Rent-Seeking and Global Conflict
Mason Gaffney
[A paper prepared as a summary document for a
University of California seminar on Global Conlfict and Cooperation,
held at Laguna Beach, CA. Reprinted in GroundSwell,
March-April 2006]
National governments originate historically to acquire, hold and
police land. Other functions are assumed later, but sovereignty over
land is always the first business. Private parties hold land from the
sovereign: every chain of title goes back to a grantor who originally
seized the land.
When economists today speak of "rent-seeking" they usually
are thinking not of basic land rent, but in subtle and sophisticated
terms, looking at dribs and drabs of transfer rent derived from
contracting advantages. They develop abstract models for gaming
optimally with imperfect information, and so on. By emphasizing the
arcane while ignoring the basic they are in danger of matching the
proverbial expert who fine-tunes all the details and elaborations as
he forges on to the grand disaster.
Indeed, we have had one such disaster. Viet Nam was viewed by many as
an economists' war, rationally planned and led by the best and the
brightest systems' analysts, exemplified by the brilliant, energetic
Secretary of Defense Robert McNamara, advised by Professor Thomas
Schilling. In the new corporate tradition of rewarding failure,
McNamara went on to head the World Bank; Schelling went on to profess
at Harvard, and finally win the Nobel Prize for economics in 2005. One
should not be surprised at the post-Viet Nam decline of interest in
applying modern economic theory to questions of global conflict.
We would be more useful to statesmen if we looked first at
rent-seeking in the grosser sense of "land-grabbing", where
the whole bundle is at stake. When William of Normandy conquered
England the prize was land rent, all of it. He and his retainers
dispossessed the local rent-collectors. It was simple, gross, and
basic, and much more consequential than the trivial rent-seeking we
model today. The bulk of the natives may have been affected only
marginally: they just paid Lord B instead of Lord A. But it made all
the difference to Lords B and A, the ones who made basic decisions
about global conflict and cooperation.
Again, from the 17th century Europeans invaded North America,
dispossessed the natives and each other, until today we meet here,
overlooking beach and ocean, paying our daily rent for a little slice
of land which has been won and kept by a long chain of wars.
The roof over our heads is different, it is the product of capital
formation. Someone saved from income, and paid workers to construct
the building. Its present value is that less the obvious depreciation
and obsolescence, so it is rentable today mainly for its appreciated
site, to which therefore an economist or an appraiser must impute most
of the market value here.
But the site never was nor could be the product of capital formation.
It pre-existed man, who could only acquire it by taking. It is fair to
say that throughout most of history that is what warfare was about,
seizing and holding and policing land.
This is not to deny ancillary causes and issues of war, such as
disputing the pathway to Heaven, ethnic pride, paranoia, acquisitive
genes, and a leader's need to divert people from domestic problems.
Economists should certainly make it their business to address the
last, a major source of global conflict.
Neither is this to deny that territorial expansion is often
self-defeating, economically. Many empires, probably most, cost more
than they return, a discovery that accounts for the well-being of
small nations like Sweden, Austria, Denmark, and The Netherlands,
which gained by abandoning destiny and empire. But we would miss the
point to bury particulars in aggregates. -By disaggregating benefits
and costs we gain the key to understanding. The whole nation loses,
but certain parties gain, and it is they who promote and sustain
aggressive behavior.
Economists conventionally bury this point when they submit that "national
defense is a public good".
a) "Defense" is a loaded word which rationalizes as it
describes. "Military spending" is more neutral, and will be
used here. It is worth remembering that the German Schutz (as in
Schutz-Staffel or SS) and Wehr (as in Wehrmacht) both translate as "defense".
Lebensraum is a more forthright term, and explains much more about
Nazi aggressions.
b) "Public good" says that all gain equally. But that is
not true even of pure defense proper. What is defended behind the
defense wall is land previously seized. The Lords and Barons have much
at stake; the serfs and vagrants very little. Rent is what is being
defended, along with, no doubt, traditional feelings of machismo and
some local folkways and mores.
Wages, as well as the return for capital formation, ultimately need
little defense because they are economically functional. They are paid
for real service and sacrifices, and will command a return in almost
any viable system. Labor is also more migratory. "Fixed"
capital also migrates economically as capital recovery funds are
reinvested elsewhere. Land, in contrast, does not migrate among
nations. Nations are defined as areas of land.
But it is outside the defense wall of the nation proper that
rent-seeking is most dynamic and destabilizing. Military force (often
in tandem with finance) is used to project sovereignty into foreign
nations, and over no-man's-lands like the oceans, polar regions, radio
spectrum, and outer space.
Offshore rent-seekers are of two general kinds.
1. "Caciques." Cacique is a generic term for local
cooperating rulers from the native population. It is more neutral than
Quisling, and most caciques are more independent than he was. Imperial
metropolitan powers normally work through caciques. Turnover among
individual caciques is sometimes high, but they are drawn from the
matrix of the local landholding oligarchy which is quite stable, often
thanks to our support.
We relieve the caciques of collecting and/or paying taxes for their
own military, which often double as domestic police as well. The life
of some caciques is risky, but the rewards to caciques and local
landholders are often very high. The Sultan of Brunei is the richest
man in the world; the extravagance of Ferdinand and Imelda Marcos is
legendary.
Unit land values in Tokyo exceed those in New York and Chicago by a
factor of about 10. One reason (of several) for the difference is that
New York and Chicago pay taxes to defend Tokyo, plus what the Japanese
once called the Greater East Asia Co-Prosperity Sphere. Roosevelt in
1941 stopped Japan at Viet Nam, precipitating Pearl Harbor. But
Eisenhower said in 1959 we must defend Viet Nam to protect the
Japanese resource base.
2. Rent-seekers of the second kind are U.S. or allied multinational
interests, mostly corporations. The cacique is expected to assign to
them, or be complaisant in their taking concessions and resources like
minerals, transportation routes, communications, bank charters,
plantations, etc.
Natives normally control more of the traditional resources like
farmland. Foreigners specialize more in less visible, more novel and
sophisticated resources like undiscovered minerals (exploration
rights), navigation rights, radio spectrum, overflights, bank
charters, etc.
Both these groups have the acutest incentive to influence U.S.
policies, and large discretionary funds at hand. Therefore they tend
to dominate U.S. statecraft. The U.S. government is probably more
vulnerable to such foreign influence than most, because of our size
and weakly developed sense of honorable dedication to the national
interest. The English once terminated a dynasty, the Stuarts, which
was caught taking support from France; but Americans hardly notice
when retired Congressmen take work lobbying for foreign sugar
producers etc.
Self-evidently, rivalry to appropriate limited rent-yielding
resources must lead to conflict. It has to, because land is not
produced, nor stored up like capital by saving. Modern economics
glosses over this by stressing that land, like other resources, is
allocated by the market. That may be, but distribution is something
else. Every land title in the world goes back to a taking by force.
It will be objected that one can buy in peacefully once a tenure is
firmly established, with alienable titles. There is certainly no
intent to deny this. The problem is that a successor-in-interest
stands on no firmer footing than the original. There is no laundering:
every landholder can consult his chain of title and see how it
originated. Indeed, it has been said that those who buy stolen
property are the chief cause of crime. Fencing itself is a crime.
However one may side on that question, it helps account for the
extreme alarm with which U.S. statecraft startles at any foreign
country, however weak and innocuous, which expropriates any such
successor-in-interest. Chavez in Venezuela is a current case study,
but half of Latin America consists of former such cases. Demonstration
effects are contagious and threatening. The defensiveness of the
guilty and insecure is a major cause of global conflict.
More destabilizing yet is the ambitious rent-seeker offshore, who
finds his biggest gains in the riskiest ways, ways that unfortunately
impose high risks on the U.S. The biggest gains to rent-seekers come
from buying in on the ground floor, cheap, when tenures are precarious
or uncertain.
Then one invokes the U.S. armed forces and the sanctions of ancillary
statecraft to raise the value of one's acquisition. The three main
concerns are to firm up precarious tenures (as by supporting the
government that granted them); to hold down taxes (as by lending the
U.S. armed forces); and to avoid pure competition (as by giving
preferential access to the U.S. market, or Pentagon procurers).
There have been spectacular success stories. Aramco is one. It
originated in 1933 with a capital of $100,000. By 1970 it was valued
at well over $5 billions. Of course that increase might represent
accumulated capital flows from the U.S. owners; but such was not the
fact.
There are four sources of value of foreign holdings: capital flows,
plowbacks, appropriations, and appreciation. In many cases like Aramco
the last two far outweigh the first. But they are products of
statecraft and force, not of capital inputs proper.
Tenure granted by unstable governments is not worth much, and is
therefore cheap to acquire. In 1960, for example, Patrice Lumumba
pledged a substantial share of the Congo in return for a relatively
modest loan from a Wall Street financier.
Of course there are also failures and losses, and someone might even
try to show that aggregate losses exceed aggregate gains. But Adam
Smith observed long ago that when an occupation offers a small number
of extremely high rewards, its attractiveness is enhanced out of all
proportion to their aggregate value. It is not just the successes, but
all the attempts that provoke global conflict.
We are trained and conditioned to think of land tenure as something
stable and inherited, with secure roots in history. In fact, that
which was inherited can never be taken as given unless the origins
bear examination. Past appropriation invites future expropriation. One
result of that is a legal system even in "capitalist"
America which tolerates rather extreme invasions of land value through
zoning, rent control, taxation, and field price controls, without
there being a legal "taking" such as might be prohibited by
the 5th and 14th Amendments.
But in addition, tenure is constantly being created at 1 interfaces
among sovereignties. Each is a potential flashpoint. Title to land is
also contested within many sovereignties, like Mexico 1910-40, and
Cuba 1962. Recent examples are a nearby in Guatemala, El Salvador and
Nicaragua. Every such internal contest makes an international incident
or crisis.
Tenure is created at the margins of settlement and exploration, as on
the OCS; the margins of political stability; and the margins of
research and technology. In addition, tenure is constantly being
tightened and refined at higher levels of intensity and demand for the
services of scarce land. In recent decades the unprecedented voracious
resource demands of the United States have been a major dynamic.
The views above have been characterized by some "Marxist",
because of the explicit recognition of special class interests. If
this be Marxism make the most of it; the point if any is only ad
hominem. But the views here differ from Marx's. For one, Marx was an
underconsumptionist who attributed imperialism to a search for
overseas markets, not rent-seeking. For another, Marx made no sharp
consistent distinction between land and capital.
The present views point toward specific policy changes. To minimize
global conflict, a nation should use its tax system recoup rents from
beneficiaries of its statecraft. This would deflate the rent-seeking
incentive to provocative behavior, as well as the discretionary funds
used to gain political support. There is little gain to the nation as
a whole, and high cost, in creating rents for a few individuals or
corporations. A surtax on income from foreign sources, for example,
rather than the present preferential treatment, is indicated.
An analogous movement is already underway in municipal affairs.
Robert Freilich, a lawyer sometimes called the "father of growth
control", has worked out systems of urban growth whereby newly
annexed lands must pay the full costs their own development, instead
of leeching on central cities as has been the custom. This has, where
applied, drastically cooled down the passion for leapfrog annexations.
I trust the analogy between municipal and national imperialism is
evident.
To strengthen the nation and move toward justifying labeling defense
a "public good", a wider sharing of rents is indicated. This
is a simple matter of readjusting tax systems. Many oil-rich
jurisdictions already provide models, albeit modest in degree (like
Alaska's social dividend from oil royalties). Canada has a
partially-developed system of inter-provincial equalization of
resource revenues. The result there, as one might expect, has been to
heighten the sense of national unity. Geographical Canada makes a
ridiculous, uneconomical nation; but inter-provincial equalization
payments, faulty as they are, serve to nurture patriotism in the
constructive sense, increasing the number of citizens honorably
devoted to the nation as such.
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