The Rent-Seeking Is Too Damn High | FiveThirtyEight
Occupational licensing is just one example of rent-seeking. For another, see this Aruna Viswanatha story in The Wall Street Journal on the rise of noncompete agreements in fields such as journalism and fast food. Yes, fast food: The sandwich chain Jimmy John’s has had some employees sign contracts barring them from working at any other sandwich shop near its locations. University of Maryland economist Evan Starr has found that such policies inhibit workers from changing jobs, hurting their bargaining power and thereby benefiting companies at the expense of their employees.
There is evidence that rent-seeking, in various forms, is becoming more common in the U.S. economy. In a recent paper, economist Dean Baker argued that rent-seeking has driven much of the recent increase in income inequality. And while Baker is a liberal, conservatives are also concerned about rent-seeking, such as land-use restrictions that make it hard to build housing in high-priced coastal cities. The White House is worried about occupational licensing, but it was Mike Lee, one of the Senate’s most conservative members, who called Tuesday’s hearing.
I’m glad to see politicians thinking about rent seeking, but I have little faith anything will change, because many of those rent seeking activities have ideologically sound justifications that will turn the fixing of the problem into a partisan issue.Report
You should be more worried that your comments suggest. Politicians are the source of a lot of rent seeking and profit by selling their power to the rent seekers. Having them think about it just means you’ll likely get more of it.Report
I think in some ways rent-seeking has always been part of the human experience. In many ways, it might be part of the American experience particularly. I wonder if there is an undergoing conflict in American life where a good chunk of the population thinks the purpose is to get rich by any means necessary including at the expense of others. I wonder how much of Trump’s popularity is from his appeal as a big business guy or how he spends his money.* There have always been people in the United States who seem to think politics is all about grift and the revolving door and the so-called Big Con.**
I think all states should take the California stance and ban non-compete clauses as a matter of law. Occupational licensing is a bit more difficult. A lot of professions require that consumers place their finances, safety, and health with others. I think occupational licensing for lawyers and doctors is a good idea. I am also generally opposed to a caveat emptor way of looking at the world. Barbers and esthecians should also be licensed but the requirements can probably stand to be relaxed.
*Arguable Bloomberg is a more successful business person than Trump but he lacks the populist appeal. Obviously Bloomberg is not a populist by nature (to his credit and too his discredit depending on the subject) but I wonder how much of Trump’s appeal is because he is kind of gaudy and acts like a frat guy version of a rich dude. There is no restraint or oppressive good taste with Trump.
**It is easier to con people in your in-group. A lot of Madoff’s victims were Jewish.Report
“I think in some ways rent-seeking has always been part of the human experience. In many ways, it might be part of the American experience particularly.”
I don’t think so. I think it’s more of a human thing. As long as there are people with power, there have been people that wanted to use that power to get them some special deal, ie rent seeking, from the king on down to the local town councilman.Report
Did someone actually use occupational licensing as a comparable to minimum wage employees being forced to ignore agreements not to work elsewhere?
That’s some weapons grade dogmatic ideology, there.Report
No, dogmatic would be opposing occupational licensing while being okay with non-competes because one is government and the other (ostensibly) a private contract.
I also don’t get the sense that he’s universally against occupational licensing, only that there is more of it than it should be.Report
With occupational licensing, the devil is in the details. It isn’t the idea of occupational licensing, or even non-competes that are necessarily wrong, it’s the implementation that causes trouble.Report
If I remember by employment law correctly, courts will invalidate non-competes if they are overboard in terms of scope and/or violate public policy. I remember studying a case about a non-compete between a senior cardiologist and a junior cardiologist. The court invalidated the non-compete when the junior-cardiologist wanted to open his shop because multiple cardiologists was a good thing. On the other hand, courts have enforced non-competes between senior and junior doctors in areas where the options are plentiful.
The Jimmy John non-competes are probably illegal and voidable on their face but no sandwich shop worker is going to have the money to litigate the claim.Report
Courts will void, but who is going to go to court? Unfair burden.Report
If the sandwich shop worker violates the contract, Jimmy John will either have to sue the worker for breach of contract and potentially lose the suit or decide that suing isn’t worth their time after taking advice from their lawyers. The non-compete clause was probably put in on the assumption that most workers will assume that they would be the ones who need to initiate the suit to get rid of it. If the worker forces Jimmy John to start the suit than it could be a win-win situation for the worker and haters of rent seeking.Report
The corporation is in the moral and legal wrong in this case.
Perhaps the clause got put into the employment agreement as a result of unthinking aggression on the part of the company’s lawyers. I see no reason not to concede this.
But it’s now history that a big public stink got made of it and it was widely pointed out that even in states that generally honor non-compete clauses in contracts, this would be a restraint against trade with a significant public policy and macroeconomic impact mitigating against enforcement.
I truly can conceive of no legitimate use to which this clause in the employment agreement — known to the company to be contrary to law and unenforceable — might be put. But I can conceive of illegitimate uses for it.
It still has utility — as a tool to enhance the psychological power relationship between manager and employee. A bluff by which an unsophisticated employee may be intimidated, or by which a semi-sophisticated employee may be deterred from bringing a litigated claim back against the company: “If you sue the company for sexual harassment, I’ll deny any of this took place, fire you for disrupting the workplace, and you’ll need to get another job to pay your bills. Since you were only qualified for this job, chances are your next job will also be a fast-food job like this one, and we can say that you’ll be violating your contract and that’s going to be a defense to your suit. So you’ll lose your lawsuit and get nothing, and lose your new job in the process. So, why don’t we do it the easy way instead, and you come on over here and sit on my lap.” No, it won’t be a defense to a sexual harassment suit, but an unsophisticated minimum-wage worker is probably not going to know that.
If you can think of some more legitimate, morally justifiable reason for keeping a known-void clause in the contract than this, I’m all ears.Report
The non-compete clause for Jimmy Johns is illegitimate for the reason you pointed out. I’m just responding to Will Truman’s comment about unfair burdens and who is going to court. If employees breach the non-compete clause for sandwich prep, Jimmy Johns is either going to have to sue to enforce it and get some meager reward or decide to not risk it, making the clause meaningless. It will require some bravery but simply because you initiate a law suit, doesn’t mean your going to win. If Jimmy Johns could be made to sue to enforce, they could still loose.Report
Yeah, that’s not true. Jimmy Johns enforced it in the past by writing threatening letters to both the employee and her new employer, and the latter didn’t want the potential hassle, especially when it’s so easy to hire someone else who can make sandwiches,
Or, exactly what Mo said.Report
Yeah, I forgot about the scary letter part.Report
Not a shred of moral legitimacy here, IMO. Granted it’s not qualitatively the same sort of obnoxiousness as the sexual harassment scenario, but it’s still pretty noxious.Report
No question. I’d be surprised if anyone here disagreed.Report
Jimmy John’s won’t sue the worker, they’ll send a scary letter to their new employer and the employer will just fire them rather than figure out if it’s worth fighting.Report
If Jimmy John’s provides the worker with the required training and licensing to assemble sandwiches, shouldn’t they be allowed to retain a small monopoly on the technician they created from whole cloth following said technician’s termination?Report
Given that the only legitimate purpose of government is to enforce private contracts, even having the opinion that such clauses should be illegal is one step from the Gulag.Report
These sandwich engineers are feeding people. If they screw up, people could die.
*CHILDREN* could die.
We’ve already seen innumerable deaths from Chipotle making “perfectly understandable mistakes” with their food prep.
How many more will it take for you to say “okay, maybe the point of the state should be more than just keeping rich people rich”?Report
https://www.youtube.com/watch?v=Qh2sWSVRrmo
Wont SOMEBODY think of the children?!!Report
Relatedly, I read an article a long time ago about when Boston and San Francisco were battling to be the tech hub of the country. California won for a couple of reasons, a big one being more protections for workers against non-compete clauses.Report
Why would that matter? Workers don’t get to decide where to locate, its the investors. Non-compete clauses get enforced in tech areas regarding “idea” employees because the companies provide a venue for employees to throw around ideas for innovation, and the companies don’t want an employee to leave and start-up a competitor based upon an idea that blossomed through their investments. Though I do recall a Seattle court telling Microsoft its non-compete clause had an unreasonable duration, and something like 12-18 months was sufficient given the pace of innovation.
The non-compete that the tech industry used was the secret agreement not to hire away each other’s employees.Report
I think the leverage between worker (whose skills were far more rare), entrepreneur, and investor was different then than it is now.
Though here is a question for the lawyers: If an employee leaves a business in Massachusetts and starts one in California, where is the case tried?Report
Question back no. 1: Is there a forum selection clause in the contract? Sub-question, is it valid and enforceable in the defendant’s new domicile? If the answers are “yes” and “yes,” then the case is brought in the jurisdiction specified in the contract (read: “specified by the employer”). If not, then it’s brought in the defendant’s new domicile.
Question back no. 2 (which you didn’t ask but which we lawyers care about): is this brought in a state court or a federal court? That’s a strategic decision on the part of the lawyers, really, based on an assessment of differences in the panels of judges available in one or the other forum. Seems like the case would be removable to Federal court if it were brought in state court, in most cases — but a canny plaintiff who preferred state court based on an assessment of the judges might remit monetary claims in excess of the $75,000 amount-in-controversy threshold and deny the defendant removal on the grounds of diversity.
Question 3: regardless of which court hears the case, which state’s laws will apply? As with forum selection, the contract can attempt to pick a state’s law, and sometimes that holds up and sometimes it doesn’t. But it wouldn’t be out of the realm of imagination to imagine a Federal court in California applying Massachusetts state law to a lawsuit arising out of a particular transaction.
Congratulations, now you know three ingredients that go into the secret sauce.Report
@burt-likko You know, if a layman asked me a question about jurisdiction, forum, and choice of law, I would have just said “it’s complicated” and left it at that. @will-truman and this site are lucky you’re around.Report
A quick google and I found a summary of a case involving a California resident employed by T-Mobile. He signed a non-compete agreement that specified the State of Washington as the proper venue and choice of law. He was successfully sued in Washington under the non-compete clause, and he was unsuccessful in attempting to get a federal court in California to set it aside. So, yes it can happen.Report
If it can be posed as libel or slander, the UK.Report
The secret non-solicit thing is a new thing in the history if Silicon Valley. The growth of Silicon Valley, back when the companies there actually use silicon came after fold left Shockley Labs to found Fairchild Semiconductor and folks from Fairchild decamped to found little companies like AMD and Intel. Had these companies been based in NJ or MA rather than CA, they would have been stuck at Shockley Labs rather than been able to found those other firms. I would also note that while no poaching agreements hurts employees, it does nothing to prevent departure and founding of new companies, non-competes do.Report
Thank goodness you and I practice in California, @saul-degraw : we aren’t going to have to worry about what constitutes good public policy or not.
This is not sarcasm: I think California has enshrined the best possible policy into its statutory law in this case. The general ban on non-competes of B&P Code § 16600 and the sale-of-goodwill exceptions in §§ 16601-16602.5, and the concurrent viability of California’s version of UTSA, strikes the right balance between a business being able to protect its intellectual property while still decisively using the law to facilitate peoples’ freedom to make a living in their chosen professions.Report
Was reading along, and then suddenly hit Section 16603. What the heck is with that? Horror Comic Books?Report
Yeah, I know.
Back in the ’30s and ’40s, the sale of “horror comic books” was associated with organized crime, because the subject matter was thought to be prurient, inappropriate for young children, and/or pornographic. (You may commence pearl-clutching.)
There may or may not have been a concern that this was also a way drug, prostitution, and gambling money was laundered. So the Legislature tried this instead of an outright ban. Did it work? I doubt it. Is it a legitimate concern today? Umm… yeah, not so much.Report
William Gaines was originally a publisher of horror comics. When this became difficult because of the Comics Code Authority [1], he founded MAD instead. So it’s an ill wind and all that
[1] In 1954. I didn’t know this crap went back to the 30s.Report
And not just horror comics.
“Badly drawn, badly written, and badly printed – a strain on the young eyes and young nervous systems – the effects of these pulp-paper nightmares is that of a violent stimulant. Their crude blacks and reds spoils a child’s natural sense of colour; their hypodermic injection of sex and murder make the child impatient with better, though quieter, stories. Unless we want a coming generation even more ferocious than the present one, parents and teachers throughout America must band together to break the `comic’ magazine.” — Chicago Daily News Editorial, from 1940.
“Loaded with communist teachings, sex, and racial discrimination.” — Detroit Police Commissioner, 1948
This article from Colliers from 1948 is a pretty great distillation of why comics were so controversial in that era.Report
In my jurisdiction, courts do not tend to invalidate non-compete clauses, but reform their scope and duration to be reasonable under the circumstances. The clause cannot apply to this type of worker, or beyond this many months/years, or over a distance of so many feet/miles. What I think that does is reduce any incentive for the business to tailor their agreements. The courts will do that for them, and given all of the moving parts in the judicial inquiry, the law is not really that predictable.Report
As usual, they just write the contract so that it demands the sun, the moon and the stars and rely on the courts to pare it down if necessary. Or better yet, hopefully the employee won’t bother to litigate it and will treat it like it’s a real thing that needs to be obeyed.
At some point, it’s unclear why we bother with contracts at all. They’re intentionally full of nonsense and it all gets hammered out in court. People don’t sign them believing they’re 100% valid and people don’t write them to be 100% valid.Report
Is there no mechanism by which the courts can penalize the drafters of contracts that are unenforceable?Report
I’ve often wondered exactly that. It doesn’t seem like there’s any cost to putting nonsense into a contract, so people do it all the time.
The bad news is that this seriously erodes the tendency for either side to see a contract as binding. I like the idea that when I sign something, that’s the agreement. For real. Signing a document that has the agreement plus a clause that says, “We’ll look into your soul, and if we find it unclean, we’ll kill your children and seize your assets,” is a little disturbing if all I have is the assumption that it *probably* won’t hold up in court. That I could pay a lawyer to reassure me that it almost certainly won’t hold up in court is only slightly more comforting.
And since there’s no cost to putting that clause in, it’s in every single contract I might conceivably sign. So I guess I just have to cross my fingers and hope for the best.Report
How? If a contract is voluntarily entered into, isn’t it binding on both parties unless the terms include violations of the law? Seems like a legislative issue more than a judicial one, even tho judges bear the burden of determining undo burdens.Report
I agree w/ Stillwater. The Courts will police contracts on a case-by-case basis. Last year, a federal court dismissed the case brought by Jimmy John employees wanting a determination that the covenant not to compete was unenforceable because there was no case-or-controversy given that Jimmy Johns hadn’t expressed any intent to enforce it against them specifically.
The issue needs legislation, but many of the norms in this area are based upon a complex set of judicial balancing tests. It’s hard for lawmakers to feel comfortable stepping in.Report
@oscar-gordon
Not really. The purposes of contract law is to encourage people to enter into contracts. Hence the remedies for violating a contract are designed to be non-punitive and just make the other party wholeReport
And suddenly I want to talk about why Loser Pays legal systems are bad?Report
Occupational licensing is one of those things that instantly peg someone as a political ideologue.
Doctors, barbers, engineers, morticians- none of them give a crap about it. Consumer advocates, public health activists- they don’t care about it.
No, the safe bet is that if some guy is going on about barber licensing he is grinding a ideological ax.Report
Well, no. If they are okay with physician licensure and not barber licenses, that demonstrates that they are not operating from a position of strict ideology. That they might disagree with you about barber licensing. Honestly disagree. Not because they’re prisoners of their own ideology, but because they *gasp* came to a different conclusion than you.
His conclusion on occupational licensing doesn’t seem that different from the one commissioned by the White House. It really takes a lot of work to read the above piece and dismiss it as dogmatism or excessive ideology.Report
I consider it ideology when someone gets exercised over a minor issue and isn’t a constituent and doesn’t have standing. The minor issue almost always is a proxy for something else.
His example is barbering, which he then uses in one breath with the non-compete agreements, as comparable cases.
So is he saying there is some injustice with barbering licensure? Is he a would-be barber, unjustly barred from practicing?
Is he a would-be barber client, barred by high prices from getting a haircut?
Do barber licenses lead to some unjust outcome, a moral outrage that demands our attention?
If you took the poor and powerless, those who felt wronged and damaged by the status quo, would any of them list “Cosmetology Licenses” as a complaint?
How is this an issue of justice? Where is the basis for complaint?
Compared to the Jimmy John’s case- there are real people, with legitimate standing to make the case that this is an unjust attempt at intimidation of powerless people.
The fact that he can put these items into the same argument basket requires strenuous handwaving away of the obvious differences in scale and value. Ideology, in other words.Report
Was the White House blinded by ideology in its report?
Did this fellow get especially exercised? It seems to me he was using it as an example of excessive licensing. He also used non-competes as another example of how we (in this case by deferring to corporations) discourage things we oughtn’t discourage. He didn’t even stack them up against one another so much as use them both as examples.
Everything else is some very heavy lifting on your part.Report
@chip-daniels
Please explain to me exactly what kind of knowledge two years of formal training will impart with regard to the safe and effective cutting of hair?Report
Well, thanks for giving me permission to no longer give a darn when an African American man gets passed by when hailing a cab.
The actual cases brought to attention (and the courts) by Institute of Justice types are typically minority-owned businesses (w/ mostly minority employees – and customers) who do, for example, eyebrow threading (and nothing else), but are required by the municipal authorities to get a full cosmetology license else cease and desist operations.Report
Like a good liberal, I am outraged by police shootings and injustice- but I don’t pretend that this is an issue of personal standing- for white people, this is a moral issue but only vicariously.
So its important that when we speak, we quote the experiences of those affected, point to the actual victims, rather than posture as victims ourselves.
Likewise if we want to cry out on behalf of unlicensed eyebrow threaders, lets first identify some actual victims and let them speak on their own behalf.
——-
Institute of Justice?
Is this a thing? Even Google was no help and I’m not well versed enough on comic books to know if this is a reference.
Seriously, does anyone actually believe that cosmetology licenses are a significant concern within the poor and minority communities?
Rather, if you had poor people list their top 10 preferred policy changes, would cosmetology licenses land in the top 10? Top 50? Even 100?
And if we are trying to advocate In The Name Of The Poors, wouldn’t it be more likely that The Poors would have other more pressing concerns, such as a higher minimum wage and stronger social safety net?
Why is that that people safely ensconced in middle class comfort suddenly seize on this one item of concern to The Poors and ignore all the rest?
And why use the undifferentiated term “occupational licensing” if the real intent is to differentiate Good Licensing from Bad Licensing?
However, if a group of hair braiders and eyebrow threaders themselves came forward and said they wanted to strike down just those regulations, I would most likely support them enthusiastically.
But in the current configuration of the arguments? Nope, not buying it.Report
See Patel v. Texas Department of Licensing. Volokh’s roundup, majority opinion, concurring opinion.
Also, you’re looking for the Institute for Justice.Report
Thanks- I was wondering who was doing Wonder Woman’s hair and nails, and if they had a certificate.
I am happy to sign up for Mr. Patel’s cause and newsletter. Although it may not be politically correct, I bravely hold that licensing regulations SHOULD in fact pertain to the actual task at hand.Report
I’m assuming her nails could easily break a file, so I am onboard with pretty extensive safety training for the special case of Wonder Woman.Report
You seem to be presenting an argument for why we should place occupational licensing as a lower priority than other things. If so, then while I might not agree with your prioritization, I can respect the argument.
But you haven’t actually presented an argument for why occupational licensing isn’t at least sometimes unjust.Report
It’s impossible to have any coherent discussion about a class of things called “occupational licensing” if that class includes both brain surgeons and manicurists.
If manicurists are forced to undergo irrelevant and expensive training why, yes, that would be an injustice.
Is anyone bold enough to say the same about surgeons? Nope, so why sweep them all up into the same class? Why so indiscriminate a choice of terms?
Why, it’s almost enough to make a fellow think the manicurists were being used as cannon fodder for a larger battle against the existence of the regulatory state itself.
If you want to complain about small bore regulatory overreach then fine, go right ahead- let’s just be clear that that’s what we are talking about.Report
I think we’re (mostly) just bargaining about price, then.
Also, I should have read your comment below before making the one above.Report
@chip-daniels
Where exactly is your ire for this coming from? The 538 article doesn’t make the claim that occupational licensing for the professional class is bad, it specifically makes the claim that it is troubling for mid to low skill jobs, where it often serves less as a tool for correcting information asymmetry, and more as a way to limit competition.
So, to be clear NO ONE is talking about medical licensing, or bar membership, or Professional Engineer certification. The topic of conversation is specifically aimed at manicurists and hair braiders and landscapers, etc. You know, the people with low formal education, meager resources, and a reduced ability to navigate the bureaucracy that would allow them the opportunity to make a living in their chosen field.
Now if you want to talk about how the professional occupational licensing standards are horribly prejudicial toward any education not based in the US, we can, but that isn’t the topic at hand.Report
Is anyone bold enough to say the same about surgeons?
Milton Friedman, but we all know he was a nut.Report
Ideally, occupational licensing is all about fixing information asymmetry in a market. Anyone can call themselves a doctor, but a license from the state saying that person is a doctor alleviates the need for the consumer to check bona fides. The state did it for them. When it comes to doctors, who exercise considerable social & technical authority (and some legal authority as well), and whose decisions can have grave consequences, a healthy degree of licensure is justified.
When it comes to barbers or hair stylists, or florists, or interior decorators, or taxi drivers, or casket builders (etc. ad nausea) the degree of licensure once should expect should be considerably less, if there is any at all, and should be commensurate with whatever public issues such a career could entail (e.g. barbers and stylists should have training regarding keeping tools sterile and safe practices with the various chemicals employed).
If the requirements to obtain a license are excessive compared to any potential risk to the public, or if the requirements are highly subjective in nature, then you probably have rent seeking.Report
Completely agreed.
I carry no water for licensure requirements; in fact, as a registered architect I would support dropping some of the requirements.
I just would like to actually hear a moral case made for why this is an injustice, rather than an economic one.Report
Getting a professional and vocational license usually requires some sort of formal training and testing. This favors the people with the time and money for the studies and training. Without licensing, people can self learn and let the market dictate themselves or learn by getting employed at the right sort of business rather than having to go through an expensive formal education.Report
See my comment above.
These people, who are self learning and letting the marketplace dictate- are they hair braiders or pediatric oncologists? Makes a hella difference don’t you think?Report
@oscar-gordon
Some of these licenses should apply to the businesses themselves and not the individual. So a barber shop should be licensed with regards to hygiene and keeping sanitary, but I don’t think every barber/employee needs a license. Assign someone the formal responsibility, ensure he has the training, and hold him accountable for lapses. But if the new barber at the end of the row gives a shitty haircut, the government doesn’t really need to get involved in that.Report
I think that’s probably right, Kazzy. I also wouldn’t object, at least not too strenuously, if a license to be a barber simply meant a license to be called a barber and someone could still cut and style hair anyway. (For all I know, that’s what the current regulations are like.)Report
That’s an interesting position, @gabriel-conroy . ANYONE can cut hair… Or practice law… Or perform surgery… But you CAN’T call yourself a Certified Barber or Member of the Bar or Doctor without licensure. Low-stakes fields where licensure offers little values will have multiple tiers; higher stakes ones won’t. Market forces!
Will someone, somewhere pay their deadbeat neighbor for an appendectomy that leads to sepsis? Probably. Can we stop that? Should we try?Report
@kazzy
Sure, if you have a store front and have employees, then the business has certain licenses that are required, and you’d probably have a set of supervisors that had some kind of advanced bona fides who made sure the employees knew what they were doing.
But if you are self employed with no employees, and you have a barber chair in your mother in law apartment, then the licensure requirements should be much lower.
What happens, however, is the guy with the store front and employees would prefer less competition from people running home based ops, so they lobby for the rules to require that even home based ops have advanced bona fides, or need to happen in property zoned commercial, etc.Report
@oscar-gordon
Ah, yes. I see what you’re saying. See my comment then above about relaxing the licensing requirements but tightening the rules around labeling and advertising.
If you are cutting hair in your mother-in-laws basement absent any certifications, you can’t call yourself a barber or you setup a barbershop (or whatever terms we decide on). You can cut hair and charge what you want for it but you can’t claim bonafides you lack. “Barber”/”barbershop” will be less about quality and more about having jumped through the requisite hoops. Folks who are comfortable without the hoop jumping will have the option to forgo a smaller set of providers. And if you run your setup well and give great haircuts and no one gets a nasty infection while there, the market will likely reward your efforts even absent a certificate on your wall.
And I’d probably be willing to extend this to most — if not all — professions. “Ed’s Basement Cuts” will have a chance to survive even absent licensure if Ed can give a good haircut. “Joe’s Attic Angiograms” not so much. Which is probably what we want.Report
Can the drive towards more and more rent-seeking be linked to increasing inequality? As I see it, people generally go into business because they want to make money among other things. If the overall shape of the economy makes it increasingly difficult to get money through entrepreneurship because its shaped to favor the financial side of business than people are going to be incentivized to attempt rent-seeking to help them make money. In a society where wealth is more equitably divided than there are fewer incentives towards rent seeking because you aren’t in continual fight for fewer crumbs.Report
That’s a good hypothesis. No go find some data supporting or refuting it.Report
What we would need to luck into is whether rent seeking behavior is less prevalent in countries with more income equality like the Nordic ones than in countries with less income equality like the United States.Report
My understanding is that Scandinavia tends to have less in the way of business regulation, though I am more inclined to attribute that to other factors (though overlapping) than equality per se.
(Not blinded by ideology! I think of this when I hear about how we should have less regulation like they do (something that comes up in conservative circles). Depending on how unregulated they are, I’m not sure we can/should replicate due to the pestering fact that we are not they.)Report
Its a point I bring out when people discuss Germany’s apprenticeship program in “not everybody should go to college” discussions. Germany and other European countries might have fewer people going to college than the United States but they have more programs and laws to provide the non-college bound with a relatively affluent lifestyle like mandatory vacations and much stronger unions. Unless you believe in the market very strongly, your going to need some wealth redistribution method.Report
You also have to examine the culture and structure of the governments, and the history behind their institutions and regulatory environment.
Are those governments structured such that they enable/discourage rent seeking? Is there a culture that encourages it? Is there a history that allowed such things to form organically, or was everything done very deliberately.
For example, I’d posit that the government structures and regs that enable rent seeking in the US have their roots in both racism and classicism. I wouldn’t call their development deliberate, in that I don’t think people just decided rent seeking was good and making it easy was desired, but rather it was organic, from a desire to make sure that certain races/classes of people be unable to gain a foothold in certain markets (and cloaked in a blanket of public safety concerns, as so many evils are).
I would expect, if occupational licensing was done in a more technocratic fashion, with requirements aligning with actual identified & measured public safety concerns, the result would look much different. But that isn’t how it’s done. Politicians allow entrenched interests to develop the rules, and attitudes like Chips above, dismissing the concerns of persons with no standing, allow the rules to remain.Report
I’d also argue that even without racism and classicism, the decentralized federal nature of the United States and all the veto points in American government encourage rent seeking. In European countries, once a city decides to build an infrastructure project like a new subway line or bridge or allow for the development of new housing than it is pretty difficult for the vested interests to fight against it. In the United States, there are many ways of people to prevent projects or developments they do not like regardless of whether they are public or private. NIMBYism is still an issue in other countries, its just that the NIMBYs have fewer tools at their disposal.Report