Rent seeking isn’t your landlord chasing you down because you failed to keep up with your tenancy payments.
It describes the act of a business, or individual, increasing their wealth without adding any value.
Now, the cynics among us could start gesturing wildly at *everything*, but it describes some fairly specific, some might say pernicious, activities.
Rent seeking could be called “gaming the system to make more money than you’ve earned”, and the term applies to businesses who lobby governments for favours and influence, businesses and corporates that receive taxpayer welfare through subsidies (financial handouts for doing what they are already doing or going to do), grants (yep, again more corporate welfare), tariffs and occupational licensing can be rent seeking.
Even non-compete agreements, like the kind exercised to stop star political journalist Tova O’Brien from starting work at Mediaworks after leaving Newshub, are classed in with rent seeking because they benefit corporations and employers over individuals and dampen competition, and again, create no value.
Which is why, although rent seeking isn’t specifically about rent, New Zealand’s landlord class and the rise of housing as a financial asset earning rent has been called out, including by economist Ann Pettifor, who told Radio New Zealand living in a culture which believes in obtaining money – effortlessly, if you like – by rent-seeking is not something to be valued in an economy.
Who are rent seekers? Amazon does it. Fonterra is always keen on a bit of rent seeking. Uber has been brutally exposed recently for being a rent seeker par excellence.
Lets face it; many big businesses are rent seekers. If you take a look at a government release about supporting business, or cranking up our climate change reaction, there’s probably a side of rent seeking attached.
Rent seeking is McCain Foods snagging $2.8 million to convert a coal boiler.
It’s more than $29m to Rocket Lab funneled through Callaghan Innovation as a research and development grant.
Rent seeking is Fletcher’s Winston Wallboards, the 95% market share holder of plasterboard in NZ who can trigger a building crisis because its GIB product has the industry completely at its mercy, getting $500,000 from the government to upgrade heating equipment.
Rent seeking is also the NZ subsidiary of global beer giant Heineken, DB Breweries, also nabbing a cool half a million to get a new heat pump for its factory. Heineken made more than €2 billion profit in its latest financial year.
Of course, one of the meatier examples of rent seeking in New Zealand is the screen production grant being devoured by the Avatar film sequels.
Newstalk ZB recently reported New Zealand taxpayers will front $140 million in subsidies for James Cameron’s next Avatar films.
What else is rent seeking? Lobbying. Astro-turfing (presenting an organised public relations campaign as a grassroots movement) is also in the rent seeking checklist.
Amazon (who has also dined out on the screen grant) was recently unmasked as the funder of a coalition opposing tech regulation - yes, these lobbying groups are also rent seekers. You can smell the self interest. Amazon, as ever putting its money where its threats are, has been exposed as bankrolling the Competitiveness Coalition which is agitating against pending antitrust legislation it says will “not work for consumers and taxpayers”.
The legislation aims to stop firms like Amazon, Apple and Google pushing their businesses at the expense of smaller players.
In delicious timing, Amazon was very recently placed under an antitrust investigation by the European Commission to assess whether Amazon's use of data from independent retailers who sell on its marketplace is in breach of the European Union’s competition rules.
Why is it bad? Look, we all understand why businesses rent seek. You build yourself up a lovely business that’s dominating the market, you’ve donated to the right political parties and your lobbyist/corporate affairs manager has a frequent flyer card at Bellamy’s, of course you want to protect your patch, see off any pesky legislative challenges and fight like hell to make sure you keep hold of your advantage.
But it does have an impact.
It reduces competition. Rent seekers may look to lock out other competitors from their sectors by lobbying against changes which would allow more competition, and aggressively police patents and copyrights and exploit any kind of weakness they can find in legislation to thwart rivals.
We’ve seen a live example of this behaviour with the land covenants used by our big two supermarket firms, Foodstuffs and Woolworths, to stop each other and other players from building new supermarkets.
Rent seeking has also been blamed for stifling innovation. It has been argued the big rewards don’t go to innovators, but to the owners and bosses of big firms who care more about the pursuit of holding and wielding market power.
Because regulatory capture is rent seekers’ ultimate end game, and some academics say New Zealand has pervasive regulatory failure due to regulatory capture (making the rules for the regulated, rather than the public), lagging productivity, and the corporate capture of policy and policymakers.
Imagine if the US pharmaceutical industry successfully lobbied against New Zealand’s central drugs buyer, Pharmac, for example. That industry hates Pharmac because it is so good at keeping costs down for New Zealanders, but it also keeps a lid on how much those firms can bill us.
See also New Zealand’s failed capital gains tax. Our tax weightings are increasingly falling on wage earners, and a capital gains tax was seen as a way to diversify our tax takings.
But those with a lot of capital didn’t at all like the thought of paying a tax on assets, so they did what all rent seekers do and lobbied against it both publicly and privately.
We see the rent seekers in action in their donations to former politician Winston Peters’ NZ First Party (racing and fishing love to throw cash at Winnie) and Peters has also been outed as being in the middle of capital gains tax toing and froing with the family of New Zealand’s richest man.
How much is it costing us? Who knows. How long is a piece of string?
What we do know is that corporate tax revenues increased by 60% in the past two years.
It is not a coincidence that some of the firms seeing chunkier profits in the pandemic are also those where competition is weak. Banks, petrol firms and building materials firms have been singled out by Council of Trade Unions economist Craig Renney. In the same article Auckland University economics professor Robert MacCulloch said he was shocked that at this time of high corporate profits, there haven't been "ferocious attempts" to make industries more competitive.
Longer term competition problems, MacCulloch said, are coming home to roost.
Rent seeking is part of the web of anti-competitive acts the big end of town uses to stay rich and powerful.
Rent seeking isn’t fair. It elevates the gripes and grizzles of those who have money, and lobbyists, and associations, above the ordinary members of the public.
Rent seeking sucks resources out of our economy, and its success begets more rent seeking.
18 Comments
Seems a bit incoherent to suggest rent-seeking is due to lack of regulation. Additional regulation works in favour of existing players who can afford the additional compliance costs and lock out new entrants, reducing competition. To reduce rent-seeking you would be deregulating and letting new businesses enter.
Eliminating rent seeking behavior is about ensuring the underlying market rule-set does not allow some to gain without work (earning without toil) IMO. I think Henry George was correct - the products of labour have the most moral property right.
So in some cases this is about deregulation. Making land covenants illegal that prevent grocery market competition from new entrants that our supermarket duopoly have used for instance.
But in other cases it is about more rules (regulation). For instance around using tax (or some other similar mechanism) of urban land to capture the value which rightfully belong to the collective community not individual property owners.
while both main political parties foster rent seeking Labour is the worst of the two without even recognising they are part of the problem
Think $1 billion provincial growth fund just to get into power
and film industry payments to some of the richest are despicable
As were payments for rich kids to race boats
Funding green projects is another Govt rort and big businesses love it
Fact Check
Warner Brothers then teamed up with the National government - the one to get a cash boost in the form of tax rebates, the other to get a PR boost-cum-smokescreen for their planned re-jig of employment laws - and The Employment Relations (Film Production Work) Amendment Bill was born.
So we should just let the provinces deteriorate into a mess of slums, methamphetamine and gangs for the lack of any capital investment?
This article is pretty incoherent. While there's some truth in there, some government funding (for instance to provide essential infrastructure or reduce carbon emissions) is beneficial for everybody.
Tell me how many were in the America's cup able to sail or even see one of the yachts up close to work on it? Jobs for the upper class have always been too few and far between, kept predominantly in their hands (even in engineering there is hardly any jobs for kiwi engineers in these big ticket projects) while minimum wage roles for the NZ lower classes are available but also do not provide for basic housing and are also too few and far between. Lets not kid ourselves and pretend everyone who wants work can get work in this country. Not when we directly deny over half of disabled people looking for work any opportunity.
Newsflash the provinces were a mess of slums with some of the worst education and medical care rates in the country. All that investment did not get anywhere near them because it never was meant to benefit those most in need. It was always ringfenced to the upper classes and the slums have gotten worse. A single room with no adequate heating, with no cooking facilities is expected to house an entire family living out of suitcases, a car or van now houses those unable to access even that. Pray tell what does the money do to improve education and training, what does it do to ensure local employment is mandatory instead of bringing in consultants and overseas labour, what does it do to those families who are effectively in unstable housing under constant fear of losing theirs in the next year, what does it do to improve medical physical and mental health support? Protip: Nothing
All that money pouring out has only made things worse with more inflation exactly like the FLP program did to shoot house prices to the moon that even recent decreases are still miles ahead of 2019 prices.
The Provincial Growth Fund was a Northland electoral slushfund and nothing less.
Also, government funding to people who can already pay for those things themselves is not beneficial for everyone. The government's role is to enforce regulations for everyone's benefit, not to enforce regulations but then underwrite the cost of compliance on behalf of industry.
I guess theres no need for the 30 million a week accommodation supplement then , given it has nothing to do with folk keeping up their tenancy payments.... rent seeking seems to be a widely accepted practice and it is partially about regulating who does what or perhaps tilting the playing field ... However it could be a likely symptom that democracy and the freemarket are really just childish notions ... The big bad wolf waits for little red riding hood ...lol
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