Rent-Seeking – a bigger slice of the pie rather than a bigger pie

Crony Cap IndexThe Economist published a very good article on how over the last 20 years of globalisation many businessmen have been accused of rent-seeking behaviour. The examples they alluded to were the forming of cartels and the lobbying of politicians to influence the rules and regulations to their advantage. A good example of this was the reduced power of the Securities and Exchange Commission in the USA around 2005 which led to the creation of numerous derivatives, CDO’s and CDS’s. It seemed that the US government and the Federal Reserve are more concerned with the operations of Wall Street rather than Main Street.

Furthermore when government-owned resources like oil fields, coal mines, rail networks and telecommunication infrastructure are sold to businessmen at very low prices it is competition and ultimately the public that lose out. One only has to think of Russia and the ‘Sale of the Century’ where the transition from communism saw political insiders grab the natural resources. In 1997 seven tycoons were controlling 50 per cent of the Russian economy. Even if not strictly accurate, this was a fair measure of their political influence. Their deal to bankroll government in return for shares in key state assets had given them a controlling interest in Russia’s oil and gas. And as commodity prices soared the oligarchs wealth increased markedly. Chart 3 from The Economist shows the crony-capitalist index and some of the main points are:

* Of the world’s large economies Russia scores the worst.
* The US has a smaller crony sector mainly because its very wealthy tend to be in the open sectors of IT rather than the those closely linked to the government.
* French and German billionaires tend to acquire wealth by selling luxury/retail brands so rely little on the state
* China scores well as its government owns most of the natural resources and the banking system.
* Hong Kong and Singapore are countries with billionaires in crony industries. With a very small land area, ultimately property prices exorbitant.

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