Privileged Entrepreneurs
Last updated: 2026-08-18
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
NOTE: It is necessary to have read the chapter on -> State Interventions before reading this article in order to understand it correctly.
What it is (and what it is not)
In an unintervened market, the entrepreneur obtains a profit if he anticipates better than others what consumers value and combines resources in a more productive way. That profit is a signal: it indicates that value was created. If he is wrong, he loses. The process is positive: there is discovery, correction of errors, and an increase in available wealth.
The rent of which this literature speaks is not the rent of an apartment nor the yield of land. It is an income above opportunity cost that is not born of serving one’s neighbor better, but of the State closing or distorting competition: a tariff, an exclusive license, a subsidy, a preferential exchange rate, a monopolistic collective agreement, a public contract without real competition, a regulation that makes entry more expensive, clientelist public employment, a welfare program exchanged for loyalty.
Prebend, in Argentine and Latin American usage, is exactly that: a benefit granted by whoever holds power, not earned in the market.
Prebendary capitalism keeps the appearance of firms and prices, but success depends on the ability to influence legislators, regulators, and judges.
Gordon Tullock (1967) and Anne Krueger (1974) formalized the point that the classics already intuited: the social cost is not only the transfer (A loses what B gains). It is the “waste” of resources used in the struggle for privilege —lobbying, campaigns, bribes, political networks, lawyers, “fixers”— plus the resources that the non-privileged spend in defending themselves or in imitating the same strategy.
Those activities do not produce goods; they reallocate what has already been produced and, often, destroy incentives to produce it.
From the perspective of the Austrian School of Economics, this phenomenon is the direct and inevitable consequence of State Intervention: having the monopoly of force and of regulation, the State becomes a dispenser of privileges, violating the non-aggression principle (NAP) by coercively transferring resources from the productive sector to interest groups.
How the rent is generated
Political rent does not appear by spontaneous generation. It appears when the State can grant what the market would not grant:
- prohibit or make more expensive the entry of competitors;
- set prices, wages, or exchange rates;
- transfer public funds discretionarily;
- grant legal monopolies (unions with exclusive legal status, captive health funds, concessions);
- inflate or devalue in order to liquify debts and favor debtors or exporters according to the moment.
Ludwig von Mises (1881-1973) said it clearly: intervention is not a neutral “technical adjustment.” It is the granting of a privilege to a pressure group at the expense of the rest. In real interventionism there are no classical parties discussing the common good; there are coalitions that exchange votes, militancy, or financing for rents.
That explains why the phenomenon is so persistent in systems of high spending, high regulation, and high discretion—including a good part of what in Argentina was called social democracy or corporate “social justice.” The more the State can allocate, the more profitable it is to specialize in politics and the less in production.
Names it receives
It receives various designations, both in the political literature and in everyday jargon:
Prebendalism (or Prebendary Economy):
It is the academic and political term most used. A “prebend” is an advantage, subsidy, or legal monopoly granted by political power.
The “privileged entrepreneur” invests his capital and effort not in satisfying the consumer’s needs nor in improving the marginal utility of his goods, but in lobbying to obtain favors from the government.
Crony capitalism:
It describes the symbiotic alliance between the political class and certain business sectors. These groups do not compete in a free market; their profitability depends on tariff barriers (protectionism), regulations that asphyxiate competition, or privileged access to preferential exchange rates (such as the historical gaps between the official dollar and free exchange rates).
Read the detail in -> Crony Capitalism
Corporatism:
Inherited in large measure from mid-20th-century European models, it refers to the structure in which large interest groups (hegemonic unions, protected business chambers) negotiate legal benefits, wage bargains, and privileges directly with the State, operating as cartels at the expense of taxpayers and consumers.
Clientelism:
Described in the previous article -> Political Clientelism
“Curro,” “Kiosco,” or “Caja” (colloquial terms):
In everyday Argentine practice, any unnecessary regulation, compulsory register, trust, or bureaucratic entity created exclusively to extract resources from citizens or to place militants is called a “curro” or “kiosco.”
A “caja” refers to the large flows of public or union funds from which a group extracts its rent without control or transparency.
The Austrian critique
The Austrian School of Economics does not confine itself to measuring the “deadweight loss” of a monopoly graph. Its objection is deeper: prebendalism corrupts the market process itself.
1. It diverts the entrepreneurial function.
Israel Kirzner describes the entrepreneur as a discoverer of mismatches: prices that do not reflect preferences or costs.
When the State creates artificial rents, the same talent is reoriented toward superfluous discovery: who has the minister’s ear, how to draft the tender, how to capture the regulatory agency.
One does not discover how to produce more cheaply; one discovers how to extract. Spontaneous order is replaced by a political market.
2. Interventionism is internally unstable (Mises).
Each privilege generates unwanted effects (unemployment, scarcity, inflation, evasion, worse quality).
The intervenor does not usually withdraw the measure; he adds another to “correct” the previous one.
The apparatus grows, discretion grows, and the prize for whoever knows how to navigate it grows.
The logical end point is not an efficient welfare state, but more control or the collapse of calculation.
The short-term beneficiaries do not coincide with the long-term interest of society.
3. The knowledge problem (Hayek).
No one possesses the dispersed information that the price mechanism summarizes.
The official who distributes prebends cannot know which lines of production deserve capital and which do not.
He allocates according to relative power, not according to relative scarcity.
The result is persistent Unsustainable Investments: factories that exist only behind the tariff, jobs that exist only behind the collective agreement, unions and chambers that exist only because the law reserves them a piece of the product.
4. It destroys equality before the law.
The market does not promise equal results; it promises equal rules.
The prebend introduces a special right: “you can sell dear / hire cheap / collect from the treasury; the other cannot.”
That is not “correcting market failures”; it is recreating a caste system.
Ludwig von Mises distinguished class (position in the division of labor) from caste (legal privilege). Interventionism reintroduces castes.
5. The cost is not only static.
Even if the net transfer were zero, society is impoverished because: - one invests in influence instead of in specific productive capital; - the discipline of losses atrophies (the privileged party does not go bankrupt: he renegotiates the prebend); - every price, every job, every contract is politicized; - trust is eroded that one’s own effort, and not the contact, determines the result.
Murray Rothbard and the classical-liberal tradition that Mises inherits add the ethical-legal angle: the State that creates rents does not “regulate capitalism”; it uses coercion to transfer property.
The business lobby is not “the market defending itself”; it is an actor that has discovered that capturing the regulator yields more than convincing the consumer.
Contrast that matters
Market profit is residual and revocable: it disappears as soon as others copy or the consumer changes preference.
The prebend tends to become institutionalized: exclusive union status, tariff, quota, subsidy, lifetime post, “acquired rights.” That is why the privileged entrepreneur usually opposes competition not with a better product, but with a rule.
From the Austrian point of view, then, rent-seeking is not an isolated moral vice of a few “bad entrepreneurs.”
It is the predictable result of an order in which political power can create and assign privileges.
Reducing prebendalism does not consist in moralizing the actors —they will continue to respond to incentives— but in shrinking the booty: less discretion, less transferable spending, general rules instead of particular favors, and a property right that is not renegotiated in every administration.
That is the line that runs from Carl Menger (1840–1921) and Eugen von Böhm-Bawerk (1851-1914) (subjective value, imputation, capital) to Ludwig von Mises (1881-1973) (impossibility of calculation under socialism and instability of interventionism), Friedrich Hayek (1899-1992) (knowledge and institutions), and Kirzner (entrepreneurship as discovery).
Prebendalism is, on that reading, the everyday form in which interventionism substitutes the process of value creation with the struggle for the booty.
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
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