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Is there a name for the question of distinguishing useful economic activity from rent-seeking? It seems tied up in lots of other system/corruption/control rela

Is there a name for the question of distinguishing useful economic activity from rent-seeking? It seems tied up in lots of other system/corruption/control related questions - cancer, budget spending, regulation etc. It feels like there can never be a trustable implementation of a "value or rentseeking?" oracle, since the system implementing it would also be under selection and pressure from the virtual gains to be had from corruption.

kmeisthax 5y ago
I don't think there is such a name. But you're on the right track about it being difficult to distinguish between value and rent-seeking. One thing to note is that governments themselves are, by definition, rent-seekers. This is inherent to how a government - a monopoly on the legitimate use of violence within an area - works. Once you are sovereign within a territory you can extract rents in the form of taxes, and if you don't extract enough you will be deposed by someone who does. Most governments also tend to encourage their own industries to rent-seek as well. If your country needs heavy industry or scientific research or cultural behemoths, it's far easier and politically defensible to construct new narrow property regimes (e.g. copyright, patents, PDOs, etc) for those companies to exploit rather than just paying them subsidies. These regimes can be selectively weakened when you need to build your industry domestically (what the US did to the UK, or what China did to the US) and then strengthened later when you need to protect it internationally (what the US forced into WIPO). Very little of capitalism is actually adding value, in the sense that you have a business that hires people, buys materials, and turns them into goods and services at a prevailing market rate. At the lowest rungs of the chain, sure - you might have, say, petite-borgeouis crustaceans hiring workers to cook food and sell it to people who need it. But that's not where most of the actual profit is. Compare that to, say, a fast-food franchise; which doesn't usually run any restaurants or sell any food. They instead sell trademark rights and supplier relationships. In particularly egregious systems like McDonalds, they even rent their franchisees the land that the restaurant must be housed in. Left-wing critiques of capitalism are typically extra-cynical about this, and would consider even the small profit Mr. Krabs makes on burgers to be rent, not value. This is usually in the context of the employee-business relationship, however; not the business-customer one. Small businesses generally don't extract a premium on the goods or services they sell just because they're the only company that happens to own a stove or know some secret recipe. But in the context of employees, they are getting paid less for their labor, albeit in exchange for not having to bear up-front capital costs or deal with inconsistent revenue. Whether or not this constitutes rent or value is most likely a political opinion, not something that you could actually devise some economic criteria for.
- epivosism 5y ago
  Excluding the direct political arguments, is there hope for a clean way to distinguish these types of activities: * Someone who literally figures out a new, cheap way to make a drug which cures a real disease * Someone who, as soon as they get the right to, imposes license fees which serve no valid purpose, and profits in status & wealth from these new duties.
  - kmeisthax 5y ago
    No, because they're the same thing. We pay for inventions with rent seeking behavior. One person's justified license fees are another person's patent or copyright trolling. The original idea with these sorts of things, at least in the US, is that we'd have administrative procedures and court adjudication to limit the harm that could come from that behavior. In practice, the administrative procedures are only a bar to the least knowledgeable plaintiffs, and the mere threat of litigation over a marginally valid claim is often enough to coerce most defendants into a settlement. Nobody wants to actually litigate whether or not a patent is obvious, or a copyright owner has been surreptitiously seeding their own works on BitTorrent. There's also a question about whether or not your two examples are, in practice, always different cases. What if the person in the first example decides to not license their drug at all, so they can do the manufacturing themselves and control the price? That would be identical behavior to the second example... but they still made a useful invention. They're the same person. You could legally restrict "non-practicing entities" from enforcing patent rights, but that's only a subset of all rent-seeking patent owners. Remember: the entire point of the system is to enable rent-seeking in lieu of up-front payments.
  - alexashka 5y ago
    Sure, it'd be a matter of simplifying the law code and posting everyone's financial information for everyone to have access to. In other words, once it becomes feasible to 'follow the money', it'll be somewhat trivial to see who's doing what and to what ends. Notice that this problem doesn't exist in smaller communities, because everyone knows what everyone else is up to. This is a data access problem that persists because it is profitable for people who have the power to keep everyone else in the dark regarding their machinations.
exceptione 5y ago
I think you are looking for the term Real Economy? From https://en.wikipedia.org/wiki/Real_economy https://en.wikipedia.org/wiki/Real_economy "The real economy concerns the production, purchase and flow of goods and services (like oil, bread and labour) within an economy. It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transactions of fiat money and other financial assets, which represent ownership or claims to ownership of real sector goods and services."
- epivosism 5y ago
  Hmmm, that's an interesting distinction; But someone who intelligently evaluates startups and picks a more genuinely productive one (likely to discover new pure gains) to give money to seems to qualify as a valid outcome. Unlike things which are very hard to justify, like directly impeding such people for selfish reasons. Perhaps it's about selfishness?
  - nostrademons 5y ago
    I think one useful distinction might be "Imagine that the state collapsed and you could no longer count on guys with guns to defend your pieces of paper. What happens to your income?" The obvious losers would be landlords (the literal definition of "rent-seeking"), because without that piece of paper, there's just a tenant that lives in that apartment and you have no claim on any of their money. A carpenter who actively builds a house, however, is creating value: even without the state, people still need houses, and he has useful skills for things people want. Financial assets would crash, trademarks would become worthless, there'd be open season on patents. Medical care is still creating value. People who grow and prepare food would be very useful. Software engineering is in the middle: new software that people use is creating value, but just sitting on a service that you own exclusive rights to because it's protected by copyright & trade secret laws is rent-seeking. This also illustrates a lot of the confusion between the two. Without the state to enforce contracts, there's no way to tie "the value you create now" with "getting paid for it later". When a carpenter builds a house, he now owns a house that he can pay for later - but without the state to enforce his right to the deed of his house, he's got nothing to sell and no reason to invest the labor in the first place. Same with the service that the software engineer creates and the drug that the biologist discovers. You could look at rent-seeking as "property rights that have extended beyond the public's attention span".

kmeisthax 5y ago

I don't think there is such a name. But you're on the right track about it being difficult to distinguish between value and rent-seeking. One thing to note is that governments themselves are, by definition, rent-seekers. This is inherent to how a government - a monopoly on the legitimate use of violence within an area - works. Once you are sovereign within a territory you can extract rents in the form of taxes, and if you don't extract enough you will be deposed by someone who does. Most governments also tend to encourage their own industries to rent-seek as well. If your country needs heavy industry or scientific research or cultural behemoths, it's far easier and politically defensible to construct new narrow property regimes (e.g. copyright, patents, PDOs, etc) for those companies to exploit rather than just paying them subsidies. These regimes can be selectively weakened when you need to build your industry domestically (what the US did to the UK, or what China did to the US) and then strengthened later when you need to protect it internationally (what the US forced into WIPO). Very little of capitalism is actually adding value, in the sense that you have a business that hires people, buys materials, and turns them into goods and services at a prevailing market rate. At the lowest rungs of the chain, sure - you might have, say, petite-borgeouis crustaceans hiring workers to cook food and sell it to people who need it. But that's not where most of the actual profit is. Compare that to, say, a fast-food franchise; which doesn't usually run any restaurants or sell any food. They instead sell trademark rights and supplier relationships. In particularly egregious systems like McDonalds, they even rent their franchisees the land that the restaurant must be housed in. Left-wing critiques of capitalism are typically extra-cynical about this, and would consider even the small profit Mr. Krabs makes on burgers to be rent, not value. This is usually in the context of the employee-business relationship, however; not the business-customer one. Small businesses generally don't extract a premium on the goods or services they sell just because they're the only company that happens to own a stove or know some secret recipe. But in the context of employees, they are getting paid less for their labor, albeit in exchange for not having to bear up-front capital costs or deal with inconsistent revenue. Whether or not this constitutes rent or value is most likely a political opinion, not something that you could actually devise some economic criteria for.

epivosism 5y ago
Excluding the direct political arguments, is there hope for a clean way to distinguish these types of activities: * Someone who literally figures out a new, cheap way to make a drug which cures a real disease * Someone who, as soon as they get the right to, imposes license fees which serve no valid purpose, and profits in status & wealth from these new duties.
- kmeisthax 5y ago
  No, because they're the same thing. We pay for inventions with rent seeking behavior. One person's justified license fees are another person's patent or copyright trolling. The original idea with these sorts of things, at least in the US, is that we'd have administrative procedures and court adjudication to limit the harm that could come from that behavior. In practice, the administrative procedures are only a bar to the least knowledgeable plaintiffs, and the mere threat of litigation over a marginally valid claim is often enough to coerce most defendants into a settlement. Nobody wants to actually litigate whether or not a patent is obvious, or a copyright owner has been surreptitiously seeding their own works on BitTorrent. There's also a question about whether or not your two examples are, in practice, always different cases. What if the person in the first example decides to not license their drug at all, so they can do the manufacturing themselves and control the price? That would be identical behavior to the second example... but they still made a useful invention. They're the same person. You could legally restrict "non-practicing entities" from enforcing patent rights, but that's only a subset of all rent-seeking patent owners. Remember: the entire point of the system is to enable rent-seeking in lieu of up-front payments.
- alexashka 5y ago
  Sure, it'd be a matter of simplifying the law code and posting everyone's financial information for everyone to have access to. In other words, once it becomes feasible to 'follow the money', it'll be somewhat trivial to see who's doing what and to what ends. Notice that this problem doesn't exist in smaller communities, because everyone knows what everyone else is up to. This is a data access problem that persists because it is profitable for people who have the power to keep everyone else in the dark regarding their machinations.

exceptione 5y ago

I think you are looking for the term Real Economy? From https://en.wikipedia.org/wiki/Real_economy https://en.wikipedia.org/wiki/Real_economy "The real economy concerns the production, purchase and flow of goods and services (like oil, bread and labour) within an economy. It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transactions of fiat money and other financial assets, which represent ownership or claims to ownership of real sector goods and services."

epivosism 5y ago
Hmmm, that's an interesting distinction; But someone who intelligently evaluates startups and picks a more genuinely productive one (likely to discover new pure gains) to give money to seems to qualify as a valid outcome. Unlike things which are very hard to justify, like directly impeding such people for selfish reasons. Perhaps it's about selfishness?
- nostrademons 5y ago
  I think one useful distinction might be "Imagine that the state collapsed and you could no longer count on guys with guns to defend your pieces of paper. What happens to your income?" The obvious losers would be landlords (the literal definition of "rent-seeking"), because without that piece of paper, there's just a tenant that lives in that apartment and you have no claim on any of their money. A carpenter who actively builds a house, however, is creating value: even without the state, people still need houses, and he has useful skills for things people want. Financial assets would crash, trademarks would become worthless, there'd be open season on patents. Medical care is still creating value. People who grow and prepare food would be very useful. Software engineering is in the middle: new software that people use is creating value, but just sitting on a service that you own exclusive rights to because it's protected by copyright & trade secret laws is rent-seeking. This also illustrates a lot of the confusion between the two. Without the state to enforce contracts, there's no way to tie "the value you create now" with "getting paid for it later". When a carpenter builds a house, he now owns a house that he can pay for later - but without the state to enforce his right to the deed of his house, he's got nothing to sell and no reason to invest the labor in the first place. Same with the service that the software engineer creates and the drug that the biologist discovers. You could look at rent-seeking as "property rights that have extended beyond the public's attention span".