0.9 Corrosion of institutions: rent-seeking  (Page 9/10)

No, what they are primarily selling is access . Access to government officials, access to government processes.

These “Beltway Bandits” have their counterparts in every national capital in every corner of the world.

Are lobbyist and other rent-seekers evil? Are they always corrupt? Not necessarily. Ask any lobbyist for any pressure group and he will tell you, we are just protecting our client’s interest. Lobbyists in D.C., Paris, Seoul, and Buenos Aires say of their activities in politics, “If you don’t have a seat at the table, you are on the menu .”

Returns to Lobbying:

Lobbying deeply infects commerce everywhere.

Consider just the U.S., where we have better information on rent-seekers, largely because of a free press. Lobbying of government officials for special favors is so common that a firm called Strategas created in 2002 a lobbying index .

Who were among the biggest corporate spenders on lobbying? Tobacco companies, defense contractors, health insurance firms, private university, for profit institutions.

Strategas uses the intensity of lobbying as basis for creating this index.

Intensity of lobbying = lobbying expenditure as % of the firm’s assets.

How has the index performed? Measure share price of 50 biggest lobbying firms against the Standard and Poor Index from 2002 to 2011. The Stategas index has beaten the S&P index every year! S&P a much better gage of stock market performance than the more familiar Dow Jones average (only 30 firms).

The index shows returns to lobbying firms relative to returns to investment in other firms in S&P index of 500 firms.

A striking result that comes from this index. The return on lobbying is especially high.

What do firms get for their money when lobbying? Returns have been as high as $220 for each $1 spent in lobbying.

Clearly rent-seekers do impose costs on society. These costs are the inevitable outcome of special interest politics, Machiavelli realized this long ago (read The Prince ).

The point of the rent-seeking literature is not necessarily that it is “immoral” or evil to seek rents by securing governmental favors- supply restrictions, government imposed minimum prices (milk, grain) and the like. The point is that, except by accident, government favors bestowed upon special interests are not likely to contribute to economic efficiency or to equity for the economy as a whole.

But that rent-seeking pressure groups usually argue for supply and other restrictions in terms of projected equity or efficiency benefits to the society as a whole. They follow the principal of elevating self interest arguments to highest moral principles.

Rent-seeking has been present in many African countries over a long period of time in the colonial era and the modern era.

Consider agricultural policy in Africa. There we can easily verify that agricultural policies have been generally sharply adverse to the interests of farmers, especially small , poor farmers (Nigeria especially Ghana and Zambia).

One of the main goals of agricultural policy in much of Africa has been to control food prices for the benefit of articulate and vocal urban elites . (City dwellers, military and bureaucrats, owners of manufacturing firms).