China: Rent-seeking in the Making

It happened in Europe in the 16th century. It happened in Russia in the 1990s. And now it is happening in China before our very eyes – the predatory rent-seeking culture being incubated to divide a nation between rich and poor. But the game is not yet up for China. Can the Politburo pull off an historic victory to launch their nation in a post-capitalist direction?

The concept of rent-seeking was coined by post-classical economists to disguise the attractions of rent as the correct source of public revenue. Rent-seeking is a term now employed to characterise all forms of privileges. But the primary rent-seeking activity is the one that begins with the de-socialisation of land and the privatisation of the rents that a population creates through its co-operative activities.

The formation of the rent-seeking culture can be monitored in China in the finest detail. Over the past 20 years, the traditional holdings of farmers were appropriated by corrupt local officials who sold parcels of under-priced land to developers. That left the margin of profit to go into the back pockets of bureaucrats.

The psychology of land speculation penetrated the up-and-coming middle class. They figured out that the state was derelict in its duty to protect the population’s collective interest in land. So there emerged a new economic sport. It’s called buy-to-let. People borrowed money and purchased properties to build portfolios that generated rents. China fell victim to the property boom/bust cycle.

Time to Change Course?

The Communist Party still rules the political roost. And, constitutionally, all the land of China is legally the property of all citizens. So, in practice, there is still time for China to change course.

According to the new premier. Li Keqiang, the time has come to confront the corruption that is separating the people from the party. He recently declared: “Such a state of affairs is not good for government efficiency, it might create opportunities for corruption or rent-seeking behaviour and it harms the image of the government”.

There is one way only to terminate the trend which threatens the future of the Communist Party: re-socialise the rents and privatise people’s earned incomes. That would be a tough feat even for the authoritarian communists to accomplish. For, as Mr. Li acknowledged, it is “harder to tackle vested interests than to touch a person’s soul”.

The Communist Party of China is the last bastion of the materialist ideology. It would be ironical if the communists managed to build their way to the post-capitalist state by touching the souls of their people.

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