Wednesday, June 19, 2013

Everything is Rent

"Behind every great fortune is a great crime" is a memorable line, but it would be more accurate to to say that behind every great fortune is a great rent. Exclusive control of some valuable resource - land, another means of production, a patent or copyright. One of the oldest and most fundamental businesses of government has always been the guarantee and enforcement of these exclusive controls.
Paul Krugman blogs today that one of the biggest changes in the global economy of recent decades has been

...the much larger role of rents on intangible assets.

He explains:

What do I mean by the role of rents? Consider the changing identity of the most valuable company in America. For a long time, it was GM, then Exxon, then IBM. These were companies with huge visible production activities: GM had more than 400,000 employees, which was amazing when you consider that the overall national work force was much smaller than the one we have today, Exxon had oil refineries. IBM was an information technology company, but it still had many of the attributes of an old-style manufacturing giant, with many factories and a large, well-paid work force. 

But now it’s Apple, which has hardly any employees and does hardly any manufacturing. The company tries, through fairly desperate PR efforts, to claim that it is indirectly responsible for lots of US jobs, but never mind. The reality is that the company is basically built around technology, design, and a brand identity... 

There are a couple of obvious implications from this change in the nature of corporate success. One is that profits are no longer anything remotely resembling a “natural” aspect of the economy; they’re very much an artifact of antitrust policy or the lack thereof, intellectual property policy, etc. Another is that a lot of what we consider output is “produced” at low or zero marginal cost.