≡ Menu

Rent Extraction

Some U.S. furniture makers and their lawyers have found a reliable way to extract cash from Chinese competitors deemed by U.S. officials to have “dumped” their products in the U.S., selling them at unfairly low prices.

Each year since 2006, they have asked the Commerce Department to review the U.S. duties paid by Chinese manufacturers on imports of wooden bedroom furniture. Many Chinese firms, fearing a steep rise in duties, agreed within months each time to pay cash to their U.S. competitors in return for being removed from the review list.

The above are the opening paragraphs from this story in the Feb. 15 Wall Street Journal.

What’s going on here is properly called extortion.  The academic name for it is “rent extraction” – brilliantly identified and explained by Northwestern University law professor Fred McChesney in his 1997 Harvard University Press book Money for Nothingreviewed here.  Fred’s book – in the finest tradition of public-choice scholarship – explains how persons and groups with the ability to arbitrarily alter the rules of the game can bribe productive others, holding these productive others hostage to the demands of the bribers.

And so it is in the case discussed in this WSJ report.  In order to gain for a time the unhampered privilege of exporting their wares to the U.S. – that is, in order simply to be able to offer American consumers potentially attractive deals – Chinese producers pay American rivals not to press their (the American rivals’) “right” to challenge these Chinese exporters in American tribunals.

This is but one lesson for those who have a romantic notion that government is a noble institution that chiefly operates for the benefit of ordinary men and women.