Source of evil

My blog received a big boost in traffic this week because, according to commenter Stephen (with minor corrections):

Founder of Crossfit had a talk in which he used rent-seeking as a reference and why that was bad for crossfit and against his business model which he likened to “Striving to excellence instead of striving to make money is a better way to run a business”

He then posted a link to a blog post I wrote in 2011 to distinguish rent-seeking (or as one of the excellent regular commenters here, Mike M, put it, “privilege seeking”) from capitalism. So, I’d like to thank the Founder of CrossFit, thank all who visited Our Dinner Table and thank to all who left a comment to advance the discussion — even those who disagreed with me.

I’m guessing he posted a link for rent-seeking because, as I point out in that blog post, so few people understand what rent-seeking is and the term itself is not intuitive.

Privilege seeking is a more intuitive term. Seeking privileges at the expense of others is about as spot on description as I’ve heard, so far.

Rent-seeking is using government to reduce consumer choices for the benefit of a special interest.

In my 2011 post, I used the sugar tariff as an example of rent-seeking. It works like this: Government adds a tariff to sugar imports, which results in a higher price paid for sugar products in the U.S. by consumers. The higher price benefits domestic sugar farmers who get to charge more since their foreign competitors’ sugar prices includes the tariff.

The objective of my previous post was to highlight that to the extent the tariff allows domestic sugar farmers to charge more, those profits are not earned through capitalism. But, too often folks see that as capitalism. In their eyes, profit and capitalism are almost interchangeable.

I’d like to commend the founder of CrossFit for shunning rent-seeking (it’d be great if he could hook me up with a set of pipe/monkey bars and maybe a small climbing wall for my basement :)). That means his strategy is to attract and retain customers by making their lives better, rather than using government to restrict their alternatives.

As it turns out, I happened to also listen to a Harvard Business Review podcast this week with guest John Mackey, Founder and CEO of Whole Foods Market. He has a new book titled, Conscious Capitalism.

capitalism

capitalism is actually beautiful (Photo credit: wallstalking.org)

In the podcast, Mackey describes his journey from spouting progressive to appreciative capitalist — and it sounds a lot like mine, except I haven’t founded any big companies, yet.

He discovered that how he viewed businesses when he was young — as greedy, singularly focused money-makers — wasn’t all true. He learned that businesses (usually) succeeded by providing something customers value, which is a tremendous overlooked (or perhaps taken for granted) benefit for society. It may be fun to hate on capitalism, but by gosh, don’t take away my iPhone, sort of thing.

But, I think Mackey misses something BIG. While I applaud Mackey and the Founder of CrossFit for eschewing rent-seeking and favoring customer value creation, i.e. for being capitalists, not all businessmen are capitalists.

One thing almost all business people have in common with the rest of us is that they are human. And one thing nearly all economists know about humans is they respond to incentives (though they differ in their beliefs by how much).

So, it follows that business people respond to incentives. They make more money when their companies do well. One way to guide their companies to success is through good-ol’ capitalism — providing the customer with products they value enough to buy.

But, another way for business people to make money is through rent-seeking. Whether it’s a sugar tariff that allows you to charge more or a state giving special tax breaks for auto plants to ‘attract jobs’, as government at all levels have gained more power, the value of rent-seeking has increased along with it. As Harry Browne put it:

Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, “See, if it weren’t for the government, you wouldn’t be able to walk.”

You can blame greedy business people who are unlike John Mackey and the CrossFit founder for seeking profits without creating customer value, but you’d be blaming the wrong people. The right people to blame would be us, for letting government out of its cage to sell the power we give it to the highest bidder to do things like transfer $40/year of our money to rich, rent-seeking sugar farmers so they can continue to buy that power…with our money.

Think about that for a second, $40 isn’t much (which is why we’re not picketing in the streets about it). But, wouldn’t you rather use that $40 to buy something you value rather than give it to the sugar farmer so he can use it to keep getting it from you?

That’s a double-whammy. Whammy one: You lose your chance to buy something with that $40 that makes your life better. That value never materializes in society. Whammy two: Some of that money goes to do nothing more than to convince politicians to continue getting it. If you understand that, it shouldn’t be hard to see that shrinking government can help the economy.