chapter  12
13 Pages

Rent seeking, corruption, and local finance in historical perspective

ByR. BIN WONG

Economists and political scientists speak of rent seeking as one symptom of deviation from the free market ideal. Prices include a component above what would obtain in a market with many buyers and sellers; these prices are maintained by entry obstructions into the market that prevent people attracted by the excess returns from joining in and by their presence driving down prices. A monopoly or oligopoly can create barriers to entry that allow them to enjoy rents. Politics also matter. In early modern Europe, rulers set up government monopolies from which they gained revenues in excess of those that would have accrued to a firm operating in a free market. Other rulers set up chartered companies which also enjoyed tremendous market dominance over certain kinds of trade; merchants paid taxes and fees to be granted access to lucrative trades. For their part, early modern European rulers were anxious to expand their revenues as part of their state-building enterprisesbuilding armies and bureaucracies with which to compete with each other and to bring greater order and control over their subject populations. The political economy of rents and rent seeking is thus historically connected in a basic way to the twin narratives of European state formation and the development of capitalism-the two large-scale historical processes that have done so much to shape the modern world and equally, if not even more, our understanding of this world in which we live.