidies” are paid for by taxing the ensuing uplifts in the value of that land.

      • Hear, hear.
        Again, the advocates of rail based, monocentrically biased transport systems do not advocate this, “because”…..?
        1) ignorance?
        2) corruption?
        Watch the “support” for these ideas fade away like the morning mist as soon as the “rent” transfers are eliminated.
        The CBD property owners do not care if the cost is $4 to every $1 of benefit, as long as they are reaping 90 cents of the benefit and only contributing 10 cents of the “cost” – the other $3.90 coming out of petrol taxes foremost.

  16. There was a very good scholarly book published about five years or so ago called “Downtown: Its Rise and Fall.” Once it rose, Downtown Inc. (which, BTW, was the actual name of the business alliance formed to promote development in Downtown Kansas City in the 1950s) would act to prevent its fall. Which meant, as the 20th century progressed, shoring up its status as the preeminent retail and office center of a metropolis. Radial transit networks focused on the core were a popular tool for this purpose.

    The above book includes, for instance, an editorial cartoon from the 1920s in opposition to a plan to build a system of subways in Chicago; the cartoon depicted a businessman wielding a “Loop Tube Magnet” that drew all the wealth from the region towards it.

    That is not too much of an oversimplification of what the fight was about. That fight also took place in Los Angeles, BTW, with the Los Angeles Times twice taking the side of CBD interests who backed rail transit networks; both times – 1933 and 1944 – the CBD interests lost at the polls.

  17. The other problem with planned densification and transit-oriented development, is of course that whether people voluntarily relocate there (or are deprived of other choices), the prices at those locations will rise quick enough to prevent any significant quantities of people from locating there – it will be an “incumbents club” into which a few people only have succeeded in buying.
    So if the “plans” are to work as desired, the property values need to be collapsed in advance by “charges” against the anticipated uplift in value, or better still, acquired compulsorily, developed by competitive tendering processes, and sold to tenants “at cost”.
    If we are talking about an “existential crisis” (global warming, peak oil, etc etc etc) why the pussyfooting around with “free markets” in real estate, and private property rights, and NIMBY rights, when these are an obstacle to the ALLEGED outcomes for which stringent planning is enacted and which imposes massive costs, actually wealth transfers, on young home buyers?
    Explanation, please. My guesses, again:
    1) ignorance
    2) corruption

  18. Overrated, overhyped, undergrad style analysis largely macrobated (not credited) – extraordinary that anyone has only just realised that this is the cozy corporate/government relationship that has existed forever in some form or another.

    Vested interests are everywhere on all sides of the corporate/political/social welfare divide. I now expect Irvine to note at the conclusion of every article a comprehensive list of all such interests pertinent to her story and of all contacts and interviews she undertook (from both sides of course) etc.

    I expect nothing less – and clearly she must feel the same way.