Monday, August 06, 2007

Rent-seeking

James Surowiecki writes on "rent-seeking" in the US student loan business in this week's New Yorker:
[Student loans] ...isn’t a free market in any meaningful sense of the term, because the government effectively determines prices, insures against losses, and subsidizes volume. In this environment, most of the competition among private companies is really just squabbling over how to split up the spoils. Economists call this behavior—when a company seeks to manipulate economic conditions rather than actually create value—“rent-seeking.” It’s common in areas where the fetish for privatization has taken hold, such as the outsourcing of homeland security to private contractors and the boom in private Medicare insurers. (The private insurers are less efficient than Medicare and receive billions in subsidies from the government.) Outsourcing tasks to private companies is supposed to let government reap the benefits of the free market. But sometimes it just ends up uniting the worst of government and the worst of the private sector into one expensive mess.

If you're in the UK, does any of this sound familiar? Isn't rent-seeking exactly what's been going on in many of the botched attempts at privatisation, from the railways to Heathrow?

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