John Kay warns us of the negative effects of one class having economic privilege over others.

This article is a timely reminder that economic privilege, be it from bankers who can lawfully run their businesses whist making no provision for their current creditors to a trade union that gouges the company its members work for, to the clique of financiers who support the government in their transactions, it is always bad for the economy and thus for all of us; Powerful interests are trying to control the market:

You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.

Rent-seeking takes many forms. On Europe’s oldest highway, the Rhine river, the castles on rocky outcrops date from the time when bandits with aristocratic titles extracted tolls from passing traffic. In poor countries the focus of political and business life is often rent-seeking rather than wealth creation. That helps explain why some countries are rich and others poor.

Rent-seeking drives the paradoxical resource curse. Oil or mineral wealth mostly reduces the population’s standard of living because it diverts effort and talent from wealth creation to rent-seeking. Sadly, foreign aid often has a similar effect.

Rent-seeking can be effected through rake-offs on government contracts, or the appropriation of state assets by oligarchs and the relatives of politicians.

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