The Wrong Kind of Entrepreneurs Flourish in America

When most people use the word “rent,” they mean the price paid to live in a house or apartment. But when economists say “rent,” they mean money that one person extracts from another without producing anything of value. When the government taxes people to give subsidies to companies, those subsidies are a form of rent. A monopoly generates rents from being able to jack up prices without being threatened by competition. Sometimes the government allows companies to get a certain amount of rent -- for example, the royalties from patents, which we protect in an attempt to encourage innovation.

Because it’s just a transfer from one person to another, rent doesn’t necessarily make an economy less efficient -- it’s just often unfair. But Robert Litan and Ian Hathaway, writing in Harvard Business Review, have a more dire hypothesis. They surmised that many American entrepreneurs are no longer looking for ways to produce more useful stuff, and are instead looking for new techniques for extracting money from each other and from the government. In other words, crony capitalism may be slowly cannibalizing productive capitalism.