Bureaucratic Rent

David Smiley

[Reprinted from Progress, September-October, 2005]

BUREAUCRATIC RENT: The extraction of unearned surplus by government officials.

Bernstein, in Rural Livelihoods, defined Bureaucratic Rent as the state extraction of surplus from peasants. In a particular African study, he identified government officials as rent receivers through their control of the marketing of export crops, with rent being the difference between world market price and that received by the peasant. So, how important is bureaucratic rent?

A World Bank report, Doing Business in 2005, presents a more general example of bureaucratic rent. The report found that poor countries impose on average three times the administrative costs and twice the number of bureaucratic procedures as rich countries. Many of these problems, says the report, are a legacy of European colonists' bureaucracies designed to control a local population, not to encourage growth. Often, independence from colonial masters simply meant a transfer of bureaucratic rent from an old monopoly to a new one. And these monopolies could be extended, for example to cream off the natural resources rents from oil and mineral bonanzas.

The report concludes that foreign aid should be made conditional on verifiable regulatory reforms. This would boost annual growth by 2.2 percentage points. But given the depth and breadth of bureaucratic corruption, and the high mobility and low visibility of all the factors involved, this seems somewhat optimistic. Far better to make foreign aid conditional on the taxation of factors of low mobility and high visibility - land and natural resources. In Third World intervention - A New Analysis, this proposal was put to the World Bank in 1998, along with calculations suggesting that it would boost annual growth by at least 10 percentage points.