Where returns follow connections, effort goes into capture rather than creation

The argument

Proponents of this explanation argue that a country's prosperity depends less on how much ability it contains than on what that ability is used for. Able and ambitious people, on this account, respond to where the returns are. Where the surest route to a good living is to develop a product, build a business or improve a method, effort flows into activities that add to what exists. Where the surest route is to secure a licence, attach oneself to someone powerful, or obtain a position that allows rents to be collected, advocates argue that the same effort flows into activities that redistribute what exists without adding to it. Supporters stress that this is a claim about incentives rather than about character. The people choosing the second route are said to be behaving exactly as the first would in their position, and no appeal to national culture or to a deficit of enterprise is required. Proponents argue that this is why the pattern can reverse quickly when the structure of rewards changes, and why the same populations have been described as enterprising in one period and fatalistic in another. Advocates conclude that the loss compounds in a way that is easy to underestimate. Capture is not merely unproductive but actively costly, because it consumes the effort of the most capable people and because the arrangements it secures impose further restrictions on everyone else. Proponents hold that nations fail when their reward structures make capture the rational use of talent, and that this explanation has the advantage of accounting for failure in countries that are well endowed with educated people, resources and capital.

Premises

Counter-arguments

Critics argue that the distinction between creating and capturing is far harder to draw in practice than the account allows, since much ordinary business activity involves securing advantages. They also note that the explanation is close to circular, because the reward structure it appeals to is itself a product of the political and legal arrangements the other positions describe. A further objection is that talented people have built a great deal in countries where capture was also richly rewarded, which suggests the two are not exclusive.

Rejecting the premises

[Rejecting P1] People choose occupations for many reasons besides financial return, including status, vocation and family expectation. [Rejecting P2] Capture and creation are frequently combined in the same activity, so the choice is rarely between them. [Rejecting P3] Talent is not so scarce that its diversion is decisive, and capture can coexist with substantial productive investment. [Rejecting C] If reward structures are set by political and legal arrangements, the incentive problem is downstream of them rather than the cause.