Recent stories in this newspaper describing the financial ties involving Gov. Tim Pawlenty, State Auditor Pat Awada and Metropolitan Airport Commissioner Victoria Grunseth with a telecom firm accused of fraudulent practices in several states illustrate the subtleties of a phenomenon economists call “rent seeking.”
In particular, it shows how securing favorable influence with elected officials need not involve overt corruption or illegal acts.
In economics, the term “rent seeking” describes efforts to gain wealth by obtaining favorable actions from government rather than by producing goods or services. Two economists, Gordon Tullock and Nobel laureate James Buchanan, led the way in exploring how such manipulation of government for private gain occurs and how it affects society. Since their initial examination of the topic three decades ago, other economists and political scientists have extended their analysis in many directions.
The broad conclusion is that rent seeking is common, it harms society in terms of both equity and efficiency and controlling it is not easy.
The problem is that rent seeking covers a broad spectrum of activities ranging from open, legitimate requests of elected officials to overt bribery. If society wants to limit the manipulation of government for private gain, deciding how and where to draw the line is not easy.
Rent seeking is not a new phenomenon. It goes back to ancient societies and long was dominated by bribery and other blatant corruption. Consider the expansion of railroads after the Civil War. Organizers of the Union Pacific railroad, for example, paid dozens of congressmen to secure legislation that favored the UP or harmed its rivals.
More recently, President Lyndon Johnson helped financial supporters navigate regulatory hurdles and built a multi-million dollar business at his own initiative, not because rent-seeking business people sought him out.
Open bribery as practiced in the 1870s is now rare in U.S. politics. Manipulation of the regulatory system by elected officials as practiced by Johnson is less common than it was 60 years ago. Yet many contemporary firms still go to great lengths to secure access to or association with prominent politicians.
Some analysts view such actions as a sort of political insurance policy. Firms name prominent elected officials to their boards of directors or retain them as consultants simply to have friends with influence. This is particularly true for firms in regulated industries such as telecommunications. Business owners know that any state or federal regulators will act with more caution if a prominent politician is associated with their firm.
They also expect that they will have easier access to legislators or members of Congress if a current or former member of that legislative body is a director of or works for their firm. Their object may not be a specific legislative action but a larger voice in the political process than they would have had otherwise.
Gov. Pawlenty was on a $4,500 per month retainer from a small telecommunications company while he was a leader in the Legislature and candidate for governor. Does this constitute corruption? Perhaps not; he is an attorney and attorneys do some work on retainer rather than on an hourly basis. A more relevant question is whether he would have been hired by the firm in question had he not been an up and coming political star. If the answer is no, then the firm clearly was trying to buy access.
Market economies only work well in societies ruled by law rather than political influence. The predominance of influence over law is the principal reason why Latin American economies do so poorly. When rent-seeking companies succeed in buying access and influence, it hurts market efficiency and makes a society poorer.
However, as the 30-year series of battles over campaign finance “reform” shows, reducing the influence of money in politics is not easy. This is particularly true at the state level where we still want service in the Legislature to be a part-time job. At the federal level, Congress can adopt ethics rules that limit “retainers” and other payments from businesses to its members. But it is difficult to tell part-time Minnesota legislators that they cannot practice law or engage in other business activities.
In our situation, disclosure of income and business relationships is an easier and more enforceable response than outright bans. If Tim Pawlenty did, in fact, accept $60,000 in legal fees and did report it as investment income, it was a dishonest act and should be punished.
Disclosure requirements work when they are backed up by an alert media. A free press remains the most important bulwark against inordinate political influence by wealthy entities.
Regardless of whether any specific act or relationship is illegal or not, informed voters will pass judgment on the ethics of people who hold or seek office.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.