I’ve had a hard time understanding how rent-seeking could even be considered legal. Part of this confusion probably stems from growing up in a developing country. Poorer countries dont have enough information, resources, or strong institutions to keep “legal” rent-seeking clearly separate from corruption. This week, Paraguay showed me exactly why the line is so hard to see.
On November 5, President Santiago Peña resigned shortly before facing an impeachment trial, amid the crisis set off by the government’s intervention in Ueno Bank, a private bank he had been linked to. Peña had been part of the bank’s shareholder group. Soon after taking office in 2023, he named Carlos Carvallo, then Ueno’s top executive, as head of the Central Bank, the institution that regulates banks like Ueno. The bank also managed up to $850 million in public funds, according to its own figures.
Appointing an industry insider as a regulator is legal. A private bank holding public deposits is legal too. Both fit the logic of rent-seeking: a connected firm gaining an advantage through political access instead of competition. But if public money was steered to the bank because of personal ties, or if supervision was deliberately weakened, the exact same actions become corruption. Prosecutors have detained eight executives, and that’s what investigators are now trying to determine. In other words, rent-seeking and corruption use the same tools: connections, appointments, and access to public resources. In theory, the line between them is the law. In practice, what separates them isn’t the action itself, but whether a specific rule was broken and whether anyone can prove it. That depends on how strong a country’s laws and enforcement are. It also explains why, in countries with strong institutions like the U.S., rent-seeking can stay legal and out in the open, while in countries with weaker institutions, it can slip into corruption more easily
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