How Rent Seeking Impoverishes Nations

by Jose Orellana

One of the fundamental questions in development economics is how an economy grows. As the reader may know, an economy grows by means of economic freedom, which implies property rights and the emergence of markets and exchange ratios (prices). Further, such chains of events bring about economic calculation. However, are such conditions enough for economic development? That is, does a nation need only property rights to develop?

The answer is no. So long as there is a state — government — there need to be constraints with respect to the actions of politicians. That is, there must be rules to the game, namely rules to the political process. So long as there is discretion — the ability to break rules of the game, rent seeking, which is a form of value (or wealth) destruction, will impoverish a nation.

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