Rent-seeking regulatory capture shouldn't be called entrepreneurship at all. America's mania for privatizing government work does indeed encourage that form of rent-seeking, as does any other system in which a government awards contracts to private enterprise to get work done. One thing many businesspeople and founders (outside of Palantir) are unaware of is that a single government contract can be several orders of magnitude larger than their wildest revenue projections.
This is true, but difficult to avoid in some form or another.
The Queen does not personally take away my rubbish, or lay the city water pipes. The government pays people to do that, and private contracting is one way of organising that. State-owned corporations (or whatever you want to call them) are other.
Sure there are opportunities for rent-extraction by contractors. But the same opportunities exist for bureaucratic empire builders and public-sector unions.
> I'm pretty sure a government internet service would beat Comcast, and likely force all ISPs to up their game quickly.
the point is that if it were only a gov't service, that ISP would be just as bad as comcast. The problem is not due to it being gov't or not, but due to lack of competition!
Competition is not the only feedback loop. With public companies, they're also subject to the usual democratic channels - sometimes less directly, but still. With private companies, you only get that as a shareholder, and even then in practice you have a few people holding the controlling stock.
I'm not sure that this is absolutely true - in the American experience it has been a consistent experience; but in other countries there have been state owned monopolies that blow Comcast out of the water.
Government would beat Comcast? I would really have to see some data before I’d be convinced of that. You must have some really strong faith in government but there is nothing in my experience that would suggest a government entity would have any incentive to actually be good at anything.
I understand the US military is considered good, and not just because it's huge and has a lot of money to spend. I'm told the competence of the individuals involved tends to be higher than many other militaries.
Comparing to other national militaries isn't meaningful. How does their effectiveness compare to private companies that do the same kind of thing, e.g. Blackwater or whatever they're called now?
US government military is so much better. Skill fade is brutal. The US military spends a fortune training and exercising and refreshing and retraining, over and over. Mercenary companies simply don't have the funding or facilities to do the same.
Typically, the employees are contractors. Some of them might still be in date for some of their professional qualifications, some of them might be years or even decades from their last professional military refresher. I'm sure they can get by swapping tips and visiting gunranges, but it can't compare to spending nine months of the year on exercise or deployment.
I hate Comcast as much as the next guy, but I would never choose a government service over them. There is only a few things the government is competent at and one of those is war. But even that is being hugely supported by private companies like Lockheed and Boeing.
Yes but in this case the government's own estimation on doing the work itself sets a bar. Also sufficiently bidding out work drives prices down by competition if the contractors aren't conspiring against the public. Big if.
I think it would be a better like a dutch auction with a twist.
Regulation should determine the minimum number of competitors a market should have (N).
Say there are 5 companies bidding for service (each targeting 1/N of the market).
* 100 for 1/N
* 120 for 1/N
* 125 for 1/N
* 150 for 1/N
* 200 for 1/N
The lowest N bids win, the less expensive winners receive some percentage of the difference between the highest rate and their rate as a bonus. (Which could be 100%, could be 0%, I feel 1/N % is fair)
I also think that N should be targeted based on the type of work. Things which require /many/ bodies, like utilities, construction/repair, etc should favor far more successful businesses within a market. Things that require more substantial investment of resources should be more tightly regulated; vertical and horizontal integration (but not public feedback loops such as 'it would be really beneficial if your processes were nicer for this type of target') should be broken up where-ever possible.
Most crucially the regulating bodies should be thin. They should have extremely clear mission statements. They should also be directly accountable to, and elected by, the public. That process should not have the defects of today's elections, no artificial sub-regional representation and no pre-election filtering of choices (other than, perhaps, a minimum signature requirement to get /on/ the ballot).
Every person I've know who has been involved in government contracting has basically said it's a giant scam, and a giveway to certain corporate interests.
Basically we all know the government is not as efficient as the private sector at performing lots of tasks. It turns out the government is especially bad at contracting out large government services.
Comments in this thread and similar threads on Reddit make me dispair for the future.
"America's fetish for privatization promotes rent-seeking"
"Not having single payer healthcare is the single biggest reason we have so much rent seeking in healthcare"
A society with fully socialized means of production is not free of rent-seeking. On the contrary, every single job in every organization in the economy is rent-seeking in that case.
Anyone with experience in Indian public industries pre-liberalization, will tell you.
Human beings in large organizations will often try to act in their own interest as opposed to the organizations interest. It is up to the organization to build up structures and culture to fight this innate tendency in humans.
The problem is, organizational cultures tend to drift over time. Though an organization may be founded small, with a lot of idealism, and selfless workers, in the long run, political players will infiltrate the upper ranks ... you soon see people trading influence for their own benefit.
The worst aspects of this are seen in India still, where people get a job, and then use whatever powers the job grants to extract rents from co-workers, the public, etc.
The market plays a role in preventing this.
The market is the ecosystem which provides predators which hunt and kill the decrepit organizations that have too much rent-seeking behavior internally.
When a government company is full of rent-seekers there is no solution except to wait for some revolution to occur, because its never politically feasible to fire so many public sector workers.
In the case of private companies, unless the government intercedes, an organization that is inefficient and full of rent-seekers will soon be overtaken by spry rivals who focus on consumer benefits.
Let me give you some concrete examples. Have you ever read about how labor and management used to act at General Motors? There used to be jets for the upper level managers. Special dining rooms for them. Separate bathrooms for them. The company was struggling, and the employees (the managers) were giving themselves all kinds of cushy perks.
The relationship between the board and the shareholders was terrible. The shareholders couldn't do anything against management and the workers. In ordinary cases such a company would have gone belly up after shareholders lost faith and committed capital elsewhere. Instead, the government propped up GM with defense contracts, government contracts, and finally a bailout. It was government intervention that allowed rent-seeking by individuals to continue.
Anybody can play this game. You give me you 2 examples of inefficient organizations and then generalize.
I live in Sweden and can give you 2 counter examples of where govt organizations are efficent and effective (healthcare and public transport).
I won't generalize, though. I will agree that without mechanisms, individuals will play the office game. Two mechanisms in Sweden are "offentlighetsprincipen" - anybody working for a govt job can have their costs/emails/documents/etc examined by other citizens by requesting them (no need to even motivate the request - but some docs are kept secret). "The right to roam" is another one that keeps rent seeking behaviour under control when it comes to property - a billionaire keeping the public off a big beach (like Khosla near the Valley) cannot happen - http://www.mercurynews.com/2016/04/27/martins-beach-appeals-....
Personally I believe it's culture. A high trust and low corruption society will probably succeed whatever system it uses. It's very very difficult to quantify this or tease out cause and effect. But I really feel like Europeans are more likely to "Do The Right Thing", than Americans or Indians. Like less likely to take a bribe or exploit the system for personal gain. More likely to be outraged when someone is caught doing that. Not perfect, just better.
Compare to third world countries which have very low trust and high corruption. Bribes are common in every area of life and no one trusts authorities. It's very difficult for any system to function in a culture like that. Just replacing the government or changing to democracy doesn't seem to help that much, because the underlying culture is the same.
With good education and not prioritizing money as THE thing to seek in life. By giving people a purpose to live beyond economics and slaving for the nations GDP.
I thought Sweden's system is focused on cohort local groups for health care. So while the government requires national healthcare, all decisions are made locally within your 10k group of peers.
No, it's organized by municipality. So the whole of greater Stockholm is under one organization (~2m people). But it's a national health service, and patient outcomes are better given its costs than any privatized health system in the world.
> Costs for health and medical care amounted to approximately 9 percent of Sweden’s gross domestic product in 2005, a figure that remained fairly stable since the early 1980s. By 2015 the cost had risen to 11.9% of GDP -the highest in Europe
> According to the Euro health consumer index the Swedish score for technically excellent healthcare services, which they rated 10th in Europe in 2015, is dragged down by access and waiting time problems, in spite of national efforts such as Vårdgaranti
Seems like the effects of socialism is starting to take effect
I could not find much details on public transport in Sweden
Ironically Sweden has moved in the past 20 years from a fully public healthcare system to a mixed public/private model (similar in many ways to a voucher approach where the customer picks a provider).
So what you're seeing in those numbers is not really "effects of socialism".
Your profile says that you use this account specifically to support conservative viewpoints. You need to try harder than just pick random statistics and proclaim socialism.
> Ironically Sweden has moved in the past 20 years from a fully public healthcare system to a mixed public/private model (similar in many ways to a voucher approach where the customer picks a provider).
So the healthcare quality could be because of privatized healthcare ?
Yes, possibly! And on the flip side, Sweden's recent drops in European healthcare quality rankings could be due to advanced privatization too. 1980-2015 is too long a period to easily draw any single conclusion.
The larger point I'm trying to make is that Sweden is nothing like its Breitbart caricature. It's a very competitive free market economy with a hybrid approach to most social services. Socialism in the early 20th century sense doesn't describe 21st century Sweden.
> a whole lot of neoliberalism and market-worshipping.
It's funny I read comments like yours and feel the same sense of despair. Humanity is weak and foolish, markets make everything right, and even if they don't they'll crush any aspirations to anything else or better. Don't bother with government, don't bother with humanity. Markets markets markets. Socialism bad. Capitalism good. Also anything the government does is socialism and bad and anything companies do is capitalism and good and inevitable.
Neither markets nor government alone are the solution. They both are problems and solution at the same time. That's life and that's democracy.
Someone has already supplied counter examples from Sweden. I will give you one from India. ISRO is a government organization, it operates on shoe string budget as compared to its competitors and still does wonders. Why here isn't a wealthy Indian group(Ambani, TATA etc) spending money on fundamental research.
Counter example is Indian IT sector. Do you see any company investing in anything fundamental. I think this behaviors is a classic example of rent seeking. They are perfectly happy playing the middleman seeking a commission.
In reality most of the private organizations are the real rent seekers. They shy away from anything where making money in short term is not possible. I will encourage you to watch this talk[1]. Private companies just polish and market the fundamental research done at Government organization once its utility is proven beyond the point. IMHO this should be called rent seeking. its akin to building a hotel in an area once Government have build the basic infrastructure.
Take the example of deep learning as it is the hot topic nowadays. Private funding started flowing only when Geoffrey Hinton working for University of Toronto proved the viability of it beyond question.
> The market is the ecosystem which provides predators which hunt and kill the decrepit organizations that have too much rent-seeking behavior internally.
Is this comment satire? It's seriously so deep in some kind of magic-market-fetishism that I actually can't tell.
If anything, the less several years has shown us that the magic hand of the 'market' is neither effective, nor it seems, even real: as soon as things turn slightly against them, those businesses with the means simply change the game so that it favours them again which makes the argument that 'the market is the ecosystem...kill the decrepit organisations' pretty much moot.
Look at Fannie May and Freddie Mac (spelling? I'm not American so I'm not terribly familiar with them) 'too big to fail' they said. Until they failed. And then, instead of failing like they would in a 'real' free market system, they went and groveled so that the Government had to step in and save them. Real good free market system there.
too big to fail isn't that they couldn't fail but if they did they were so entwined in the economy if they do they government needs to step because the consequences would be devastating. ie worse than the depression.
> In the case of private companies, unless the government intercedes, an organization that is inefficient and full of rent-seekers will soon be overtaken by spry rivals who focus on consumer benefits.
That's the ideal, but in reality there are plenty of corrupt, inefficient companies - as anyone who has worked in a large company can tell you. Also, there is no ideal free market in existence: Politics always plays a role, and powerful market players dislike the competition of the free market and create barriers to entry and other unfair advantages for themselves.
Even in the ideal, the 'free market' is a great tool but, like all tools it's not a universal one. For one thing, it needs to allow businesses and industries to fail; for another, it distributes goods to those most able to pay. For gaming software, that's fine. For health care, basic housing and food, police protection, and basic communication (the Internet), those are not acceptable outcomes.
> In ordinary cases such a company would have gone belly up after shareholders lost faith and committed capital elsewhere. Instead, the government propped up GM with defense contracts, government contracts, and finally a bailout. It was government intervention that allowed rent-seeking by individuals to continue.
Could you provide some basis for this version of events? As far as I know, which isn't much, GM used its enormous market power to survive; the car industry is hardly an ideal free market.
> For health care, basic housing and food, police protection, and basic communication (the Internet), those are not acceptable outcomes.
just only 20 years ago, basic communication (the Internet) wasn't on that list. What amounts to minimum requirements seems to be growing, and can't possibily be supplied indefinitely to people ala basic income.
> just only 20 years ago, basic communication (the Internet) wasn't on that list
Communication was; in the U.S., phone service was subsidized for rural consumers, for example. Now Internet is the requirement.
> What amounts to minimum requirements seems to be growing, and can't possibily be supplied indefinitely to people ala basic income.
It's great that it's growing; I want the world and society to advance, not stagnate in the state it was 20 years ago. We're much better off than people 100 years ago (or 20 years ago), and it's on us to pass on that legacy and make sure the people 100 years from now are doing even better.
Income and wealth are growing and have been almost continuously since WWII. The U.S. in 2017 is the wealthiest, highest-earning nation in the history of the world, with ~$90 trillion in wealth and ~$18 trillion in income. Taxes relative to income are at historical lows. The notion of scarcity in public goods is not based on fact; though of course there are limits, we are nowhere near them.
You treat people as some sort of adversary. How much productivity and innovation can be unleashed by a well educated healthy population not reduced to fighting for basic survival.
This is a future that capitalism with its self congratulatory 'winners' and survival of the fittest race to the bottom cannot envision or enable.
On the contrary it actively thwarts these possibilities by empowering and creating incentives for a self absorbed minority to sustain a system that benefits the top layer.
it's funny we now expect both parents to work but then childcare isn't on the list of basic needs. by definition a minimum wage job can't afford to pay for child care without some kind of help.
America has already run the "let's leave everything to unregulated market" experiment. The corresponding period was called the Gilded Age for a variety of good reasons, but suffice to say that in the court of public opinion, its effects were enough to sell the first anti-monopoly bills in this country.
The market is great when it works. But some fields by their very nature are just not amenable to market competition. Healthcare is one of them: people just can't meaningfully shop around (or choose not to be treated) when they have a serious health issue (indeed they might not even be conscious at the time).
In those cases, democratic accountability through the government process is the best we can do, and better than the no accountability that will otherwise happen. Industries where meaningful competition is possible should be privatised, but natural monopolies should be nationalised.
I think that's true - which suggests that our trend should be towards more nationalisation. (Put it another way: with communication cheaper and better, and better modelling tools, central planning becomes less of a disadvantage).
The free market has done nothing about Ticketmaster, for one. The market can't do anything about rent seeking if the rent seeker is big enough to squash rivals.
The government didn't prop up a corrupt company as inevitable, it held up a company because many working-class human lives were tragically intertwined with its veracity. And all that can be corrected, absolutely, for the future. I can only say that I lived through those periods of time, watched it unfold, and you are misconstruing the very nature of the occurrence(s) to fit your ideological worldview.
I think even in non-government backed startups, many people could be considered "rent-seeking", putting more focus on raising money than anything productive.
Also, shows like shark tank(while entertaining) give some non-entrepreneurs the perspective that business is a lottery. So many people, when I talk to then about starting a company, they mention some mythical day when I suddenly become rich, and it just doesn't happen that way.
The best definition of money I use is, "money is nothing but a reflection of value you create for other people" -Tony Robbins
“Schumpeterian” entrepreneurs, those that are “creatively destroying” the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living.
Awesome term, explained in a referenced paper[0] as one of the following:
1. A new product.
2. A new method of production.
3. A new market.
4. A new supply of raw materials or components.
5. The re-organization of an industry.
The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only?
> The question, then, would be "what isn't covered by Schumpeterian?" .. rent-seeking only?
Normal businesses that are created for traditional reasons. For example, to partake in a gold rush (like phone apps a few years ago). Or to attempt to get a slice of economic pie, typically in a "perfect competition" market that precludes monopolies. Anyone who produces a commodity by standard methods.
These aren't rent seeking, they are adding fair competition to an (un)established market. They aren't Schumpeterian either, they are more-of-the-same to help the market meet demand. Arguably a rational actor would invest their money in the commodity to allow existing companies to grow, but some people prefer to get their hands dirty instead.
We have seen much discussion about rent-seeking behaviour. Be it patent troll, lobbying, the actual renting in housing market or whatever.
But what are the potential remedies? The article "tragedy of the commons" in wiki mentioned privatization or regulation as potentials solution to "tragedy of the commons". While I am not trying to equate the two terms, I think the solution to rent seeking behaviour deservers more discussion
Check out the "non-governmental solutions" section of that article. If you can manage to form a community around a common resource, you can establish rules and procedures to govern its use.
This kind of solution won't work for all shared resources, but it's at least worth considering: the people using the resource usually know better how to manage it than a centralized government body, and these communities can think longer-term than a market which tends toward short-term exploitation.
What's bad about rent-seeking behavior? If anything, that is where the business starts (as opposed to a job: meaning, something which has a value for which it can be sold. you can sell a business but can't sell your job). A business is an unfair advantage which creates rent, and thus has a value. Say Facebook has an advantage of network effect, so any new social network can't overtake it because it is a catch-22: you need to have many people already in to get any people in. That is an unfair advantage (Facebook founders could have been a lot more stupid and your product may be actually a lot better, but it doesn't matter), and it creates rent, and is worth billions. No business can create value or profit without having that. Business is rent on capital, either invested or created.
I think parasite entrepreneur will always exist. Before they were selling miraculous potion for hair growth, now they are selling cryptocurrency or promises of unicorn startups.
Not too hard to find exceptions. IMO it's a pretty worthless law even if only stated for entertainment value. A lot of times a yes-no question, like above, is just used as a low-effort intro to a low-effort article but sometimes a yes-no question could act as a well-thought-out intro to a well-thought-out article. It doesn't take too much experience to understand when a title is just being vague to draw you into a bad article.
Care to elaborate why HBR is awful? Article needs to provide more evidence that political regulation from rent-seekers is higher than ever before, but ultimately there's nothing that I would consider "clickbait" here.
> James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, “political factors” account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns.
I honestly don't understand the point of reporting such "phenomena" in such stilted, euphemistic, academic terms. Every time I read such a milquetoast description of corruption, I'm reminded of this essay discussing the ways in which well-meaning "discoveries" in economics and political science serve mostly as a prophylactic against the immediacy, urgent, and valid claims made in other epistemic registers.
It really feels like some people just don't want to "give credit" to the angry mob for realizing something that eluded them for so long, so they come up with these strange parallel constructions that quantify, and "prove", what was already obvious to everyone else, but in slightly different/more mathy ways, to make it seem like fresh knowledge. However, in doing so, they de-legitimize the ways that other people used to arrive to such conclusions, such as a cursory reading of Marxist literature.
It's reported in "stilted, academic terms" because it's academic work. The authors might be filled with anger, who knows, but there's value in detached academic research.
There is a quantitative craze in academia that is producing ever more ridiculous scholarship. Political science journals are full of studies running regressions on preposterous data sets, usually to justify some predetermined qualitative analysis.
There did seem to be quite a bit of dancing to keep the phrasing and identification of actors as vague and inoffensive as possible.
It's more than a little conspicuous that an article regarding rent-seeking and the growth of unproductive enterprise over the last three decades fails to once mention banking or the stratospheric growth of financial engineering over that same period.
Hasn't this always been the case in every scientific field? It seems like every other week there's a new study that proves something everyone intuitively knew. The point of doing the research is to gain actual scientific data (e.g. mathy stuff, as you put it) via the scientific method that will add to a preexisting body of knowledge.
"But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade."
