07 April 2006
Corporations again

About a week ago I put up a posting on corporations.  In it I mentioned that Chris Dillow of Stumbling and Mumbling didn’t like them but that I wasn’t quite sure why.  Suitably prodded Mr Dillow sought to explain himself.

And failed.

For the most part I just don’t understand what he is saying.  Well, that’s being polite.  Readers are welcome to speculate on the precise meaning of: “Markets are democratic”, “the cult of the CEO”, “the ideal-type big business”, “statistically significant alpha” but I can’t be bothered.  If it sounds like gobbledygook it probably is.  Actually, that’s not quite true.  He did provoke me into finding out what “rent-seeking” means.  It means getting the government to put your competitors out of business.

The few bits I did understand, I have either dealt with or don’t seem terribly important.  Some corporations spout gobbledygook.  Apart from being a bit rich, it doesn’t seem to be any big deal.  If they spout gobbledygook to me I simply take my business elsewhere.  Corporations are hierarchical.  Again big deal.  If they are big enough, they seek to put their competitors out of business.  Again big deal.  It is a characteristic of all big institutions.  The problem here is not the institutions as such, but the power of the state.

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  1. He did provoke me into finding out what “rent-seeking” means.  It means getting the government to put your competitors out of business.

    I think the term is more general than that. Some economists seem to use it to refer to any activity that attempts to transfer wealth, or even prevent such transfers, from someone else to yourself. The government doesn’t need to be involved.

    For example, both burglary and locking your door to keep burglars out could be regarded as examples of rent-seeking.

    Posted by Andy Wood on 07 April 2006 at 04:40pm

  2. I presume this excludes trade in the market place.

    Posted by Patrick Crozier on 07 April 2006 at 07:16pm

  3. I think that’s probably true in most circumstances, since voluntary trade normally creates wealth, rather than merely transfers it.

    There are exceptions, however. For example, arbitrage can involve some rent-seeking. See here for an explanation.

    Posted by Andy Wood on 07 April 2006 at 08:36pm

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