Rent-Seeking and Global Conflict
GroundSwell, March-April 2006]
(The following is a summary for the U.C. seminar on
Global Conflict and Cooperation, held at Laguna Beach, California)
National governments originate historically to acquire, hold and
police land. Other functions are assumed later, but sovereignty over
land is always the first business. Private parties hold land from
the sovereign: every chain of title goes back to a grantor who
originally seized the land.
When economists today speak of "rent-seeking" they
usually are thinking not of basic land rent, but in subtle and
sophisticated terms, looking at dribs and drabs of transfer rent
derived from contracting advantages. They develop abstract models
for gaming optimally with imperfect information, and so on. By
emphasizing the arcane while ignoring the basic they are in danger
of matching the proverbial expert who fine-tunes all the details and
elaborations as he forges on to the grand disaster.
Indeed, we have had one such disaster. Viet Nam was viewed by many
as an economists' war, rationally planned and led by the best and
the brightest systems' analysts, exemplified by the brilliant,
energetic Secretary of Defense Robert McNamara, advised by Professor
Thomas Schelling. In the new corporate tradition of rewarding
failure, McNamara went on to head the World Bank; Schelling went on
to profess at Harvard, and finally win the Nobel Prize for economics
in 2005. One should not be surprised at the post-Viet Nam decline of
interest in applying modern economic theory to questions of global
We would be more useful to statesmen if we looked first at
rent-seeking in the grosser sense of "land-grabbing",
where the whole bundle is at stake. When William of Normandy
conquered England the prize was land rent, all of it. He and his
retainers dispossessed the local rent-collectors. It was simple,
gross, and basic, and much more consequential than the trivial
rent-seeking we model today. The bulk of the natives may have been
affected only marginally: they just paid Lord B instead of Lord A.
But it made all the difference to Lords B and A, the ones who made
basic decisions about global conflict and cooperation.
Again, from the 17th century Europeans invaded North America,
dispossessed the natives and each other, until today we meet here,
overlooking beach and ocean, paying our daily rent for a little
slice of land which has been won and kept by a long chain of wars.
The roof over our heads is different, it is the product of capital
formation. Someone saved from income, and paid workers to construct
the building. Its present value is that less the obvious
depreciation and obsolescence, so it is rentable today mainly for
its appreciated site, to which therefore an economist or an
appraiser must impute most of the market value here.
But the site never was nor could be the product of capital
formation. It pre-existed man, who could only acquire it by taking.
It is fair to say that throughout most of history that is what
warfare was about, seizing and holding and policing land.
This is not to deny ancillary causes and issues of war, such as
disputing the pathway to Heaven, ethnic pride, paranoia, acquisitive
genes, and a leader's need to divert people from domestic problems.
Economists should certainly make it their business to address the
last, a major source of global conflict.
Neither is this to deny that territorial expansion is often
self-defeating, economically. Many empires, probably most, cost more
than they return, a discovery that accounts for the well-being of
small nations like Sweden, Austria, Denmark, and The Netherlands,
which gained by abandoning destiny and empire. But we would miss the
point to bury particulars in aggregates. By disaggregating benefits
and costs we gain the key to understanding. The whole nation loses,
but certain parties gain, and it is they who promote and sustain
Economists conventionally bury this point when they submit that "national
defense is a public good".
a) "Defense" is a loaded word which rationalizes as it
describes. "Military spending" is more neutral, and will
be used here. It is worth remembering that the German Schutz (as in
Schutz-Staffel or SS) and Wehr (as in Wehrmacht) both translate as "defense".
Lebensraum is a more forthright term, and explains much more about
b) "Public good" says that all gain equally. But that is
not true even of pure defense proper. What is defended behind the
defense wall is land previously seized. The Lords and Barons have
much at stake; the serfs and vagrants very little. Rent is what is
being defended, along with, no doubt, traditional feelings of
machismo and some local folkways and mores.
Wages, as well as the return for capital formation, ultimately
need little defense because they are economically functional. They
are paid for real service and sacrifices, and will command a return
in almost any viable system. Labor is also more migratory. "Fixed"
capital also migrates economically as capital recovery funds are
reinvested elsewhere. Land, in contrast, does not migrate among
nations. Nations are defined as areas of land.
But it is outside the defense wall of the nation proper that
rent-seeking is most dynamic and destabilizing. Military force
(often in tandem with finance) is used to project sovereignty into
foreign nations, and over no-man's-lands like the oceans, polar
regions, radio spectrum, and outer space.
Offshore rent-seekers are of two general kinds.
1. "Caciques." Cacique is a generic term for local
cooperating rulers from the native population. It is more neutral
than Quisling, and most caciques are more independent than he was.
Imperial metropolitan powers normally work through caciques.
Turnover among individual caciques is sometimes high, but they are
drawn from the matrix of the local landholding oligarchy which is
quite stable, often thanks to our support.
We relieve the caciques of collecting and/or paying taxes for
their own military, which often double as domestic police as well.
The life of some caciques is risky, but the rewards to caciques and
local landholders are often very high. The Sultan of Brunei is the
richest man in the world; the extravagance of Ferdinand and Imelda
Marcos is legendary.
Unit land values in Tokyo exceed those in New York and Chicago by
a factor of about 10. One reason (of several) for the difference is
that New York and Chicago pay taxes to defend Tokyo, plus what the
Japanese once called the Greater East Asia Co-Prosperity Sphere.
Roosevelt in 1941 stopped Japan at Viet Nam, precipitating Pearl
Harbor. But Eisenhower said in 1959 we must defend Viet Nam to
protect the Japanese resource base.
2. Rent-seekers of the second kind are U.S. or allied
multinational interests, mostly corporations. The cacique is
expected to assign to them, or be complaisant in their taking
concessions and resources like minerals, transportation routes,
communications, bank charters, plantations, etc.
Natives normally control more of the traditional resources like
farmland. Foreigners specialize more in less visible, more novel and
sophisticated resources like undiscovered minerals (exploration
rights), navigation rights, radio spectrum, overflights, bank
Both these groups have the acutest incentive to influence U.S.
policies, and large discretionary funds at hand. Therefore they tend
to dominate U.S. statecraft. The U.S. government is probably more
vulnerable to such foreign influence than most, because of our size
and weakly developed sense of honorable dedication to the national
interest. The English once terminated a dynasty, the Stuarts, which
was caught taking support from France; but Americans hardly notice
when retired Congressmen take work lobbying for foreign sugar
Self-evidently, rivalry to appropriate limited rent-yielding
resources must lead to conflict. It has to, because land is not
produced, nor stored up like capital by saving. Modern economics
glosses over this by stressing that land, like other resources, is
allocated by the market. That may be, but distribution is something
else. Every land title in the world goes back to a taking by force.
It will be objected that one can buy in peacefully once a tenure
is firmly established, with alienable titles. There is certainly no
intent to deny this. The problem is that a successor-in-interest
stands on no firmer footing than the original. There is no
laundering: every landholder can consult his chain of title and see
how it originated. Indeed, it has been said that those who buy
stolen property are the chief cause of crime. Fencing itself is a
However one may side on that question, it helps account for the
extreme alarm with which U.S. statecraft startles at any foreign
country, however weak and innocuous, which expropriates any such
successor-in-interest. Chavez in Venezuela is a current case study,
but half of Latin America consists of former such cases.
Demonstration effects are contagious and threatening. The
defensiveness of the guilty and insecure is a major cause of global
More destabilizing yet is the ambitious rent-seeker offshore, who
finds his biggest gains in the riskiest ways, ways that
unfortunately impose high risks on the U.S. The biggest gains to
rent-seekers come from buying in on the ground floor, cheap, when
tenures are precarious or uncertain.
Then one invokes the U.S. armed forces and the sanctions of
ancillary statecraft to raise the value of one's acquisition. The
three main concerns are to firm up precarious tenures (as by
supporting the government that granted them); to hold down taxes (as
by lending the U.S. armed forces); and to avoid pure competition (as
by giving preferential access to the U.S. market, or Pentagon
There have been spectacular success stories. Aramco is one. It
originated in 1933 with a capital of $100,000. By 1970 it was valued
at well over $5 billions. Of course that increase might represent
accumulated capital flows from the U.S. owners; but such was not the
There are four sources of value of foreign holdings: capital
flows, plowbacks, appropriations, and appreciation. In many cases
like Aramco the last two far outweigh the first. But they are
products of statecraft and force, not of capital inputs proper.
Tenure granted by unstable governments is not worth much, and is
therefore cheap to acquire. In 1960, for example, Patrice Lumumba
pledged a substantial share of the Congo in return for a relatively
modest loan from a Wall Street financier.
Of course there are also failures and losses, and someone might
even try to show that aggregate losses exceed aggregate gains. But
Adam Smith observed long ago that when an occupation offers a small
number of extremely high rewards, its attractiveness is enhanced out
of all proportion to their aggregate value. It is not just the
successes, but all the attempts that provoke global conflict.
We are trained and conditioned to think of land tenure as
something stable and inherited, with secure roots in history. In
fact, that which was inherited can never be taken as given unless
the origins bear examination. Past appropriation invites future
expropriation. One result of that is a legal system even in "capitalist"
America which tolerates rather extreme invasions of land value
through zoning, rent control, taxation, and field price controls,
without there being a legal "taking" such as might be
prohibited by the 5th and 14th Amendments.
But in addition, tenure is constantly being created at the
interfaces among sovereignties. Each is a potential flashpoint.
Title to land is also contested within many sovereignties, like
Mexico 1910-40, and Cuba 1962. Recent examples are also nearby in
Guatemala, El Salvador and Nicaragua. Every such internal contest
makes an international incident or crisis.
Tenure is created at the margins of settlement and/or exploration,
as on the OCS; the margins of political stability; and the margins
of research and technology. In addition, tenure is constantly being
tightened and refined at higher levels of intensity and demand for
the services of scarce land. In recent decades the unprecedented
voracious resource demands of the United States have been a major
The views above have been characterized by some as "Marxist",
because of the explicit recognition of special class interests. If
this be Marxism make the most of it; the point if any is only ad
hominem. But the views here differ from Marx's. For one, Marx was an
underconsumptionist who attributed imperialism to a search for
overseas markets, not rent-seeking. For another, Marx made no sharp
consistent distinction between land and capital.
The present views point toward specific policy changes. To
minimize global conflict, a nation should use its tax system to
recoup rents from beneficiaries of its statecraft. This would
deflate the rent-seeking incentive to provocative behavior, as well
as the discretionary funds used to gain political support. There is
little gain to the nation as a whole, and high cost, in creating
rents for a few individuals or corporations. A surtax on income from
foreign sources, for example, rather than the present preferential
treatment, is indicated.
An analogous movement is already underway in municipal affairs.
Robert Freilich, a lawyer sometimes called the "father of
growth control", has worked out systems of urban growth whereby
newly annexed lands must pay the full costs of their own
development, instead of leeching on central cities as has been the
custom. This has, where applied, drastically cooled down the passion
for leapfrog annexations. I trust the analogy between municipal and
national imperialism is evident.
To strengthen the nation and move toward justifying labeling
defense a "public good", a wider sharing of rents is
indicated. This is a simple matter of readjusting tax systems. Many
oil-rich jurisdictions already provide models, albeit modest in
degree (like Alaska's social dividend from oil royalties). Canada
has a partially-developed system of inter-provincial equalization of
resource revenues. The result there, as one might expect, has been
to heighten the sense of national unity. Geographically, Canada
makes a ridiculous, uneconomical nation; but inter-provincial
equalization payments, faulty as they are, serve to nurture
patriotism in the constructive sense, increasing the number of
citizens honorably devoted to the nation as such.