Rent-Seeking Activity is defined as “activities designed to transfer surplus from one group to another.” In government this happens when lobbyists attempt to lobby government in order to create an institution—back by government laws and regulations—that create an environment where those particular lobbyists will profit. Another simple example might be where a bank-robber finds out that on certain days of the week banks hold more money than on other days. They choose to rob the bank on those days rather than others in order to transfer the maximum amount of surplus possible from one group to another. Sadly, in America, most of this money goes from one middle class to another middle class, and it happens much to often at the government level.
In her book Altas Shrugged, Ayn Rand deals heavily with the concept of rent-seeking activity. There is in chapter three a moment where a few men are discussing the economy. In the book Orren Boyle argues that it is not fair that a company run by Hank Rearden should own iron mines and also make the best steel. As long as Rearden owns they mine, he will make profit because he can cut out all the middle men in regards to oil. One of his friends, Jim Taggert agree with him and decides that it is time for Washington to do something about it. Taggert believes he can use his influence to take the mines out of the hands of Rearden. Within the complex exchange, Paul Larkin argues that if he is given the mines from Rearden he can turn around and give the iron right back to Boyle. But why is Jim willing to do such a thing—wasting his own time and possibly the few government favors he has in his pocket? In return, Jim wants Paul to work with his own influence in the railroad industry to cut out one of Jim’s competitors in Colorado named Dan Conway. It is the twisted hand of capitalism at its best.
One of the main characters, Dagny, is present at the next meeting of “the national alliance of railroads” when a proposal comes through that suggests a majority vote will decide all major decisions for the companies from this point forward. Each company will have to subordinate itself to the national alliance in order to decrease competition among all the companies. This is really the way that Jim and the others are attempting to put Dan Conway and his Colorado line out of business. When Dagny hears about this she is very upset (even though she is Jim’s brother and is working as his competitor). She deplores this type of “rent-seeking activity” as giving her and her brother’s company an unfair advantage in the free market. She urges Dan to fight, but he is too tired and is getting ready to retire.
Such activity is rent-seeking because it is successful in changing the surplus of the market in Colorado from Dan Conway’s company. This is not, however, by means an ethical way of going about business. The only voice of conscience, it appears, is Dagny. In the midst of all the politics, she is the only one who wants to play purely capitalistically. For instance, while Jim thinks it is not “fair” for Rearden to own all the mines, Dagny simply accepts the fact that he owns the mines and is willing to pay the best price on the market to the man who has worked the hardest and most efficiently. Jim would rather pay for steel from Boyle because he is the little guy, and he seems to fears Rearden. But is Rearden being unfair? Did he not simply acquire the mines and build the best steel on the market? Such questions make us think that the real problem is not capitalism, but politics.
And this also seems to be the real premise of the author as well. For the author, the problem is not capitalism, but backroom dealing that actually hinders capitalism from really taking place. When capitalism is working perfectly, we will see all people working as hard as possible in the areas where they excel. If one person is particularly good at theology, they must work as hard as they can at being a pastor. If one is good at building houses, he should become an architect or a construction worker. While being a construction worker may not make as much money as an architect, if you love doing it (working with your hands, building things, etc.) and you work hard it, your boss should theoretically give you raises, and eventually you might even own a construction company. Rand’s argument is that you must work hard for it. Rand’s argument is that nations that are suffering are probably suffering because the government is trying to do too much.
Just some food for thought.