The monumental folly of rent-seeking

http://www.johnkay.com/2012/11/21/the-monumental-folly-of-rent-seeking

Like most visitors to northern India, I visited the Taj Mahal. Unlike most visitors, I asked economic questions. Reports of his tax policies suggest that Shah Jahan may have appropriated as much as 40 per cent of what we now call gross domestic product to support a lifestyle of exceptional ostentation and self-indulgence. He was overthrown by his son, who was exasperated by his father’s penchant for monumental building, anxious to maximise his own share of the loot and concerned by the scale of the levies on the population. But it was all too late. The Mogul empire was in irretrievable decline.

The activities of Shah Jahan epitomise rent-seeking – the accumulation of a fortune not by creating wealth through serving customers better but by the appropriation of such wealth after it has already been created by other people. Both are routes to personal enrichment and the tension between them has been a dominant theme of economic history. Whenever the balance shifts too far in favour of appropriation over creation, we see entrepreneurial talent diverted to unproductive activity, an accelerating cycle in which political power and economic power reinforce each other – until others become envious of the proceeds of appropriation, and the resentment of the oppressed undermines the legitimacy of the regime. Political and economic instability are an inevitable consequence.