Imagine two farmers, let’s call them Bob and Steve. They both own apple trees and both harvest apples every year which they sell at the market. Bob and Steve’s apples are exactly the same. They taste wonderful, they are healthy and they look great. To be able to sustain a comfortable living, some savings, keep up and improve the farm and pay fair wages to their employees, Steve and Bob need to sell their their apples for about 4 euros a kilo. This is what Bob does. He goes home happily after each harvest season, looking forward to well-deserved rest and all the apple pie made of the left overs.
Steve, however, runs a different game. He sells his apples at 8 euro per kilo. He puts them in fancy looking apple nets, which cost him about 5 cents, and slaps on an extra profit for himself of 3,95 per sold net. After the harvest season, he goes home, also eats some apple pie and is pretty pleased with himself. And why should he not be? He just made a fortune, because everybody loves fancy nets around apples. That’s a pretty smart business decision, right?
There’s one problem though. Steve doesn’t really know what to do with the money. He has no need for new investments that the price of 4 euros a kilo didn’t cover already, and he is already living comfortably. He just wanted to have those 3,95 extra, because he could. So Steve is extracting money from apple buyers and society at large, without putting it to use elsewhere. He’s just sitting on it. Like Dagobert Duck swimming in his gold coin swimming pool.
This is what you call rent-seeking. Rent-seeking is the extraction of profits or wealth through manipulation of the people without reinvesting that money back into society. We have been led to believe that being able to pull it off, this over-pricing of goods or services, is a good thing. It is smart, it is understanding the market. But is it necessary?
We say no, it is not. In fact, sitting on your money is detrimental to society. Now, don’t get us wrong. This is not to say that you are not entitled to some extra earnings, nor that you always have to spend your money on stuff. What we do say is that rent-seeking on a large scale causes inequality. Because the more money you over-pay for products or services, the more ends up in that gold coin swimming pool, without ever being invested back into society. Mind you, society is not an abstract thing, it is you: you and the people around you. It’s the town you live in, the services available to you in it, the politics that run through it; it’s its businesses, its cultural makeup and the natural environment it’s embedded in.
We have learnt in school, in media, in our families that growth is good. That making a profit is beneficial. It provides security for our future, allows to invest and explore, discover new ways of handling things and solving problems. This is beautiful. Of course, there is no reason to oppose discovery and stability. Yet, there should be a limit. Because rent-seeking is not always only over-pricing your product, it can also include underpaying your workers.
Steve’s apple business is doing great with its fancy net strategy, so he has been able to expand his farm again and sell even more fancy net apples. To have it run smoothly, he should pay his apple pickers more, but because that would mean he would also have to cut back a bit on his 3,95 pure profit, he doesn’t. Because that wouldn’t make sense to him. Instead, he tells his employees to work harder and more hours. If they don’t like it, they can go. He can easily find other people who could use a job.
So by now, Steve is rent-seeking in two ways: he is over-pricing his product to extract wealth from society, and he is underpaying his staff, which means he is also withholding wealth from society. And what is happening to Bob? He is trying to explain to people that even though his apples don’t come in fancy nets, they are still decent apples. And that yes, he knows his apples aren’t as cheap as Hank’s apples, but they are certainly better. (Wait, who’s Hank? – He’s the guy who snuck up on the market with poor quality apples picked by machines and underpaid machine operators.)
Rent-seeking is just one of the many factors that influence how, where, and what we buy. Our economic behaviours are complicated. Everyday we receive many messages from advertisers, our friends and family, random people in the street, social media personalities, the government and our conscience on how to lead our lives and how to deal with money. We all know some people have (way) more and others (way) less of it. Is that how it’s supposed to be? Is it the natural outcome of the only possible system to run a globalized world?
We at Vienna Shares, together with our partner-in-action Kasia Gruszka, invented STRIKE!, a currency, tool and game in one to help us rethink and reflect on the purpose of money. Our playing field was to be found at Forum Biotopia and will be ready for playing soon again, meanwhile check out: www.strike.cash.
By Mirjam de Klepper
Photo by Holly Mindrup on Unsplash
This fable has been written for and published in the Forum Biotopia 2017 newspaper ‘Zeit von Gestern’ edition: Zusammenleben