On the face of it, this title suggests little relevance to my specialist subject, technology. However, as I'll show, the two issues are quite tightly linked.
What do I mean by rent seeking? It's the behaviour whereby some form of monopoly position is established over an economic activity, allowing the owner of that monopoly position to extract an unavoidable rent from those participating in that activity. Sadly it is a British disease. Of course, the most recognisable form of rent seeking is rent itself: the buying of property and the control of planning laws to tax people whose need for a roof over their head puts a gun to it. This is a British sport, a pastime that seriously crimps the economy: The roughly £50bn a year spent by Brits on property investment is broadly equivalent to the market (over) value of Tesla. If that money were instead invested in fellow countrymen, rather than to enable the taxing of them, we might actually get somewhere.
It's not just in the property market that we see this behaviour, however: the same reflex to establish monopolies (or small cartels) exists in almost all sectors of British business. Why bother having to suffer the indignity (and risk) of having to compete , when the option is there simply to sit in a toll booth and extract the rent? To give you an example: a British company I know whose innovative, cloud based technology for fund managers could be consumed at a marginal cost of zero, prefers to price itself off its lumbering custodian rivals, wanting to pocket the big margin instead. That is not an isolated example: the recent fall in Sterling should, by rights, have proved a boon to British export volumes. All the evidence suggests, however, that volumes barely shifted as UK exporters simply preferred to pocket the bonus margin.
What's wrong with that, I hear you say? How clever, that's business. Actually, this sort of cleverness is very unwise, and the reason is technology. In the past, legislators have sought to remove roadblocks (and toll booths) to the physical flow of goods, believing that tariff barriers were a lose/lose game. In that, they calculated that the added volumes of trade would more than compensate for the loss of monopoly income. Thus they prioritised the needs of an operation (world class production of a car part, for example) over the needs of local monopolies, whether it be poorer, local manufacturers or those that benefited from the customs apparatus.
You will immediately point out that this process is going spectacularly in reverse, as populism raises important questions about the assumptions that lay behind the "win/win" globalisation calculation. It's beyond the remit of this blog to wade into this (beyond to point out that both sides have a good point), but I want to look forward a bit to see how things might develop.
Whether you agree with the latest revolt against globalisation, the essential point is that they can do this. With a physical car part, you can erect a physical toll booth. All good, from a monopoly perspective. Even technology, when intermediated by physical firms, behave like physical goods, so supply can be controlled, and so monopolised.
When an operation needs operators, it is vulnerable to being held hostage. However, when it doesn’t (or needs very few), then the monopolists are in trouble. And that’s where we are heading. There are many ways to look at technology development, but one way is to note the process of relentless disintermediation. Where before an integration would need a big “integrator“ (remember Logica?), you just need an enterprise app like Zapier or Automate IO. This of course has latency, like any change, but just because it’s not commonplace does not mean it’s not right. I have lost count of the times I have gone into organisations who have expensive outsourced IT arrangements whereby a cloud service, which could be managed in house, is resold to them at a margin.
Another way of expressing this is to observe that more value is migrating to the digital space, and there seems little likelihood of this slowing down. Indeed, given a network effect, there is every expectation of an acceleration.
Software, when ripped from the clutches of unnecessary intermediation, is no respecter of locale, borders, customs, or supply restrictions. Rent seeking (in all but the property form) becomes impossible, and such firms will be ill equipped to actually compete.
What is my point? My advice is firms should chart a course set by the quality of their offer, not the control of competition. Work like the wind to digitise your operation and your offer. Furthermore, have a look (and keep looking) for areas in their supply chain of bogus and expensive intermediation, particularly in technology.