Confessions of a Rent Seeker

This summer, I worked for the Office of Economic Research in the Small Business Administration’s Office of Advocacy. Whenever other federal agencies create a new regulation, they have to (by law) take the effect on small business into account, and the Office of Advocacy represents those interests in Washington. Coming from a small town brimming with small businesses, I thought my work to promote smart, small-business friendly regulations was noble--that is, until Mr. Coppock’s lecture on rent-seeking a few weeks ago. The Office of Advocacy works to promote regulations that benefit small businesses. In some ways, this is an example of rent-seeking. Rent-seeking is when resources are spent to obtain rents which derive from socially wasteful activities.

This summer, the FCC considered a petition from US Telecom to change a 1996 regulation concerning copper wires. I won’t get into the details here, but we can say that big firms wanted the regulation to change and small firms wanted the regulation to stay the same. At one particular meeting, we had 12 different representatives from 12 different small telecommunications companies present. I imagine that each of those companies flew those representatives out from across the country, put them up in hotels, paid for their meals, etc. On the other side, US Telecom commissioned a study to investigate the effects of the regulation change. I’m sure this study cost thousands of dollars. In short, all the companies involved in this issue spent money that did not create any value. After all those socially wasteful activities, the FCC decided not to change the rule after all. In the future, I hope the Office of Advocacy will focus on creating a healthy, competitive environment, one into which small businesses can freely enter. These kinds of regulations, rather than ones which merely transfer rents from one group to another, will optimize social welfare.