Throwing out the rent seekers

In the Koch response to a Washingtonian article on the Koch vs Cato (or Koch vs Crane) think tank battle, we get an interesting piece about an area of literature that seems understudied by the type of people who like to talk about how much more efficient free markets can be. This quote is about a dispute between the two parties at a Moscow conference in 1990.

In reality, Charles Koch’s concern with the conference agenda was that it never addressed the difficulty of transforming a Communist economy to a free-market economy. Without a focus on these transition issues, Charles Koch believed the recommendations would backfire and lead to anything but a free economy (which is, indeed, what happened). When Charles Koch advised Crane of this, Crane discounted the problem and refused to make changes. 

The question of what makes a successful transition from a communist society to a free market society seems to be an under addressed issue, especially by free market proponents. Telling people what to do is harder than telling them how to get buy in from the people currently in charge and still end up with reforms that work. It is complicated by the fact that it can sometimes be difficult to fully differentiate successes from failures. Russia, with its broken privatization scheme that created billionaires out of connected government officials presumably failed. China lifted millions of people out of abject poverty and apparently succeeded. However, if we compare China to Russia, it is very hard to tell if China has been doing anything better or if they are just benefiting from starting from a lower base.  They've both been growing and while China has grown more, China's transition started from a situation where they were completely destroying their human capital in the Cultural Revolution, where among many other things they systematically sent educated youths to the country side for hard labor. China's leaders also had a bigger incentive to grow the pie, even if it was just to be able to take a large piece of its economic production. Russia started out somewhat industrialized and with oil wealth so the politically connected could become rich without much extra growth. 

The difficulty of this transitional problem is probably one of the larger drivers behind charter cities and seasteading. It's easier to create something new than it is to take resources away from the rent seekers. It's the same idea behind why start up companies often end up beating much more established competitors. The large companies have people running their own rent seeking operations inside the company and in aggregate this leads to resistance to the type of investment and change needed for the incumbent company to stay relevant.