Thursday, February 11, 2021

Review of Rents, Rent-Seeking and Economic Development edited by Mushtaq H. Khan and Jomo K. S

This review was written by Eugene Kernes

Book can be found in:
Genre = Economic Development
Intriguing Connections = Rent. Rent-Seeking! Lucre?

Short Description

“In developing countries the rent-seeking can be more extensive, can include illegal forms and is more often damaging for growth.” – Mushtaq H. Khan and Jomo K. S., Introduction, Page 1

“Rents are ubiquitous and economies have to learn to live with them.  There are good rents, and the institution which promote them advance development in the presence of rent-seeking.  But there are also bad rents, promotion of which results in damaging rent-seeking.” – Mushtaq H. Khan and Jomo K. S., Introduction, Page 18

“These rents are inefficient only in terms of the irrelevant benchmark of general equilibrium, but in the real world such rents are efficient because they are necessary to make markets work and there is no feasible alternative.” – Mushtaq H. Khan, Introduction, Page 46

Quotes with permission from publisher

Elaborate Description

A rent is an income that is above the minimum acceptable income, usually above average income.  Rent and rent-seeking are normally perceived as being only inefficient, waste of resources, and bad for economic development.  Prompted by the 1997 Asian crisis, the authors of this book ask how rent and rent-seeking was able to sustain economic growth for a long time if they were all bad.  Certain types of rents and rent-seeking facilitate development.  The process of rent-seeking is composed not only of trying to obtain rents, but also maintaining the rents.  In order to work, rents do need to create favored income earners.  As rents are ubiquitous, countries have to learn to manage them. 

Rent is normally a reference to any income above the average.  Average relative to a competitive market.  Particularly, rent is an outcome where a person accepts an income that is higher than the minimum acceptable income. Rents can be legal or illegal.  Government allocations to specific firms are legal rents while brides are illegal.  As rents are above average income, those who get rents will try to maintained their rents.  In the rent-seeking process, the rentier will try to influence political and market outcomes to keep the rents.  Spending money on rent-seeking activities are not the only reason why rents are seen as inefficient, they also allocate income away from competitive actors and reduce social benefits.  

Facilitating good rents promote economic development while bad rents damage the economy.  The various types of rents include monopoly rents, nature resource rents, transfer rents, and Schumpeterian rents, learning rents, monitoring and management rents.  Although rents can generate positive outcomes, they do favor certain income earners over others.  Creating classes of income.  There are different ways in which private parties or government can create rents.  To sustain the rents, those rents need to be distributed to the compensate rent losers, and society.  

This book demonstrated that there is a big definitional crisis in rents.  The rent definition used can be used to make any income appear like rent.  Making rent ubiquitous reduces the meaning that rent has.  Another definition problem is that rent can be achieved with no business taking any action, as if more a random reason more customers make use of their products, that is rent. 

Another problem with this book is that the author makes the claim that economic development and rent are not supposed to be complimentary so that when rents promote economic development it is a paradox.  The problem with this view is that it means that rents can gained without wealth.  For rents to exist, wealth needs to be created in order to allocate income to different uses.  Rents are complimentary for economic development and can be sustained for a long time as rent seekers have an incentive to make sure that wealth is created to derive rents from it.  It is difficult to do, which is why rent-seeking is tenuous.  

Questions to Consider while Reading the Book
•What is the raison d’etre of the book?  For what purpose did the author write the book?
•What are rents and what is rent-seeking?
•Why are rents and rent-seeking usually perceived as being negative?
•How can rents and rent-seeking support economic developments?
•Are rents and rent-seeking legal or illegal?
•Who can have rents?
•How are rents allocated?
•What types of rent are there?
•What are some rent-seeking activities?
•How can rent and rent-seeking be sustainable?

Book Details
Edition ISBN:  9780521788663
Pages to read:   323
Publication:     2009
1st Edition:      2000
Format:           Paperback

Ratings out of 5:
Readability    3
Content          3
Overall           2