South Africans must not become a nation of rent seekers

Public choice is a scientific analysis of government behaviour and, in particular, the behaviour of individuals with respect to government, wrote economist Gordon Tullock, one of the founders, with James Buchanan, of public choice. It is an approach to economics and politics built on Adam Smith’s observation that individuals are primarily concerned with their own interests and not with the public interest. The concept of rent seeking is one aspect of this type of analysis.

Tullock’s definition of rent seeking is, “The use of resources for the purpose of obtaining rents for people where the rents themselves come from some activity which has negative social value”. Although its proponents may disagree, the levy that government recently introduced on the sale of meat provides an example of rent seeking. Everybody pays more for their meat in order to satisfy the self-interest of the beneficiaries of the levy, providers of ‘customer assurance’, ‘consumer communication and liaison’, ‘research’, ‘industry liaison’, ‘industry projects’ and other such activities of doubtful value. Whatever these services may mean, what we do know with certainty is that producers were not prepared to pay the cost voluntarily, which is a characteristic of those who end up paying the cost of rent seeking activities.

The task of the rent seeker in lobbying for special privileges is made easier because the costs of the process are generally diffused while the benefits are concentrated. The meat levy may add a small percentage to the food costs of millions of households but the total collected is large, providing substantial resources to the beneficiaries in return for the cost of their lobbying.

In most societies throughout history, rent seeking has predominated, according to Professor Tullock. Profit-seeking societies, in which the self-interest of individuals has led them to concentrate on producing goods and services to improve their material welfare rather than doing so by seeking political privilege, have only characterised the last two centuries.

Britain was the first to end rent-seeking, starting what became known as the Industrial Revolution. The prosperity that followed led other countries to emulate British institutions in order to create similar economic environments, ushering in an improvement in human welfare that is almost beyond comprehension. It is difficult to come to terms with the fact that relatively poor people now live better, healthier, easier, more comfortable lives than did the wealthy three centuries ago.

Once the concept is described, it is simple to identify rent-seeking behaviour. When rent seeking comes to dominate in a society, the result is tragically clear, as in Zimbabwe. Through the political process, highly productive farms were removed from their owners and handed over to political supporters of the ruling party. However, the political process cannot transfer the skills, knowledge and work ethic of the previous owner along with the land. The result was predictably obvious to all but the rent-seekers who lobbied for the transfer of the properties, and apparently also the politicians and government agencies that approved and carried out the scheme – farm production declined precipitously. The general Zimbabwean population is now infinitely worse off than they were before the rent seeking exercise began.

SA is a hybrid that has throughout most of its history maintained a mixture of the sound institutions borrowed from the British, together with various forms of non-democratic government. After 1910 there were four decades of ethnically based minority government in which changes of government were possible, controlling rent-seeking behaviour to some extent but leaving the voteless majority vulnerable to the abuse of political power by the minority with the vote. A half-century of dominance by one political party then followed, opening the door to rent seeking by the supporters of the dominant party.

Democracy was introduced in 1994, buttressed by a constitution intended to protect the people against the possibility of despotic government. However, by the consent of the overwhelming majority of the parties involved in the constitutional negotiations, space was left for corrective action to redress past harm. The theory of rent seeking warns us that a few people acting in their own self-interest may use the space, created for the benefit of the public harmed by apartheid, to benefit themselves at the expense of the majority. This is not a moral observation but a conclusion to be drawn from the nature of the concept.

Further difficulties for SA in making progress towards a non-racial, prosperous and democratic society have been created by the country’s political imbalance inherent in the existence of a dominant political party. In such circumstances, the public has to rely on the moral rectitude of the leaders of the governing party rather than on the pressure of political competition to prevent and control rent seeking behaviour on the part of supporters of the party. Pressure on the leaders of the party to bow to rent seeking will be great, not only from its political supporters outside of government but also from the officials within government, who have opportunities to pull the levers of power in a manner that will benefit them directly.

The dangers for the country’s economy and the vast majority of its people are grave. Once rent seeking becomes more profitable than production by large margins, the economy will be on a slippery slope from which it will not easily recover. Africa is littered with examples of the ravages of rent seeking. Avoiding the pitfalls will require great wisdom on the part of the leaders of SA’s governing political party.

Author: Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 31 October 2006 - Policy Bulletin / 10 November 2009