For a textbook example of rent-seeking, look no further than that pustulent petri dish of corruption, Illinois, for a dandy look at how it is done with affirmative action, casino licensing, and (of course) political connections. It has to do with the troubled Rosemont casino, which would have been located just outside of Chicago. (Sorry, this post has been rattling around in draft long enough for my links to rot. You’ll just have to take my word for it).
The State of Illinois licenses casinos, generally under terms that skim off obscene amounts of the profit to various appendages of the state. I suppose the State earns its money; since Illinois licenses very few casinos (Rosemont would be the 10th), it suppresses competition and thus enables those high profits to a significant degree. Regardless, I defy anyone to distinguish this racket from the more straightforward protection racket run by organized crime. Let the record show that the State of Illinois, through its protection racket for casinos, is perhaps the uber-rent-seeker in the whole sordid arrangement. As part of its licensing requirements, the State of Illinois requires that 20% of the casino ownership be in the hands of certain specified ethnic groups and women. Since it is very difficult to run a casino at a loss in Illinois, these investments are very attractive and thus expensive. Thus, poor folks need not apply, regardless of their genetic backgrounds or personal histories of woe and oppression. Let us dispense, then, with the notion that this set-aside helps the needy or corrects historical wrongs.
No surprise then, that the group of ethnically favored investors consisted of the wives of wealthy and powerful men, the presumably wealthy widow of a deceased professional athlete, and another presumably wealthy professional athlete. This, in the name of social equality. Really, their participation in the deal at all is the second instance of rent-seeking, but we have only just begun.
It turns out that the majority investors were mobbed up. (In a casino deal! In Al Capone’s hometown! Imagine!) When this was discovered, the casino license that had been granted was, effectively, suspended. The license, which is still outstanding, will be sold off to pay the construction and other debts incurred in the Rosemont project.
Ordinarily, when a business venture that requires a license loses that license, the license disappears and is not available for resale and the investments made by the ownership group are rendered worthless. If you run a bar and you get your liquor license pulled, well, too bad. Your investment, your risk, your profits, and so also your loss. Anyone who fails to do their due diligence, and gets into bed with folks who should not hold the license, can expect to pay the penalty of laziness.
If the Rosemont deal existed in the real world, rather than the empyrean realm of clout and favors, one would expect the license to disappear so that the considerable investments made would be lost, including those of the ethnically and politically favored.
C’est la vie? Caveat emptor? Non! Rather, the license will be suspended, not cancelled, so that it can be sold to enable some, but not all, of the investors to get their money back. Which investors, you ask? Why, the ethnically and politically favored ones, of course. Not only do they get their money back, they get it back with interest! And are invited to participate in the next deal!
That, my friends, is how it is done. None of this sweat of the brow, do your research, take your chances nonsense for our betters. No, much easier and more profitable to get an invite into a business with government-guaranteed profits, and have your friends in office give you your money back, with interest, so you can try again when you manage to screw up the first time.