In 1974, former World Bank Economist Anne Krueger wrote a famous article defining “rent-seeking.” The term, of course, stems from the practice of gaining ownership of land and forcing tenants to pay rent. As an economic principle, the idea is that rather than creating new wealth through growth, some people/organizations seek to gain economic advantage through monopolies.
Profit-seeking encourages the creation of wealth. Rent-seeking attempts to gain an increased share without creating new wealth. One justification for gaining this kind of advantage is that the organization protects the public by maintaining product quality. Another is that the monopoly assists in maintaining a stable market.
The reason why most types of monopoly are illegal is that the overall impact of rent-seeking is heavy. None of the resources expended in rent-seeking benefit the economy as a whole.
The growth of medieval guilds, doctors’ associations, and state licensing certifications have all been called types of rent-seeking. Also modern copyright.
On November 21, John Kay, the founder of Oxford’s business school, writing about the financial industry for the Financial Times, published “The Monumental Folly of Rent-Seeking.”
Market economies succeed when they advance through disciplined pluralism — the process that gives maximum scope for experiment and innovation, while ensuring that when experiments and innovations fail they are terminated, and that when occasionally they succeed they are imitated.
On the Friday before Kay called rent-seeking “monumental folly,” the Republican party’s study group posted a policy brief on their site explaining the “three myths of copyright.” It spurred much debate on reddit and was covered by Businessweek. Within 24-hours, the Republican site deleted the document.
Here’s an extract from the brief that also appeared in the Businessweek article.
Today’s legal regime of copyright law is seen by many as a form of corporate welfare that hurts innovation and hurts the consumer. It is a system that picks winners and losers, and the losers are new industries that could generate new wealth and added value. We frankly may have no idea how it actually hurts innovation, because we don’t know what isn’t able to be produced as a result of our current system.
As the e-book business skyrockets, many participants seek to increase their market share — some by dramatically increasing the number of products in the market, providing better services, or other traditional competitive measures. Others by trying to expand their legal control over the content — essentially by rent-seeking.
By defining e-books as software, some companies have found justification for seeking the legal protections of both books and software.
A traditional principle of copyright law establishes that once a product has been sold to a consumer, the first sale has “exhausted” his/her rights to any further profit. Once sold, a seller has only limited rights to what happens to the work.
This “first sale” or “exhaustion” doctrine is why you can legally lend a friend your copy of a book, CD, or a video. It is why libraries and secondhand stores exist.
The law concerning books and other media has been written and rewritten after intense lobbying by corporations. The most recent modifications received such heavy lobbying from Disney that it has become known as the “Mickey Mouse Protection Act.” It currently holds that works are restricted for life of the author plus 70 years and for works of corporate authorship to 120 years. (For “author” read “publisher,” the de facto participant that primarily controls the copyright.)
The law also states that first-sale doctrine doesn’t apply if works are obtained by “by rental, lease, loan, or otherwise without acquiring ownership of it.”
This technicality means that now when you buy an ebook on your Kindle or Nook, the devices’ terms state that you are licensing the book, not purchasing it. These agreements also state that the companies are under no obligation to maintain their services or continue to allow you to access the work you have licensed. They can shut you down and take away your books for any reason, at any time.
It also means that you can’t back-up your books, buy books when you are out of the country, lend books, resell books you’ve read, or use non-approved reading devices. It also means that it may soon be impossible to check out a digital copy at the library.
Old-timey Internet folk like me will remember that we used to refer to this sort of rent-seeking as “AYBABTU.” All Your Base Are Belong to Us.
via The Financial Times, Scribd and Businessweek. Also, “The Political Economy of the Rent-Seeking Society,” American Economic Review 64.3 (1974): 291-303