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Rethinking rent seeking for technological change and development

Abstract

The analysis of rents and rent-seeking is highly relevant for evolutionary economics but it has received little attention. This paper surveys the recent literature on technological change, rents, and rent-seeking applied to economic development. Economic development requires developing countries to upgrade technologically while coping with pervasive rent-seeking activities. We assess these issues in turn. This paper first surveys the literature on technical learning and institutional change due to the adoption and adaptation of new technology. Next, the debate on rents and rent-seeking, especially in relation to the issue of technological change in the process of development, is presented. Finally, we assess the roles of the state in solving the critical constraints faced by firms and industries. This paper asserts that the processes of development and industrial upgrading require understanding the mechanisms of rent management—a configuration of incentives and pressures that fully correspond to the existing political, institutional, and industrial structures of a developing country. The rent management analysis emphasizes the diversity of empirical contexts across and within countries.

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Notes

  1. 1.

    Friedrich List (1984) may also be considered an early promoter of State-led technological change and industrial policy. See especially his 1841 Das nationale System der politischen Ökonomie (National System of Political Economy; English edition 1856).

  2. 2.

    Similarly, James Street concludes that, according to Veblen, the drive of technological change for development is possibly at odds with the existing power structure that benefits from the status quo. This is because “the process of social change represented a running conflict between emerging techniques of production and the social institutions that tended to preserve existing power relationships and that, if sufficiently potent, could inhibit further technical progress” (Street 1987, 1864).

  3. 3.

    “If all land had the same properties, if it were boundless in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only then because land is of different qualities with respect to its productive powers, and because in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it” (Ricardo 1817, 53–54).

  4. 4.

    An excellent introduction may be found in Mueller (1989, Ch.13).

  5. 5.

    Rent-seeking per se they define as “any redistributive activity that takes up resources” (Murphy et al. 1993, 409).

  6. 6.

    Krueger’s 1974 seminal paper limited its concern to rents accruing from quotas.

  7. 7.

    In defining rent-seeking as a process and rent creation as an instrument for growth, the heterodox approach does not distinguish between rent policy (coming from either rent-seeking or policy making) and industrial policy because industrial policy inherently creates rents for industries and firms.

  8. 8.

    The policies implemented by the East Asian Tigers are frequently referred to as industrial policies; although Hausmann and Rodrik (2003) explicitly call them rents.

  9. 9.

    The theory of the “Big Push” model emphasizes that underdeveloped countries require large amounts of investments to embark on the path of economic development from their present state of backwardness. This theory proposes that a “bit by bit” investment program will not impact the process of growth as much as is required for developing countries.

  10. 10.

    Chang proposes four specific functions that such a state must perform: (1) coordination for change, (2) provision of vision, (3) institution building, and (4) conflict management.

  11. 11.

    His examples of “successful” developmental states include nineteenth-century Prussia, Meiji Japan, postwar France, and post-1949 Taiwan.

  12. 12.

    Khan (1995) defines and discusses the political settlement, and Khan (2000b) discusses redistributive rents and how they are essential for maintaining political stability.

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Correspondence to Christine Ngoc Ngo.

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Ngo, C.N., McCann, C.R. Rethinking rent seeking for technological change and development. J Evol Econ 29, 721–740 (2019). https://doi.org/10.1007/s00191-018-0591-3

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Keywords

  • Developing countries
  • Institutions
  • Rents
  • Rent-seeking
  • Rent management
  • Technological adoption
  • Learning and innovation

JEL codes

  • D02
  • D72
  • D83
  • O17
  • O33
  • O43