Researching into Preventing Harmful Rent-Seeking Practices: Strategic Policy Interventions Required and Lessons Learnt for Asian Countries

Abstract

The author of this work argues that rent-seeking occurs in a situation wherein a company or individual seeks special privileges from another party, often the government, but does not reciprocate back. Its examples are (a) license requirements for professions; (b) creating barriers to entry for new businesses, and (c) grants, subsidies, or tariff protection. In the language of economics, rent is defined as “wealth gained via questionable, often manipulative means”.A closer look at the theoretical perspective and review of related literature is indicative of the fact that identification (and practice) of policy-induced harmful rents have been resorted to in many firms and for various purposes. More specifically, the practice of rent-seeking model has been found to be resulting in both economic ‘gains’, and ‘losses’. The bottom-line is that there is a lack of scientific research evidence and published data on how national governments and donor agencies (from across the regions of the globe) have formulated and adopted rent-seeking approaches. The author of this research essay argues that in view of these contradictions and controversies, it is important for the academic and research community to seek answers to pertinent questions on potential advantages of rent-seeking approach. The questions that need to be debated and researched into are:a) what are the approaches to identify policy-induced harmful rent-seeking practices? b) what are their respective strengths and weaknesses? c) how governments and donors have used them in different perspectives? The author, in this paper, aims to seek answer to the above prominent and key questions in the context of countries in the Asian region. In terms of research methodology, secondary data (that are largely ‘quantitative’ in nature) have been used and method of data analysis is descriptive (involving “desk-based research” approach). Data sources have been quoted in the text (including under references). The paper briefly concludes that the rent-seeking activity might be negative, but it might preserve a “growth-enhancing rent”. Even if the rent-seeking activity has a positive value, the “outcome-rent” might be negative. Governments, thus, need to be more transparent in adopting rent-seeking practices; people know how laws and regulations are produced. This renewed critical and multidisciplinary approach has important policy implications for the debates over institutional reform in rent-seeking practices for economies in Asia and the Pacific.In conclusion, the author says that the analysis of rents and rent-seeking practices has been primarily dominated by an economic point of view. This perspective places emphasis on assessing rents in accordance with their impact on “efficiency and economic growth”. As against political approach to rent-seeking (which assumes the negative impact of rents and their potential to derive from corrupt activities), monetary policy experts and economists classify rents as “growth-retarding” (or “growth-enhancing”).In terms of implications of harmful rent-seeking practices for monetary policy, the author of this work argues that the rent-seeking framework has to be extended by incorporating policy insights and strategies developed by stakeholders in the governmental sector and institutional economists if it is to explain the anomalous role played by rent-seeking in Asian countries. This mechanism includes detailed analysis of economy in the broader context in countries such as Thailand, Malaysia, the Philippines, and Indonesia (including the Indian sub-continent).