WHEN we think of socioeconomic inequality around the world, the images that often come to mind are familiar: a child from a low-income family denied access to quality education, overcrowded schools and hospitals, pothole-ridden roads, and communities left behind by the digital divide.
Yet, behind these visible symptoms lies an invisible force – one that quietly siphons national resources, distorts development priorities and entrenches inequality. Economists call this phenomenon rent-seeking.
The term rent-seeking was first coined in 1974 by economist Anne Krueger, building on the ideas of Gordon Tullock, who introduced the concept of public choice theory – the application of economic reasoning to political decision-making.
In essence, rent-seeking describes the pursuit of economic gain not through productivity or innovation but through the manipulation of political and regulatory systems for private advantage.
In practice, rent-seeking does not always break the law. Instead, it bends the rules – shaping policies, regulations and institutions to serve vested interests rather than the public good.
The result is a misallocation of wealth, where rewards flow not to the most efficient or innovative but to the most politically connected. And when that happens, ordinary citizens end up footing the bill through higher taxes, rising costs of living, and deteriorating public services.
In theory, governments collect taxes to improve citizens’ welfare by investing in infrastructure, healthcare, education and social programmes. These are the foundations of shared prosperity. However, when rent-seeking infiltrates governance, the flow of public funds is quietly diverted.
Public procurement, for instance, is one of the most fertile grounds for rent-seeking. With billions allocated annually to build roads, schools, hospitals and digital infrastructure, procurement decisions often determine who benefits from public spending.
When tenders are manipulated, bidding processes are restricted or contracts are awarded based on connections rather than competence, the consequences ripple across society.
Projects become unnecessarily costly, quality is compromised and innovation is stifled. Citizens pay the price twice – first through inflated public expenditures and later through the long-term inefficiency of underperforming infrastructure. The visible result: highways or public facilities that crumble before their time, housing projects that stall mid-construction and digital initiatives that fail to deliver.
In Malaysia, the auditor-general’s reports over the years have repeatedly highlighted these inefficiencies – cost overruns, delayed projects and unaccounted expenditures – symptoms of governance systems vulnerable to rent-seeking behaviour.
From a fiscal standpoint, rent-seeking distorts budget priorities. Funds that should be channelled towards public education, healthcare or digital inclusion are diverted to projects that primarily benefit a few.
Take certain public-private partnerships (PPP) as an example. Though intended to leverage private capital for public benefit, some PPP arrangements end up socialising risks while privatising profits, leaving the government to absorb the losses while private investors reap the gains.
Rent-seeking functions like a hidden tax on society. It doesn’t appear as a line item in the national budget but its cost is real and cumulative – manifesting in underfunded schools, overburdened hospitals and lagging rural infrastructure. The burden falls heaviest on the B40 and M40 groups, who rely most on effective public services and equitable fiscal management.
Curbing rent-seeking is not merely an economic reform; it is a test of governance and leadership. Fiscal integrity – the principle that public money must be spent transparently, efficiently and for public benefit – cannot thrive in an environment where private influence shapes policy outcomes.
To counter rent-seeking, Malaysia needs a multipronged approach:
Transparency in policy-making and spending: Public access to data on government contracts, subsidies and tax incentives should be the norm, not the exception. Open data platforms can enable scrutiny and empower civil society to monitor public spending.
Independent oversight institutions: Strong, well-resourced bodies like the National Audit Department, the Public Accounts Committee and the Malaysian
Anti-Corruption Commission must operate free from political interference, with authority to investigate undue influence in policy and procurement decisions.
Civic empowerment and accountability: A politically informed and active citizenry is essential. When voters demand accountability, transparency follows. Civil society organisations and investigative journalism also play a key role in exposing rent-seeking networks.
Institutional reforms: Strengthening procurement laws, enforcing conflict-of-interest rules and ensuring judicial independence are all crucial for upholding fiscal discipline and trust.
When rent-seeking dominates fiscal policy, national budgets lose their integrity. Spending priorities shift from public welfare to private gain. Tax systems become riddled with exemptions and concessions that benefit the few rather than the many. Social welfare funds are sometimes misdirected, never reaching the intended recipients.
Importantly, rent-seeking often operates within the boundaries of legality, which is why traditional anti-corruption frameworks, focused on criminal acts, may not fully address it. The challenge, therefore, lies not only in prosecuting wrongdoing but also in redesigning governance systems to prevent policy capture in the first place.
Fiscal integrity is not achieved by accident; it is built through transparent governance and
public accountability. To preserve Malaysia’s long-term economic stability, we must close loopholes that allow influence-peddling, end sweetheart deals disguised as development and demand transparency from those entrusted with managing public resources.
As Malaysia strives towards shared prosperity and sustainable growth, confronting rent-seeking is not just about economics; it is also about moral leadership. A nation’s wealth should serve its people,
not the privileged few. Ensuring fiscal integrity is, ultimately, the cornerstone of social justice and a fairer, more equitable Malaysia.
Dr Puan Yatim is an associate professor at UKM-Graduate School of Business, Universiti Kebangsaan Malaysia. Comments: letters@thesundaily.com