With iron regularity, texts appear in the public sphere about powerful lobby groups influencing politics, or even dictating to governments what legislation to adopt and what policies to pursue domestically and internationally.
We Have To Help Luck Along a Little…
First, we need to analyze the idea of a wealthy entrepreneur who, instead of developing their business in a ‘market-oriented’ way, spends their time in government offices or nearby cafés trying to convince politicians to secure advantages for their business from the state. These advantages could take the form of subsidies to purchase state-of-the-art equipment, regulations that disadvantage competitors, such as a ban on sales on certain public holidays, or special tax breaks, which some justify on the basis that quiet wine consumption is simply part of Czech cultural heritage.
This phenomenon is called rent-seeking. It involves entities spending their resources not on creating value (e.g., improving the organisation of their plant), but on gaining advantages through government measures. If this business effort is successful, the entrepreneur gains advantages, which, in practice, are reflected in reduced competition, higher prices for consumers, and lower product quality. What we have described so far probably makes little sense. Rent-seeking appears to be a wasteful activity, and the result is negative.
However, if we look at the issue from the perspective of entrepreneurs, it is perfectly rational behaviour. If an entrepreneur sacrifices time that he values at $10 million, but gains an advantage that will secure him hundreds of millions or even billions in profits thanks to this ‘time investment’, there is no reason for him not to proceed in this way.
The More We Give To The State, The More Rent-Seeking There Is
Let’s consider heavily regulated economies, where an entrepreneur’s success is determined not by their ability to succeed in the market, but by their relationships with the ruling elite. Crimes such as bribery occur most frequently in countries where politicians have the most power. Is this phenomenon, therefore, a failure of capitalism? On the contrary, the solution is more capitalism and less state intervention in the market. Without state intervention, entrepreneurs’ motivation to influence political representatives will diminish, although this motivation will never disappear completely.
In short, as long as the state holds part of the key to success, there will always be motivation to obtain it. The solution does not lie in introducing more and more regulations on lobbying, controls on entrepreneurs, and other processes that continue to create more and more bureaucratic burdens. Rent-seeking is not a consequence of capitalism, but of the state’s excessive role in the economy. Reducing state intervention would lead to less rent-seeking and thus create a fairer, more efficient, and healthier market environment.
Written by Jakub Kunes
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