Privilege-Seeking? Peter Brimelow`s Interview With Gordon Tullock

(First appeared in
Forbes,
Sept 22, 1997)

[Peter
Brimelow

writes:

We just found my article on
the economist Gordon Tullock, published in the dead-tree
version of
Forbes
Magazine in the
pre-internet Dark Ages. Tullock has a remarkably fertile
mind, very like (in this respect at least)


Milton Friedman

and I hoped to begin a series of annual interviews with
him, as I already had with Friedman. But both projects
were victims of the retirement of the great Forbes
editor


Jim Michaels
: his successor, Bill Baldwin, said (or more
probably echoed the advertising salesmens` knee-jerk
opinion) that we had to find younger economists.


Tullock`s concept of
rent-seeking is more than ever relevant in the age of
Obama—as is his view, as a trained Sinologist, that
China, now even more lauded as the engine of the global
economy,  might
well return to despotism, or even break up completely
.]

WHAT DO THESE PICTURES have in
common?

"Lobbying has become Washington, D.C.`s largest private employer….
There are 125 people working to influence government
policy for every member of Congress, up from 31
lobbyists per congressman in 1964."

From

"Washington`s
Lobbying Industry: A Case for Tax Reform,"
a memorandum prepared by
the office of House majority leader (and Ph.D.
economist) Dick Armey (R-Tex.)

"In 1989 we had essentially no compliance function. Then we hired our
first compliance officer. He hired a staff of half a
dozen. The whole focus changed from building the
business to papering the files. Of course, when there
was a [Securities & Exchange Commission] audit, he was a
local hero. But it was of no benefit to the clients. We
never had any intent to deceive them. And if we had, we
could still have done it. He [the compliance manager]
became a partner. I left."

Disgruntled Wall Street money manager

"I signed the Family Leave Act; it was my very first bill. And I`m proud
of it because it symbolizes what I think we ought to be
doing…. [It] has let 12 million families take a little
time off for the birth of a child or a family illness
without losing their job. …I never go anywhere, it
seems like, where I don`t meet somebody who`s benefited
from the Family Leave Law. In Longview, Tex. the other
day I met a woman who was almost in tears because she
had been able to keep her job while spending time with
her husband, who had cancer."

Bill Clinton, in
second presidential debate
,
Oct. 16, 1996

Answer: They all involve what
economists call
"rent-seeking"
—the use of political or institutional
power to extract
"rent" (essentially, unavoidable payments) from the rest of the
economy.

("Rent-seeking—it`s
a terrible name,"
says economist

David Henderson
of the

Naval Postgraduate School
in Monterey, Calif.

Henderson
speculates that the name`s repellent
clunkiness may have delayed general recognition that
rent-seeking, parasitic and pervasive, is a fundamental
economic reality in the modern world. His suggestion:
"privilege-seeking." Hey, these are economists, not poets.)

Whatever its name, this is how
rent-seeking works:

  • The Washington lobbyists
    are public-sector rent-seekers. They are being paid to
    extract rents by influencing legislation on behalf of
    their corporate clients.

And they succeed. One example from
Congressman Armey`s collection: Sugar import quotas
raise the price American consumers pay for sweeteners by
about $1.4 billion annually. This benefits a remarkably
small number of sugar producers and processors. One
family alone, the Fanjuls of Osceola Farms, Fla., earns
an estimated $65 million annually in artificial profits
because its lobbyists have persuaded Congress to make it
possible for the family to sell sugar at more than its
natural market price.

  • The empire-building Wall
    Street compliance bureaucrat is a private-sector
    rent-seeker. He is diverting profits earned by the
    firm`s productive activities to himself and his empire.

Note, though, that he is able to do
so because of a sort of tacit alliance with the
public-sector regulators. They make his job necessary.

  • The First Rent-Seeker was
    congratulating himself on a newly popular subcategory of
    rent-seeking: so-called mandated benefits. The
    government uses political power to extract rents from
    the general public. Then it directs them to favored
    constituencies. The numbers can be very large: The
    Society for Human Resource Management estimated in 1989
    that the Family Leave Act—no matter how nice a
    thought—would still cost nearly $440 million a year.

The government is still in effect
buying votes with other people`s money. But
rent-seeking—in this case rent-giving—tactfully avoids
the need to raise the money first through taxation,
which often causes such distress. Employers and,
ultimately, all consumers pay. A (relatively small)
class of employees benefit. Plus, of course, the
politicians. They can crow about how "caring" they
are.

Rent-seeking matters—a lot. Its
cost to society is not just the rents transferred but
also
"rent-avoidance"
—resources expended in trying to
repel efforts to extract rents, for example, by hiring
your own lobbyists. As

Gretchen Morgenson
showed in our last issue (Sept.
8), any business that neglects to hire a lobbyist is
likely to become a victim of other rent-seekers who do
have lobbyists.

Surprisingly, however, the
realization that rent-seeking exists dawned on
economists only quite recently. Too bad, because it`s a
valuable concept that helps us understand what the
politicians are doing to us when they say they feel our
pain and offer to assuage it.

The father of the rent-seeking
concept is
Gordon Tullock,
a quizzical, quirky, somewhat owlish
75-year-old professor of economics and political science
at the University of Arizona in Tucson. Tullock was long
associated with

Nobel economics laureate
James M. Buchanan, now at
Virginia`s George
Mason University,
in the development of what is now
called "Public
Choice Theory,"
the application of economic analysis
to political and governmental action.

Many observers were surprised that
Tullock was not included in the Nobel Prize Buchanan
received in 1986. The omission was particularly striking
since Buchanan and Tullock had actually coauthored the
classic public choice text,
The Calculus of
Consent
(1962). Speculation continues that Tullock
will eventually win a separate Nobel Prize for his work
on rent-seeking. In January 1998 he will be made a

Distinguished Fellow of the American Economics
Association
. ("A plaque—no money," he says.)

Tullock was not trained as an
economist—and beneficially, he argues with
characteristic wryness. This, he argues, is an advantage
in understanding economics. (He compares the economics
profession`s current preference for abstract mathematics
to the drift from science to theology in classical
Alexandria—and suggests that its function is merely to
avoid political conflicts with noneconomists in the
faculty lounge.) In 1947, after three years` wartime
service as an infantryman, Tullock took a J.D. degree in
a University of Chicago Law School accelerated program.
He has no bachelor`s degree because, in a decision
possibly reflecting his Scottish heritage, he declined
to pay the required $5 fee.

Tullock then joined the State
Department and was posted to the Chinese city of
Tianjin.
He observed the city`s fall to the Communists in 1949
and began his study of monetary cycles amid the
disastrous inflation accompanying the Chinese
Nationalist collapse. Thereafter, he was seconded to
Yale and Cornell for three academic years to study
Chinese. He notes gleefully that by reading Austrian
economist Ludwig von Mises`

Human Action

in his spare time during this period, he found himself
in key respects better prepared technically than an
economics Ph.D. contemporary.

It is universally agreed that
Tullock does not have a diplomat`s temperament. He
eventually resigned from the State Department. In 1959,
while a post-doctoral fellow at the University of
Virginia`s economics department, he began working with
Buchanan on what became
The Calculus of Consent.

In 1987 Tullock moved to his
present post in Arizona. A lifelong bachelor, he spends
holidays with his sister`s family in Iowa. In an unusual
departure for an academic economist, he is a major
stockholder ("best
investment I ever made"
) and longtime director of
the family`s Dodger Co., a
small
Iowa-based firm that makes sports clothing
, and its
Whink, Inc., which
makes industrial cleaners. He says this experience
contributed greatly to his education in economics.

Tullock`s stint in China was
crucial to his rent-seeking insight:

"See, you go into these cultures where people have produced just immense
cultural achievements but are living in bitter poverty,
and you discover very quickly they have a dominant
government and the government is corrupt.
Conventionally, economists have argued that a corrupt
government doesn`t really cost anything because the man
who receives the bribe gains what the man who pays the
bribe loses. Well, you can`t really believe that if
you`re in China."

Similarly, Tullock points out,
China provided the evidence for a key early effort by

Anne Krueger
—now an economics professor at Stanford
University—to quantify his insight. (Krueger must also
take the blame for coining the term
"rent-seeking.")
Krueger had estimated that the cost to Turkey and India
of the bribes necessary to get around their various
regulations amounted to 7% to 15% of GNP. This cost was
not simply the expense of the bribe, but also the
resources wasted by individuals in acquiring otherwise
useless credentials and intriguing for appointments in
the appropriate government bureaucracy.

Every major economics journal
rejected "The Welfare Costs of Tariffs, Monopolies and Theft," Tullock`s
original article on rent-seeking. It was finally
published three years later, in 1967, in the

Western Economic Journal
, then new and little-read.

As an intellectual pioneer, Tullock
is a connoisseur of such rejections. (He began his 1980
presidential address to the Southern Economics
Association by celebrating the fact that the
association`s journal would be compelled to publish it,
after years of rejecting his submissions.) He savors the
irony that because a standard textbook quickly picked up
his rent-seeking concept,
"there was a
period when a lot of brand-new elementary [
economics]
students knew about it and no one else did."

Tullock`s serene but somber
conclusions on the inefficient nature of the
intellectual market:
"The safe article
for the young academic is one that makes a short, sound
step forward in a well-established direction."

Sounds like good advice.

But it`s advice that Tullock
himself—author of 15 books (the sixteenth,
On Voting: An Introduction to Public Choice
, due
January 1998) and over 150 papers, on subjects ranging
from game theory to

"The Coal Tit As
Careful Shopper,"
part of his little-known, but
highly respected, contribution to biological theory—has
somehow never quite gotten around to taking.

RELATED ARTICLE:
WHITHER CHINA?

Why did China, long the world`s
most advanced civilization, stagnate?

Gordon Tullock`s answers are
typically offbeat.
"You hear about
these dynasties in China that last three or four
centuries,"
he says.
"But the
overwhelming majority lasted only around 50 years. The
prospect is that that will turn out to be the case
here."

Tullock gives equal odds to three
scenarios for China.
"Economic growth
and liberalization may continue—that`s not impossible,"

he says. "But it is quite out of the Chinese tradition. Mencius [Confucius`
principal disciple, 3rd century B.C.] said the
government should own the principal industries and
closely control the rest. Even now, the big companies
are still government run. It [the government] apparently
doesn`t dare get rid of them."

Tullock`s second alternative:
"It`s also possible that the government itself may abandon the move to
free enterprise,"
he says.
"China may come under the control of a set of old-fashioned Communists
who clamp down the roof and stagnate."
China has
regressed like this before, Tullock notes: The Ming
Dynasty (1368-1644) turned away from commerce and paper
money.

Tullock`s third and most startling
scenario: China might simply break up.
"The area has had
a more or less homogenous culture for about 2,000 years
and a strong central government during maybe 1,500 of
them,"
he says.
"But it has broken up from time to time. The most recent case was in
1911. From 1911 to 1949 there was never any real central
government in China."
(See maps.)

Historic China, homeland of the Han
Chinese, is only about half the area of the current
People`s Republic, Tullock points out. Outlying areas
like Manchuria, Inner Mongolia, Xinjiang and Tibet were
added by imperial conquest. Their ethnic minority
populations have a long history of periodic revolt. Even
Taiwan, now the base of the Nationalist Republic of
China, was seized by the Chinese only in 1662, decades
after the Pilgrims arrived in Massachusetts.

But Tullock also notes—in an
observation confirmed by modern genetic research—that
"the southern
Chinese and the northern Chinese are quite different.
You can tell them apart. The southern Chinese are
shorter. There`s a substantial Turkic element [from
repeated barbarian invasions] in northern China."

Which could matter—at a time when
the level of economic development in China`s southern
coastal provinces is rapidly diverging from that of the
interior.

Most American China-watchers don`t
see a breakup on their radar screen. But Tullock is used
to being in a minority.

"When I got to
China [in 1948],"
he says,
"there were only
two officials in the U.S. consulate who were not
pro-Communist, myself and the commercial attaché.
Everyone—not just State Department officials, but
missionaries, businessmen—was so antagonistic to the
Nationalists that they more or less thought anyone would
be better."
This expatriate antagonism, he believes,
stemmed from a fundamental naiveté about Asia`s
different, sometimes distressing, moral code.

Tullock argues that the U.S. arms
embargo imposed on the Nationalists to force them to
"negotiate"
after their great 1947 victory at Siping in Manchuria ("but the embargo was maintained even when it turned out that the
Communists were the ones who wouldn`t negotiate"
)
ultimately ensured the Communist victory. Oddly, much
the same happened

in Vietnam n
early three decades later.

"I was inclined
to think we could have supported [Nationalist leader]
Chiang Kai-shek. And what happened in China was so very
bad that it`s hard to argue it wouldn`t have been
better,"
Tullock says. He cites estimates that 35
million Chinese were exterminated in 1950-56 by the
Communists after their victory.
"And that`s not
counting the only nationwide famine China has ever had
[caused by Mao`s Great Leap Forward campaign], which the
Chinese themselves say cost 15 million to 20 million
lives. Because that was an accident."

Why did China stagnate? Tullock`s
short answer:
"The overwhelming civil service dominated the whole
place."
These
"mandarins"
—from the Portuguese word for
"those who order"—can
be traced back to early China, but were recruited by
competitive examination in a remarkably modern fashion.
The mandarin system was perfected and reached the peak
of its power in the last imperial dynasties of Ming and
Qing (1644-1911).

Characteristically differing with
most sinologists, Tullock thinks the mandarins
"were not all
bad—like rule by college professors. Of course, they
were no good at war, so they kept getting conquered by
barbarians."
But eventually, Tullock says, the
mandarins became a classic rent-seeking elite.

"The perception
that China was stagnant is a 19th- and early
20th-century point of view,"
Tullock points out.
Previously, he says, China was seen to be the world`s
most advanced civilization. Recent research shows a
continuous history of technological development. True,
the great expeditions of Admiral Zheng He to Arabia and
Africa (in 1405-33) were deliberately never followed up.
However Tullock argues that Norwegian restrictions on
Icelandic shipbuilding, imposed to maintain political
control, similarly prevented exploitation of the Viking
discoveries in North America.

"But I question
whether the mandarins would have allowed an industrial
revolution,"
Tullock adds.
"That`s the real
question: not why did China stagnate, but why did Europe
move ahead?"
He speculates that lack of central
control in Europe prevented rent-seeking elites from
suppressing innovation. If it was repressed in one small
European state, it simply sprang up in another.

If China regresses, it may have
company. Tullock emphatically does not share the view
that Western-style liberal, democratic capitalism has
triumphed for good.

"If you went back to the Mediterranean basin in 200 B.C.," he says,
"you`d have found
it surrounded by city-states which depended on
voting…the Roman republic, Carthage, the Greek
city-states. Two hundred years later, they were all
gone. Rome had become an empire, and they`d all been
absorbed. And if you`d gone back to Europe in 1400,
you`d have found free cities that were self-governing,
and more or less democratic, and the various monarchies
had parliaments…. England was not by any means the
only one. By the 18th century they were almost all
absolute monarchies."

We`ve become accustomed to thinking
that the past decade has witnessed the final triumph of
democratic capitalism—the
"end of history." Tullock is not so sure. With one eye perhaps on
Washington, D.C.`s increasing tendency to regulate our
lives and personal behavior, the scholar suggests a
rent-seeking mandarinate could triumph. It could even
happen here.


Peter Brimelow
(email him) is editor of


VDARE.COM
and author of the much-denounced
 Alien Nation: Common Sense About America`s Immigration Disaster,

(Random House –
1995) and


The Worm in the Apple
(HarperCollins – 2003)