Functioning of market economy and rent-seeking: Why it is necessary to diminish the role of government in economic affairs?
Authors: Jankovic Ivan 
Published: October 2010

At the beginning, the author points out that rent-seeking economy is a distinctive phenomenon for majority of the contemporary market economies. It is reflected in the aspirations of the well organised interest groups to capture public choice and politicians as a tool to gain non-market benefits for themselves, or to take activities to gain income by non-market redistributions instead to do it on the market. According to the author examples of rent-seeking economy are antitrust, arbitrary export-import restrictions, subsidies for various sectors of economy, unions' practices of closed shop or collective bargaining. The author notes that there are legitimate public goods and services (such as military and police services or infrastructure) and therefore legitimate taxing and spending for providing of such public necessities. In his opinion, however, rent-seeking economy results from the growing government intervention in economy based upon widening of its role and responsibility to handle a wide spectrum of illegitimate ??social?? issues, rather than rest upon better providing of classical government services. Rent-seeking economy is a result of abandoning the strict market economy with no or little income gained by the extra market redistribution. The social environment where it is permissible and desirable to remove as great as possible economic activities from the free, non-regulated markets to the public sector or to the sector of the highly regulated economy which is cartelised by coercion, leads entrepreneurs to change their orientation. They do not perceive the regular competition as the best way to make success, but by lobbying with the political bodies. The basic rule of rent-seeking is that when there is a chance to gain rent, there will be someone who will try to get it. Therefore, in the author's opinion the government and the public inclining towards state interventionism are the main to blame for the rise of rent-seeking. This is because they make chances to gain rents since the general social and political environment enables it, as well as because there is an insufficiency of detailed legislative and constitutional restrictions on the role of the government in economy. Therefore, the basic condition for elimination or at least reduction of the scope of rent-seeking economy, in the opinion of the author, is to drastically diminish the role of the government in economic affairs. In that way the economy would be strictly separated form the politics, and entrepreneurs would be sent a signal that the reallocation of resources from productive to lobbying activities for gaining privileges is not an appropriate way to gain income. Within this context, the author points to consideration of the achievements of the James Buchanan's public choice theory that deals with the defects of political decision-making. He also points to the fact that the essence of the liberal constitutional reform that could diminish the scope of rent-seeking could be best perceived in the words stated by Friedrich Hayek the Nobel prize winner, saying that the government should be prohibited to employ ??coercive discriminatory acts??. This means that the government should not employ its monopoly of physical force to award economic privileges to anyone, but it should adopt laws of general use to be applied to the unknown number of cases in the future, concludes the author.