wiser today

A man should never be ashamed to own that he is wrong, which is but saying in other words that he is wiser today than he was yesterday.

Gordon Tullock

Toward a Theory of the Rent-Seeking Society

The provincial governor who promulgates a new regulation with the intent of increasing the number of fees he gets for permitting people to avoid it not only increases his own income and the potential income of the specialists in rent avoidance, but he also imposes a real burden on society, for the regulation, in at least some areas, will be enforced. Further, he may, as a result of concentrating on this kind of activity, have this time distracted from such necessary functions of government as maintaining public order. He may not be supervising his junior officials, with the result that the kind of multiple exaction I have described above occurs. Altogether, one would expect poverty from this system, and, if we turn to the parts of the world where it is dominant, that is what we see.

If we examine the United States and most modern European countries, we find relatively little direct bribing of government officials. Note that I say relatively little, not zero, and I should also add that in my opinion the amount is increasing; unless changes are made, it will become quite a large amount in a generation or so. Still, in a direct sense the phenomenon of rent seeking does not exist.

In an indirect sense, rent seeking does exist to some extent, and the bureaucrats tend to be paid a good deal more than is actually necessary for the performance of their services, although the very highest officials are normally paid less than would be needed in order to attract people capable of managing these immense organizations. This conflict between fairly high pay for the lower officials and fairly low pay for the higher officials may be one of the reasons why in most Western countries the lower-level bureaucracy tends to be relatively uncontrolled from the top. The salaries offered to the upper administrators simply cannot attract people who have the personal ability necessary to control such a large apparatus.

The bureaucrats and other government officials, however, if they do not do very much in the way of soliciting bribes, do in fact issue a very large number of regulations and laws that directly affect many private businessmen. Further, the actual administration of these laws is invariably subject to a good deal of discretion. I should say in passing that the highest level of discretion of this sort is in fact exercised not by what we think of as bureaucrats, but by an older bureaucracy, that is, the courts. The judges are far more likely to make decisions on their own without being deeply bound by the law than are the regular bureaucrats. This is concealed from view to some extent by the fact that the judge's decision is defined as the law, and we do not generally notice how little it is controlled by the law that existed before he pronounced it.

This matter aside, what we observe is the development of very large-scale rent-avoidance activities. The DuPont Corporation for many generations was headed by chemical engineers. In the early days, these engineers were members of the DuPont family, but after two generations in which the president was a young man who had married the daughter of the previous president, rather than a direct DuPont, it slipped into the control of people who are not members of the family. It is notable that the current president, Irving S. Shapiro, is not a chemical engineer but an attorney who is a specialist on public relations and government influence. I do not wish to criticize DuPont for this decision, which I think under the circumstances was very sensible, and I certainly do not wish to criticize Shapiro, who I think is an extremely competent, intelligent, and well-motivated man. However, I do criticize the social order that made it necessary for this company to switch to a manipulator for its chief executive. Surely our medicines and plastics will be poorer in the future than they would be had the company retained its concentration on essentially technological matters.