Rent Seeking, Military Participation, and Economic Performance in LDCs

Abstract

Rent seeking is an attempt to distort prices in order to achieve a contrived transfer. Where rent seeking is on the rampage, there is a serious distortion of incentives. Investing resources in distributional struggles and political conflict looks rewarding, whereas increasing or improving output looks less attractive. Moreover, price distortions interfere with an efficient allocation of resources. That is why we should expect rent seeking and resulting price distortions to be negatively correlated with economic growth. Because there is no reason to assume that the less-privileged strata are likely to win distributional struggles, rent seeking does not contribute to the equalization of the size distribution of income. Ironically, serious international rivalries and threats to national security may result in better economic performance. Foreign threats often produce large armies and high military participation ratios. Because the military teaches discipline and some other useful skills, it does contribute to human capital formation and ultimately to economic growth. As mass armies affect the balance of power between social classes for the benefit of the less-privileged ones, high military participation ratios contribute to income equalization. These propositions have been tested and supported by cross-national regression analysis of data for the 1970s and 31 LDCs.