David Cameron’s visit to Jamaica last week led to vociferous demands for the UK to pay the Caribbean island billions of pounds in reparations for slavery. Most people here reacted with predictable eye-rolls and sighs. Slavery was abolished throughout the British Empire in 1833, nearly two centuries ago. Jamaica has been independent for over 50 years, since 1962. Surely the country has had time to sort itself out and get a decent economy?
There is much to be said for these arguments. In the early 1960s, for example, South Korea was essentially a poor, agricultural society, only one step up the ladder from subsistence level incomes. Now, it has a dynamic, modern economy with living standards similar to those of the West. Countries such as Singapore have followed equally impressive trajectories.
The demands for payment are a classic example of what economists call “rent seeking” activity. The word “rent” here does not mean what you pay to live in your apartment. The concept goes all the way back to Adam Smith himself, though the phrase was only coined in the late twentieth century. Rent seeking means trying to increase your share of existing wealth without creating any new wealth.
But we should not feel too much moral superiority over Jamaicans calling for reparations: rent seeking has proliferated in Western society in the last couple of decades too. The US economy has performed well over this period. Its success is reflected in the amounts paid to chief executives, with their average compensation in the top 350 firms being around $15m a year. This enormous sum is some 300 times higher than the amount the companies pay to the typical worker.
In the mid-1970s, however, the ratio was not 300:1 but only 30:1. Even in the mid 1990s it was around 100:1. This latter figure would still hand the average chief executive some $5m today, not a bad sum to have. In short, it is hard to justify current payments in terms of the contribution the individuals are making to create new wealth. Some of it, yes, but essentially these pillars of our society have been rent seeking on a grand scale.
Rent seeking by the public sector characterised Gordon Brown’s long period as chancellor. Public spending rose dramatically, but much of the increase did not go to provide better public services. Instead, it paid for the private consumption of those employed in the public sector.
Some graduates in Hollande’s France flee abroad, but most of the rest aspire to become a fonctionnaire. Good pay, virtually unsackable, and with a gold-plated pension at the end, it is a much sought after position. Little wonder that France has essentially registered no economic growth since 2011.
Jeremy Corbyn, meanwhile, has eulogised the Italians for subsidising a steel plant rather than letting it go under like Redcar. But rent seeking proliferates in Italy, and the country’s living standards are now back to the levels of the late 1990s.
Economists disagree about many things, but they are united in their opposition to rent seeking, an unequivocally Bad Thing.