Rent-seeking is destroying our cities. I know that’s a strong statement, but it’s more than deserved. Let me explain.
The phrase “rent-seeking” is an economic term originally identified in connection with monopolies. It has now grown to provide a better understanding of government regulation and, more sinister, abuse of power and privilege. It doesn’t really have much to do with leases, which is where you hear the word rent thrown about quite a bit. It actually stems from Adam Smith’s tripartite division of income, namely profit obtained from investment, wages earned through labour or rent earned through the lease of an asset. Rent-seeking is the practice of making income without the risks (and rewards) normally associated with investment or the toil and effort normally associated with labour. It represents money made without the rent-seeker actually making a real contribution to the productivity of the economy.
Another way to identify the practice of rent-seeking is to examine incidents of when a third part interferes in the availability of an otherwise accessible transaction. In a more obvious context, take the billboards in our cities. Anyone who wants to put a billboard up has to get the approval of the local government authority that regulates the advertising we see in our cities. In Lahore, it is the Parks and Horticulture Authority. The PHA, thus, interferes with the free availability of advertising space in the city and the income it makes from regulating permission to erect billboards is income in the form of rent-seeking. Last year, the PHA netted some Rs350 million in “revenue” collected from the regulation of billboard advertising. Continue reading