Abstract
Rent-seeking has been an important concept in economics since the 1950s but has not been sufficiently mined in the field of social policy. This paper aims to address this by employing a UK case study to illustrate the relevance of rent-seeking in this context. In doing so it attempts to set out a means of identifying where rents are sought, by whom and the levers they use to extract them. In the UK rent-seeking and welfare is often implicitly linked to 'welfare scrounging'. Here we show that this is not necessarily the case and that rent-seeking has much greater explanatory power in relation to social policy processes and transfers. By also introducing a contextual dimension we demonstrate that market and bureaucratic forms of rent-seeking can operate simultaneously. More work remains to be done to fully articulate these processes, however this constitutes one starting point for this work to develop.
Keywords: Social Policy; Justice; Market Rent-Seeking; Political Rent-Seeking; Bureaucratic Rent-Seeking; UK Policing.
Introduction
For some time now there has been recognition of an inverse care law relating to the allocation of welfare resources (Hart, 1971), that those in greatest need often receive the least in terms of services and resources. This can operate through the greater awareness of processes and resources by the 'middle classes', through the systems of welfare, but also through taxation policy. We would argue that there is another dimension to this issue, which is that private institutions are also consuming public resources to a large extent in ways that are opaque and unexpected.
While there were concerns about the privatisation agenda of New Labour, there have also been much more specific themes in public debate. For example, the sponsorship of police patrol cars by private sector organisations has led to anxiety about the impact this might have on policing. Will sponsors be treated preferentially? Even where they do not have these incentives, it can be argued that property receives more police attention than the community more widely (Barton & James, 2003).
This paper overlaps with these matters but we extend the analysis to include the ways in which private organisations already consume more than their fair share of public resources. In order to do so we employ an economic concept, rent-seeking, that has been available since the 1950s, but which has not really been sufficiently mined in the social policy literature. On the borderline between economics and social policy authors like van Parije (1995) have used rent-seeking to show its applicability in individual cases but little has been made of its organisational relevance.
We start out by discussing the principal concept of rent-seeking, explaining its usage in the current paper, oudining its history and its various applications before explaining its adaptation here. Finally we evaluate its relevance by first talking about the ways in which rent-seeking by private organisations occurs, and second by producing a UK case study of policing drawn from previous work by one of the authors.
Rent-seeking: context, concept and history
Although there were discussions in economic circles as early as the 1950s that skirted around the idea of rent-seeking, the actual term was not coined until the mid-1970s. Its first formal appearance came in an article entitled 'The Political Economy of the Rent-Seeking Society' by Anne Kruger, published in 1974 in the American Economic Review. However, the individual scholar generally credited with the initial generation of the concept was the public choice economist Gordon Tullock in a series of important publications during the 1960s and 70s (Rowley, 2005).
Consistent with the foundations of such debates, the basis for our discussion is distributive justice, that ideal of justice which concerns itself with the fair and just distribution of social rewards, benefits and goods (Miller, 1999). Determining who should get what in accordance with distributive justice is conventionally based on different conceptual grounds, which includes criteria like need and desert. In this paper our focus is on desert, in other words what proportion of available resources do people deserve? The idea of an unjustified transfer in this context refers to the surplus value people obtain over and above their productive achievements, the unearned, unmerited benefits accrued. Rent-seeking occurs where participants in the distributional game pursue income or other tangible rewards by manipulating an aspect of the economic environment so that it is biased in their favour, rather than by adding value to production. If successful, rent-seeking results in the extraction of economic rents, which are represented by the difference between the value of an agent's actual productive achievement and the value of their realised remuneration.
Of course there are different perspectives on the source and causes of rent-seeking behaviour and these are informed by competing political philosophies. Due to limited space we can only really construct broad-brush approximations of very complex political perspectives as we intend to address this aspect of rent-seeking more fully elsewhere. Nevertheless, that a heuristic device is simple does not reduce its potential usefulness (Hellawell, 2006). Rent-seeking is seen to be the preserve of different actors depending on the political perspective adopted. For those on the right of the political spectrum, individuals we might refer to as 'neo-Liberals', rent-seeking is generally a political activity. According to one prominent classical liberal philosopher, rent-seeking should be defined as "...a special feature of politics, where individuals and groups lobby political leaders to help them [...] appropriate rents that properly belong to others" (Barry, 1998, p.51). For another, the "...term 'rent-seeking' defines the process of expending resources in order to obtain favours from the government" (Macey, 1998, p.376). This we will refer to as 'political rent-seeking'.
Alternatively, classical Marxists have focused on the private power that is conferred by the ownership of productive assets, which permits the extraction of a surplus from the labour of employees. In their view, the possibility of labour exploitation is created by the concentration of capital ownership, which means that the circumstances in which contracts between employees and their employers are established are neither equal nor fair. Deprived of access to the means of production, workers have no choice but to sell their labour power if they are to subsist. This dependence on employment means that owners of capital, or those who represent their interests, are able to pay wages that are less than the productive contribution of their employees. The economic rent is 'surplus value', as indicated by subtracting the worker's wage from the value of his or her productive achievement. Labour exploitation today is perhaps best illustrated by the distributional consequences of the global decentralisation of production, reflecting the growing prominence of trans-national corporations in networks of production and distribution. While workers in developing countries are paid in terms of their local hourly wage rates, the commodities they produce are sold at retail prices in the developed world, generating profits that substantially exceed the costs of production (Balean, 2004).
Having sketched out two opposing positions on rent-seeking we need to consider one final point, that there is another element that moves an unearned transfer into the realm of 'rents', that it is not justified by the public interest. Theoretically, it is conceivable that the allocation of an unearned benefit might conform to the distributive ideal of promoting the public good. For example, a certain transfer could be required as a right of citizenship, particularly in the distribution of welfare resources, that the market cannot provide those resources through voluntary exchange, and that the only recourse is for the state to step in and take some form of public action. The public interest test is common to both philosophical traditions outlined above, although the components obviously differ. The core feature of citizenship will be liberty for the neo-Liberal (Nozick, 1974; Machan, 2008) and equality for the neo-Marxist. These considerations are especially important for the dissection of the case material provided in our discussion section.
In sum, rent-seeking is an economic concept that denotes the acquisition of rewards, benefits or goods over and above what might be considered just according to the productive achievements of the recipient or recipients. There are different perspectives on the subject of rent-seeking that blame either political actors for offering rewards to target voters for electoral purposes, or, ruling elites who use their influence with political actors to obtain a greater share of resources than they would ordinarily be entitled to. While rent-seeking is generally considered to be unjust in terms of distributive justice, there may be instances where the 'rent' is justifiable by virtue of the public interest, and this test is common to all philosophical traditions though with different core components. Having set the conceptual framework, we now turn to the question of its application.
Applying the concept of rent-seeking
Drawing on the previous work of one of the authors (Hyde & Dixon, 2009) we maintain that in order to make sense of rent-seeking as a real world activity there are five basic components that need to be factored in, as set out in Table 1.
The first thing to consider is the site or location in which rent-seeking activities occur. From the broad political perspectives we outlined earlier the context is not vastly important as the relations that spawn rent-seeking are pretty much defined by the economic and political system, as long as a system can be defined as democratic on the one hand and capitalistic on the other, the specific context may not always be singularly important. However, drawing on the social research literature, particularly Pawson & Tilley (1997), we consider that the actual context in which rent-seeking occurs is important.
The second component is the rent-seeking agent. This can be a very complex dimension to unravel. For example, taking our broad-brush approach we might see either political or ruling elites as the ultimate rent-seekers, but it could be more complicated than that? Arguably, looking at specific contexts allows a much more accurate attribution to be made about who is seeking rent and in what capacity they seek it. Further, it may also allow us to unpick the complicated interactions and inter-relationships that serve to obscure who really benefits from undeserved allocations.
Thirdly, there is the rent that is sought. This will vary according to the context, but will generally be resource-driven. Fourthly, we need to ask how those who seek rents actually manage to obtain them. Without some form of leverage they would not be able to achieve more than their fair share. Again from certain perspectives it might be that political elites use their power to distort the market via electoral processes; democracy is the leverage asset that they employ to allocate rents and to receive them. From another perspective it could simply be that ruling elites manipulate their economic power to accrue more than they merit, supplementing this with their influence over political elites. Taking a localised view of rent-seeking behaviour though might allow us to identify with greater accuracy what leverage assets rent-seekers employ to gain more than their just deserts.
The final component is the exploited agent. Who is it that loses out when a rent is attained? Just as with the task of identifying rent-seeking agents this can be complex, as individuals or groups might appear to fit in multiple categories. However, one means of assigning agency is to clarify the dominant category in relation to the specific rent. So, for the sake of clarity, an individual might well be a tax payer (a category that equates to the exploited agent) while also being a local councillor (hypothetically defined as a rent-seeker), in this situation the latter would be their definitive status. Having oudined the way in which rent-seeking can be applied, we next set out the illustrative case study.
Run to the sun: a case study
The empirical work involved a case study of a festival held annually in Cornwall known as 'Run to the Sun conducted in 2002. In essence it was designed to explore the management of the event by public police and to consider its impact on 'communities of interest (Giarchi, 1984). The principal communities were the police, the residents of Newquay (the nearest town) and the local businesses coupled with the event organisers. The research, as is common with case studies, was predominandy qualitative in nature and involved interviews with various actors, a documentary trawl through the local media and unstructured, non-participative observation (Silverman, 1993).
The festival is described as: 'a weekend of cars, music, sea, surf and water pistols' (SurfGuide, 2002). If there is a central philosophy it is about hedonism, "RTTS [Run to the Sun] has always adopted an anything goes approach" (RTTS, 2002). One of the key features of the event is that it does not remain on the host campsite but spills over into the main town centre. This has traditionally caused problems because of the increased traffic, as festival-goers display their cars, there are extensive water fights and additional pressure is placed on certain areas in the night-time economy.
Many residents do not enjoy the festival and see it as contrary to the general tourist culture central to the economy of the town. However, local businesses regard challenging this culture as potentially damaging:
The police may want to try and stop the use of water pistols, but the bad publicity fallout could seriously damage Newquay's image of a fun town. Ft. Lauderdale, Florida, became a dull backward area after the police started harassing the Spring Break visitors. This proved bad for business. Let's hope Newquay won't lose its appeal to young people that way (SurfGuide, 2002).
In fact, businesses exacerbated some of the problems; by refusing to stagger closing times, by selling water pistols and by promoting anti-social behaviour in advertising strategies.
During the observation there were several examples of anti-social behaviour and public order offences, and yet police officers in attendance elected to ignore them. Outside one pub:
Glasses were being broken, car roofs thumped, cars were prevented from leaving the pub car park... door staff ejected people from the pub grounds but they only moved across the road where their behaviour continued. All of this was witnessed by police officers stationed each side of the main crowd. Those police officers made no move to address the situation during the period of observation (Barton & James, 2003, p. 14).
This behaviour chimed with interview data provided by a senior police officer who said "I don't care if it takes six hours to drive around the town. My concern is that emergency vehicles can get through... the water pistols are a pain but not a priority. My priority is 2 a.m. closing and hot-hatch boy racers" (Barton & James, 2003, p. 11). Residents writing to the local press seemed surprised at the levels of police tolerance for behaviour which might be classed as anti-social (Parish, 2002), as did a councillor during the interviews.
Although acknowledging the exceptions in both cases (annoyed business people and happy residents) the paper concluded that in managing the interests of competing communities, the police were supporting the entrepreneurial risk takers (businesses/organisers) at the expense of the wider community (Giddens, 1998). But we can now take this analysis further by employing our adapted concept of rent-seeking, because it is clear that not only are the interests of residents being over-ridden, they are actually paying for the 'privilege'. Local businesses and organisers are receiving public resources to make the event possible. While we cannot say how much in total the event would have cost the public purse, we do know what the policing costs were. The operation cost the local police service £70,000 with no contribution, despite repeated requests (Whitney, 2002), from local businesses or the event organisers. As a Bank Holiday weekend the costs would be elevated in any case, but not by this amount. Whatever the difference between the usual police budget and the RTTS policing could be considered a direct rent. In essence then, private organisations are receiving public welfare support for their activities over and above their contributions. When we factor in other agencies, such as the coastguard and the National Health Service, the potential scale of the rent-seeking becomes more significant.
Winners and losers
Having set out the case material, we now need to apply our framework to identify the individual components of the rent-seeking process. However, as we shall see the traditional distinction between political and market rent-seeking does not always hold, nor do these fully cover the rent-seeking behaviour suggested in our case. Taking the most obvious instance first, we need to consider each component of the process. Newquay in Cornwall and its surrounding area constitutes the site or location of the rent-seeking behaviour, and this is the most straightforward element to classify. The rent sought would seem to be apparent but is actually a little more complicated. Additional police resources offered to the festival organisers and local businesses are the most obvious rent, though there could well be other drains on public resources that are not factored in; for instance, extra work for the coastguard or the NHS as a result of more accidents and emergencies as postulated above.
The next part of our rent-seeking equation is the identity of the rent-seeking agents. Clearly, the organisers of the festival are achieving unpaid-for public support for their private activities, but, as we have seen, local businesses were offered protection for their property, and again this did not reflect their actual contributions. It was not paid for via direct payments, although this was possible as the police can be 'hired' for private events. Williams (2008) has shown the scale of this activity, which was referred to as 'additional policing' in the nineteenth century but is now identified as 'special police services'. Nor was the extra police provision covered by hypothecated taxation or rates and so local businesses too must be regarded as rent-seeking agents. These might include outright owners of the capital assets or passive owners as shareholders.
There are also managers responsible for organisational assets (Wright, 1985). The claim that organisation assets can provide a distinctive basis of rent-seeking is equivalent to saying that agents can use their disproportionate control of organisation assets to generate remuneration that exceeds the value of their performances at work. The possibility of this form of rent-seeking in the private sector has allegedly been accentuated by the rise of the Anglo-American corporation, which gives managers and bureaucrats effective authority regarding the organisation of production. The separation of ownership and control, and thus the diminution of opportunities for the direct supervision of employees by owners, creates considerable scope for managers to use their authority to pursue their own ends. Although Marxists have drawn our attention to the possibility of labour exploitation, it is "...just as important to point to the possibility of management exploiting owners: they may capture quasi-rents, earned legitimately in business operations, through excessive pay rises, unjustifiable perks, and other examples of opportunism" (Barry, 1998, p.50). Thus rentseeking in some contexts might be contrary to the will of owners of capital assets.
How do these different agents manage to extract the rent associated with unpaid for police resources? There would appear to be a range of different leverage assets. On the one hand, simply controlling capital assets or controlling organisational assets can create the circumstances where significant influence over public agencies like the police service can be exercised, which is exacerbated where organisations like the Chamber of Commerce represent their collective interests. On the other, these interests, including the festival organisers are able to cite local policy objectives to support their rent-seeking behaviours. One of the key industries in Cornwall is tourism. It accounts for 10% of employment in some of the most deprived communities such as Camborne and Redruth, compared to a national average of 8.2%. Tourism is also considered to be a growth industry as it accounts for £115 million per annum, and is the UK's fifth biggest industry. It employs 2.6 million people with another 2.9 million jobs predicted to appear by 2020 (Chorley, 2010). Thus RTTS organisers can claim to be supporting local policy objectives by promoting tourism and boosting the local economy. Taken together these would be powerful leverage assets to secure rents in the form of unpaid-for police support.
Finally we come to the exploited agents. In our case this would appear to be local residents. On top of the specific rent there is the inconvenience involved in holding the festival, the noise, the public disorder and the traffic jams that bring the town to a virtual standstill. But the rent is more serious because what it means is that for the period of the festival they are not receiving the services they have paid for. What this in turn means is that the public services provided at other times are suspended, and this might have serious ramifications for public safety and protection. Furthermore, as it is historically recognised police policy to 'borrow' resources within and between service areas where demonstrations, festivals or other public events are concerned (Wallington, 1988) this means that residents in the surrounding area might find themselves with inadequate police cover. Consequently we can trace the entire rent-seeking process in this instance, and this seems to be an example of market rent-seeking. This can be illustrated in the following table.
We said above that to ultimately qualify as an unjustified rent a particular transfer would have to fail the public interest test. Interestingly, this case fails the test from both a neo-Liberal and neo-Marxist perspective. In terms of the former, there is no reason that the additional police resources could not be paid for directly, and therefore no reason that public action is required (Williams, 2008). Negative liberty is not maximised by this transfer of resources to benefit festival organisers and owners of capital and the controllers of organisational assets. From the neo-Marxist perspective the equation is broadly similar except that the transfer fails to further any notion of equality. So, we can say that the use of additional police resources to benefit a few specific individuals is a rent and not simply a straightforward unjustifiable transfer. Earlier we said that the distinction between market and political rent-seeking is hard to make in reality, and this case study with its contextual emphasis illustrates this.
Muddying the waters: bureaucratic rent-seeking
The conceptual framework took into account market rent-seeking and political rent-seeking as distinct entities. In our case it seems that both can operate simultaneously. The piece of the puzzle that needs further explanation is the motive of the police service. They may be the providers of the rent but there appears to be more to their role than that. While it is probable that the police could be pressured into allocating additional resources through capital ownership and the control of organisational assets, certainly expressed through collective representation this would be limited and could be resisted. Nor would reference to local policy objectives necessarily be sufficient to encourage the allocation of such a rent. Therefore, we suggest that the police in this case are rentseekers and that they are bureaucratic rent-seekers.
To underline this we need to use the same equation we applied above. The site is obviously the same, but the rent is slightly different. One defining feature of public sector agencies is the desire to expand and to secure more resources (Horn, 1995; Osborne & Plastrik, 1997). This is even more evident in the current climate of the Conservative-Liberal Democrat coalitions 'Big Society' agenda. The rent sought by the police in this case would be extra resources from the Home Office to cover any deficit created by the festival.
The leverage asset is also different in this case. There might be some reference to local policy objectives but this would not necessarily secure resources from the centre. What the police have at their disposal is their professional identity. According to Wright (1985), skill credential assets-the possession of marketable skills and qualifications-enable individuals to generate remuneration that exceeds the value of their work performances. This is easiest to illustrate with reference to those who achieve the highest rewards for credentialed work. According to one set of arguments, professional workers in the market are, like other employees, rewarded in accordance with their marginal product, which means that their remuneration can never be excessive. Professional credentials indicate the possession of skills that are relevant to the execution of specific performances in work settings, and their role is simply to convey information about the suitability of individuals for employment. As far as remuneration is concerned, it is the performances that count, not the credentials, although it may sometimes look like this. While these specialist skills are not always persuasive, they do carry significant weight with policy-makers (Waddington & Hamilton, 1997).
According to one authoritative response (Wright, 1985), the primary role of credentials is to restrict entry to labour markets, giving employees leverage to achieve excessive remuneration. If this analysis is accepted, skilled workers have a direct interest in maintaining a system of credentials, not only for its role in facilitating the selection of appropriate personnel, but also because it artificially reduces the supply of labour, generating the possibility of excessive remuneration. One thing worth noting is the variance from traditional expectations where skills credential assets are generally understood to restrict access to professional ranks, here they are employed to expand resource acquisition.
Finally the identity of the exploited agents is more expansive. The local residents are the primary exploited agents as they are paying for services they are not receiving, but in seeking centrally allocated funds to help cover events like this, national tax payers are drawn into the equation. If resources are redirected to cover the original rent then this has the effect of creating new exploited agents. This can be illustrated in the following way:
In order to categorise this as rent-seeking we ultimately need to apply the public interest test and bureaucratic rent-seeking also fails. Neither equality nor negative liberty is furthered. Wilding's (1982) analysis invites us to consider the possibility that the performances of professionals at work can have harmful consequences both for their clients and for society as a whole. This is reflected in the failure of professionals to discharge their responsibilities in ways that meet the needs of their clients. In recent decades, it is clear that "professionals have come in for considerable criticism from researchers, government, the media and popular opinion for a range of [...] failures of professional responsibility" (Wilding, 1982, p.93). This analysis of the professions invites us to consider the possibility that their performances at work can diminish economic and social welfare, which means that their value to society is open to debate.
The police might argue that they are pursuing the interests of their local population by attempting to secure additional resources to benefit them. This is not convincing. On the one hand, if we were to accept it at face value, it merely shifts the emphasis between the primary and secondary exploited agents; national tax payers become the primary exploited agents and local residents secondary. On the other hand, as local residents have been neglected by the police in order to secure additional resources, there is no guarantee that new resources would be used to benefit them. By adopting a contextual focus we can see the complexity of rent-seeking, that political and market rent-seeking can occur simultaneously and that the level of exploitation can expand as a result.
Conclusion
The concept of rent-seeking has been insufficiently mined in the social policy literature and arguably it has great potential for identifying resource flows that cannot otherwise be readily conceptualised. In order to illustrate this we drew upon research previously conducted by one of the authors in the South West of England. The focus was therefore on the allocation of police resources a festival known as Run to the Sun in the local area, however, our framework could be applied to different social policy contexts.
By breaking things down into key components - site, rent-seeking agents, specific rents, leverage assets and exploited agents - it is possible to identify the process fairly clearly and underline its winners and losers. Some elements may never be fully accounted for, such as the influence of personal relationships or the potential for corruption, but it does at least give us a device with which to identify unjustified transfers and begin to unravel some of the complex motivations for rent-seeking behaviour.
In addition to the evaluative possibilities this article presents, there are also some important points that perhaps need further exploration. First, the role of private institutions and interests as consumers of public welfare and in particular the propensity for market rent-seeking that routinely occurs. Rent-seeking in the UK is often defined as an activity exclusively undertaken as 'welfare scrounging. On the contrary, we can see that public resources are also unjustifiably allocated to private sector organisations. Second, that rent-seeking is divided into either market or bureaucratic forms depending on the political perspective favoured by individual authors. Partly by factoring in a contextual dimension the inadequacy of this view becomes evident. In fact it would appear that market and bureaucratic rent-seeking operate side by side.
This work stands as an early attempt to apply the concept of rent-seeking in a social policy context, and it provides a potential tool for identifying who obtains more than they should, what they seek to obtain and what they use in order to do so. Ultimately, whichever political perspective we embrace the notion of rent-seeking should be weeded out wherever it is found. It is simply a matter of justice.
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NICK JOHNS1
Cardiff University, UK
ADRIAN BARTON
Plymouth University, UK
MARK HYDE
Plymouth University, UK
Postal Address: School of Social Science, Cardiff University, Glamorgan Building, CF10 3WT, United Kingdom. Email Address: [email protected]
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Copyright University of Oradea Publishing House (Editura Universitatii din Oradea) Jul 2013
Abstract
Rent-seeking has been an important concept in economics since the 1950s but has not been sufficiently mined in the field of social policy. This paper aims to address this by employing a UK case study to illustrate the relevance of rent-seeking in this context. In doing so it attempts to set out a means of identifying where rents are sought, by whom and the levers they use to extract them. In the UK rent-seeking and welfare is often implicitly linked to 'welfare scrounging'. Here we show that this is not necessarily the case and that rent-seeking has much greater explanatory power in relation to social policy processes and transfers. By also introducing a contextual dimension we demonstrate that market and bureaucratic forms of rent-seeking can operate simultaneously. More work remains to be done to fully articulate these processes, however this constitutes one starting point for this work to develop. [PUBLICATION ABSTRACT]
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