The View | Why is rent seeking so bad for competition, growth and freedom?
Rent seeking is one of the core pillars of the study of political economy. Its use in economics is negative and denotes detrimental political and economic activity. Why is that so?
Under most circumstances, the owners of an input of production -- land, labour, machines, and capital -- will only be able to earn a normal profit (as opposed to a high profit) because competition in the market place will equalise their returns.
The only way for owners of an input of production to extract additional profit would be to cartelise and monopolise. The most effective way to do this is to lobby government to set up regulatory and legal barriers to market entry.
The process of lobbying government is a political process. Economists call such lobbying “rent seeking” because the objective is to secure economic rents that are higher than the normal profits obtainable by competing in the economic market place.
China’s high economic growth rates in the past three and a half decades have been the result of curtailing rent seeking
In the economic market, competition drives down costs and promotes innovation, because both incumbents in the market and newcomers can constantly challenge successful firms and individuals.