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The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities
“A convincing book that could make a big difference in the way we think about modern economic problems.”—Peter Passell, New York Times Book Review
“Clearly, this is no ordinary theory. Equally clearly, it sprang from the mind of no ordinary economist.”—James Lardner, Washington Post
The years since World War II have seen rapid shifts in the relative positions of different countries and regions. Leading political economist Mancur Olson offers a new and compelling theory to explain these shifts in fortune and then tests his theory against evidence from many periods of history and many parts of the world.
“Schumpeter and Keynes would have hailed the insights Olson gives into the sicknesses of the modern mixed economy.”—Paul A. Samuelson, Massachusetts Institute of Technology
“One of the really important books in social science of the past half-century.”—Scott Gordon, Canadian Journal of Economics
“The thesis of this brilliant book is that the longer a society enjoys political stability, the more likely it is to develop powerful special-interest lobbies that in turn make it less efficient economically.”—Charles Peters, Washington Monthly
“Remarkable. The fundamental ideas are simple, yet they provide insight into a wide array of social and historical issues. . . . The Rise and Decline of Nations promises to be a subject of productive interdisciplinary argument for years to come.”—Robert O. Keohane, Journal of Economic Literature
“I urgently recommend it to all economists and to a great many non-economists.”—Gordon Tullock, Public Choice
“Olson’s theory is illuminating and there is no doubt that The Rise and Decline of Nations will exert much influence on ideas and politics for many decades to come.”—Pierre Lemieux, Reason
Co-winner of the 1983 American Political Science Association’s Gladys M. Kammerer Award for the best book on U.S. national policy
“Clearly, this is no ordinary theory. Equally clearly, it sprang from the mind of no ordinary economist.”—James Lardner, Washington Post
The years since World War II have seen rapid shifts in the relative positions of different countries and regions. Leading political economist Mancur Olson offers a new and compelling theory to explain these shifts in fortune and then tests his theory against evidence from many periods of history and many parts of the world.
“Schumpeter and Keynes would have hailed the insights Olson gives into the sicknesses of the modern mixed economy.”—Paul A. Samuelson, Massachusetts Institute of Technology
“One of the really important books in social science of the past half-century.”—Scott Gordon, Canadian Journal of Economics
“The thesis of this brilliant book is that the longer a society enjoys political stability, the more likely it is to develop powerful special-interest lobbies that in turn make it less efficient economically.”—Charles Peters, Washington Monthly
“Remarkable. The fundamental ideas are simple, yet they provide insight into a wide array of social and historical issues. . . . The Rise and Decline of Nations promises to be a subject of productive interdisciplinary argument for years to come.”—Robert O. Keohane, Journal of Economic Literature
“I urgently recommend it to all economists and to a great many non-economists.”—Gordon Tullock, Public Choice
“Olson’s theory is illuminating and there is no doubt that The Rise and Decline of Nations will exert much influence on ideas and politics for many decades to come.”—Pierre Lemieux, Reason
Co-winner of the 1983 American Political Science Association’s Gladys M. Kammerer Award for the best book on U.S. national policy
276 pages, Paperback
First published January 1, 1982
About the author
Mancur Olson
36 books59 followersAmerican economist and social scientist who, at the time of his death, worked at the University of Maryland, College Park. Among other areas, he made contributions to institutional economics on the role of private property, taxation, public goods, collective action and contract rights in economic development. Olson focused on the logical basis of interest group membership and participation. The reigning political theories of his day granted groups an almost primordial status. Some appealed to a natural human instinct for herding, others ascribed the formation of groups that are rooted in kinship to the process of modernization. Olson offered a radically different account of the logical basis of organized collective action.
In his first book, The Logic of Collective Action: Public Goods and the Theory of Groups (1965), he theorized that “only a separate and ‘selective’ incentive will stimulate a rational individual in a latent group to act in a group-oriented way”; that is, members of a large group will not act in the group's common interest unless motivated by personal gains (economic, social, etc.). He specifically distinguishes between large and small groups, the latter of which can act simply on a shared objective. Large groups, however, will not form or work towards a shared objective unless individual members are sufficiently motivated.
In 1982, he expanded the scope of his earlier work in an attempt to explain The Rise and Decline of Nations. The idea is that small distributional coalitions tend to form over time in countries. Groups like cotton-farmers, steel-producers, and labor unions will have the incentives to form lobby groups and influence policies in their favor. These policies will tend to be protectionist and anti-technology, and will therefore hurt economic growth; but since the benefits of these policies are selective incentives concentrated amongst the few coalitions members, while the costs are diffused throughout the whole population, the "Logic" dictates that there will be little public resistance to them. Hence as time goes on, and these distributional coalitions accumulate in greater and greater numbers, the nation burdened by them will fall into economic decline. Olson's idea is cited as an influence behind the Calmfors-Driffill hypothesis of collective bargaining.
In his final book, Power and Prosperity, Olson distinguished between the economic effects of different types of government, in particular, tyranny, anarchy and democracy. Olson argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it. The stationary bandit thereby takes on the primordial function of government - protection of his citizens and property against roving bandits. Olson saw in the move from roving bandits to stationary bandits the seeds of civilization, paving the way for democracy, which improves incentives for good government by more closely aligning it with the wishes of the population.
In his first book, The Logic of Collective Action: Public Goods and the Theory of Groups (1965), he theorized that “only a separate and ‘selective’ incentive will stimulate a rational individual in a latent group to act in a group-oriented way”; that is, members of a large group will not act in the group's common interest unless motivated by personal gains (economic, social, etc.). He specifically distinguishes between large and small groups, the latter of which can act simply on a shared objective. Large groups, however, will not form or work towards a shared objective unless individual members are sufficiently motivated.
In 1982, he expanded the scope of his earlier work in an attempt to explain The Rise and Decline of Nations. The idea is that small distributional coalitions tend to form over time in countries. Groups like cotton-farmers, steel-producers, and labor unions will have the incentives to form lobby groups and influence policies in their favor. These policies will tend to be protectionist and anti-technology, and will therefore hurt economic growth; but since the benefits of these policies are selective incentives concentrated amongst the few coalitions members, while the costs are diffused throughout the whole population, the "Logic" dictates that there will be little public resistance to them. Hence as time goes on, and these distributional coalitions accumulate in greater and greater numbers, the nation burdened by them will fall into economic decline. Olson's idea is cited as an influence behind the Calmfors-Driffill hypothesis of collective bargaining.
In his final book, Power and Prosperity, Olson distinguished between the economic effects of different types of government, in particular, tyranny, anarchy and democracy. Olson argued that a "roving bandit" (under anarchy) has an incentive only to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it. The stationary bandit thereby takes on the primordial function of government - protection of his citizens and property against roving bandits. Olson saw in the move from roving bandits to stationary bandits the seeds of civilization, paving the way for democracy, which improves incentives for good government by more closely aligning it with the wishes of the population.
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Displaying 1 - 30 of 42 reviews
December 2, 2023
17 Oct. 2017
I remember reading this book somewhere between 1982-85, since my Uncle Chuck had loaned me his copy after he read and liked it. I remember liking it quite a bit too, and being convinced of the argument - that developed nations tended to start growing slower and stagnating due to the special interests getting more and more political power and legislation passing that prevented competition, faster growth, innovation and development.
The author is seen as one of the key players in the development of the field of "public choice" economics, is highly admired and justifiably so.
The things that knocked down my rating of the book were:
1. the ponderous writing style
2. the author's wildly wacky antipathy toward laissez faire ideas (fortunately, I think it was only 1-2 pages long of his very sad rant).
As I remember, Olson did nothing to actually explore or seriously critique the very strong case for Laissez Faire by Adam Smith, David Ricardo, other classical economists and crucially the economic marginal revolutionaries in the Austrian school of economics such as Carl Menger, Eugen Böhm-Bawerk and Ludwig Mises. If he had explored these ideas seriously, I bet he may not have made such a nasty and ill-informed statement about laissez-faire. However, it is possible that he just did this to keep the prevailing anti-capitalist academics off his back and from torpedoing his chances of the book (and his career) being successful.
So I recommend the book and it's sound thesis highly.
But beware the writing style is a real slog.
Updated in a minor way: 2020-01-07
2021-04-09 minor style, typo and a few substantial changes made.
2023-12-02 more minor style/emphasis changes.
I remember reading this book somewhere between 1982-85, since my Uncle Chuck had loaned me his copy after he read and liked it. I remember liking it quite a bit too, and being convinced of the argument - that developed nations tended to start growing slower and stagnating due to the special interests getting more and more political power and legislation passing that prevented competition, faster growth, innovation and development.
The author is seen as one of the key players in the development of the field of "public choice" economics, is highly admired and justifiably so.
The things that knocked down my rating of the book were:
1. the ponderous writing style
2. the author's wildly wacky antipathy toward laissez faire ideas (fortunately, I think it was only 1-2 pages long of his very sad rant).
As I remember, Olson did nothing to actually explore or seriously critique the very strong case for Laissez Faire by Adam Smith, David Ricardo, other classical economists and crucially the economic marginal revolutionaries in the Austrian school of economics such as Carl Menger, Eugen Böhm-Bawerk and Ludwig Mises. If he had explored these ideas seriously, I bet he may not have made such a nasty and ill-informed statement about laissez-faire. However, it is possible that he just did this to keep the prevailing anti-capitalist academics off his back and from torpedoing his chances of the book (and his career) being successful.
So I recommend the book and it's sound thesis highly.
But beware the writing style is a real slog.
Updated in a minor way: 2020-01-07
2021-04-09 minor style, typo and a few substantial changes made.
2023-12-02 more minor style/emphasis changes.
November 11, 2016
A genuine classic.
Mancur Olson starts with a three chapter summary of his “Logic of Collective Action,” where he explained how stability breeds special interest groups (e.g. cartels, guilds, unions, oligopolies etc.) and how those groups acquire influence in an economy. Some of the most basic observations are
1. Bargaining power will never be perfectly symmetric, i.e. there will be winners and losers;
2. The longer the period of stability, the more these special interests will flourish;
3. Smaller groups can organize better than bigger ones;
4. Cartels are bad for growth;
5. Smaller ones are worse than big ones (for example a union that represents every worker must in the end take account of what’s good for society at large, but a small one needn’t);
6. These “Distributional Coalitions” slow things down because they only have one or two levers to pull and must satisfy the needs of all their members,
6b. the easiest lever to control is price, because it’s observable, rather than quantity;
7. Special interest groups fight progress that might make them redundant;
8. In order to form, cartels must include everybody who can produce a good / provide a service, but then they concentrate on excluding everybody else;
9. As these special interest groups accumulate they make the economy and society progressively unworkable.
Armed with these basic findings from “The Logic,” Olson takes you on a truly amazing voyage where he applies the lessons learnt. He runs all the regressions you’d ever need to convince yourself that US states that joined the union later are growing faster than those which joined earlier because the various “coalitions” like unions and lawyers have had less time to organize. He compares the growth of rich countries and demonstrates that the UK is suffering growth-wise because its polity has been uninterrupted for the longest time. (Thatcher had only been in office for 3 years when he wrote this!) Japan and Germany, on the other hand , grew the fastest post-war and that could well have had something to do with the fact that their militaristic pre-war governments first quashed anything resembling a “special interest,” while the US occupations subsequently levelled the political playing field. He moves on to the success of the European Union in tearing down trade barriers, with all the economic benefits it reaped, and laments that this was more of a coincidence than anything else, since he is not aware of a single case where trade barriers were not torn down by a separate political reason. (the book pre-dates NAFTA) So, for example, the EEC (the precursor of the EU) was founded to prevent another Franco-German war and to provide a counterweight to the superpowers, trade was but the excuse. From there he moves on to explain the motives for primogeniture in European nobility, the formation of castes in India and apartheid in South Africa: a group enacts an exclusionary practice to preserve a privilege, and as time goes by the practice gets progressively stricter, as the gradient of privilege between insiders and outsiders increases.
And so on.
I now understand 1948-1981 Greece ten times better. I understand why we used to make washing machines in Greece, why we established distilleries and alumina smelting facilities in some of the most beautiful settings on earth (ancient Eleusis and Delphi) and why I was limited to USD 250 of hard currency per trip. Rather than do the right thing and develop from scratch industries that took advantage of my country’s unique location, the lazy upper class imported already existing business models from abroad, protected itself with massive tariffs and made sure we normal people did not have the ability to buy foreign products. So when we got the double whammy of EEC entry and borrow-and-spend “Socialists” in 1980 and 1981 our goose was well cooked. I had always known that the socialists took us from 18% debt/GDP in 1980 to 85% by 1985, all wasted on building “Sweden on the Aegean,” but now I also understand why all pre-existing business disappeared in less than half a decade, leaving us all dependent on the largesse of our government and its international sponsors. It is unlikely we will ever recover. Sigh!
The book ends with the author’s best shot at explaining the problem of his times, stagflation. In short, all the various cartels, guilds, unions etc. end up setting the prices for their products and their sweat above what would otherwise be the market-clearing price. If the economy is doing better, this mispricing becomes less unjustified, but if the economy is doing worse (for example subsequent to a shock to relative prices which leaves everybody in an economy poorer, like the one caused by OPEC) then the mispricing becomes even worse. So the misallocation of resources is less egregious when prices go higher than when they go lower. So the “natural” drift in prices, the one that hurts the least, is upwards. So when nominal income for the economy goes down, the more natural way to take the hit is via quantity, rather than price. A la limite, and as the powerful lobbies push their own agendas increasingly harder, you could even observe rising prices. And from that he concludes that “the best macroeconomic policy is good microeconomic policy.” Stop protecting your local industry from foreign competition, force companies to compete with each other in the marketplace, force the workforce to get rid of restraints on new entrants and the macroeconomy will take care of itself. IS ANYONE LISTENING?
So this was overall an amazing read. What I most enjoyed, however, was the continuous torrent of pithy one-liners that flow so effortlessly off of Olson’s pen. My favourite: “evolution also happens in the zoo, not only in the jungle.” Wow!
Mancur Olson starts with a three chapter summary of his “Logic of Collective Action,” where he explained how stability breeds special interest groups (e.g. cartels, guilds, unions, oligopolies etc.) and how those groups acquire influence in an economy. Some of the most basic observations are
1. Bargaining power will never be perfectly symmetric, i.e. there will be winners and losers;
2. The longer the period of stability, the more these special interests will flourish;
3. Smaller groups can organize better than bigger ones;
4. Cartels are bad for growth;
5. Smaller ones are worse than big ones (for example a union that represents every worker must in the end take account of what’s good for society at large, but a small one needn’t);
6. These “Distributional Coalitions” slow things down because they only have one or two levers to pull and must satisfy the needs of all their members,
6b. the easiest lever to control is price, because it’s observable, rather than quantity;
7. Special interest groups fight progress that might make them redundant;
8. In order to form, cartels must include everybody who can produce a good / provide a service, but then they concentrate on excluding everybody else;
9. As these special interest groups accumulate they make the economy and society progressively unworkable.
Armed with these basic findings from “The Logic,” Olson takes you on a truly amazing voyage where he applies the lessons learnt. He runs all the regressions you’d ever need to convince yourself that US states that joined the union later are growing faster than those which joined earlier because the various “coalitions” like unions and lawyers have had less time to organize. He compares the growth of rich countries and demonstrates that the UK is suffering growth-wise because its polity has been uninterrupted for the longest time. (Thatcher had only been in office for 3 years when he wrote this!) Japan and Germany, on the other hand , grew the fastest post-war and that could well have had something to do with the fact that their militaristic pre-war governments first quashed anything resembling a “special interest,” while the US occupations subsequently levelled the political playing field. He moves on to the success of the European Union in tearing down trade barriers, with all the economic benefits it reaped, and laments that this was more of a coincidence than anything else, since he is not aware of a single case where trade barriers were not torn down by a separate political reason. (the book pre-dates NAFTA) So, for example, the EEC (the precursor of the EU) was founded to prevent another Franco-German war and to provide a counterweight to the superpowers, trade was but the excuse. From there he moves on to explain the motives for primogeniture in European nobility, the formation of castes in India and apartheid in South Africa: a group enacts an exclusionary practice to preserve a privilege, and as time goes by the practice gets progressively stricter, as the gradient of privilege between insiders and outsiders increases.
And so on.
I now understand 1948-1981 Greece ten times better. I understand why we used to make washing machines in Greece, why we established distilleries and alumina smelting facilities in some of the most beautiful settings on earth (ancient Eleusis and Delphi) and why I was limited to USD 250 of hard currency per trip. Rather than do the right thing and develop from scratch industries that took advantage of my country’s unique location, the lazy upper class imported already existing business models from abroad, protected itself with massive tariffs and made sure we normal people did not have the ability to buy foreign products. So when we got the double whammy of EEC entry and borrow-and-spend “Socialists” in 1980 and 1981 our goose was well cooked. I had always known that the socialists took us from 18% debt/GDP in 1980 to 85% by 1985, all wasted on building “Sweden on the Aegean,” but now I also understand why all pre-existing business disappeared in less than half a decade, leaving us all dependent on the largesse of our government and its international sponsors. It is unlikely we will ever recover. Sigh!
The book ends with the author’s best shot at explaining the problem of his times, stagflation. In short, all the various cartels, guilds, unions etc. end up setting the prices for their products and their sweat above what would otherwise be the market-clearing price. If the economy is doing better, this mispricing becomes less unjustified, but if the economy is doing worse (for example subsequent to a shock to relative prices which leaves everybody in an economy poorer, like the one caused by OPEC) then the mispricing becomes even worse. So the misallocation of resources is less egregious when prices go higher than when they go lower. So the “natural” drift in prices, the one that hurts the least, is upwards. So when nominal income for the economy goes down, the more natural way to take the hit is via quantity, rather than price. A la limite, and as the powerful lobbies push their own agendas increasingly harder, you could even observe rising prices. And from that he concludes that “the best macroeconomic policy is good microeconomic policy.” Stop protecting your local industry from foreign competition, force companies to compete with each other in the marketplace, force the workforce to get rid of restraints on new entrants and the macroeconomy will take care of itself. IS ANYONE LISTENING?
So this was overall an amazing read. What I most enjoyed, however, was the continuous torrent of pithy one-liners that flow so effortlessly off of Olson’s pen. My favourite: “evolution also happens in the zoo, not only in the jungle.” Wow!
August 12, 2016
It's pretty rare that you find a book, particularly in a well-trodden field like economics, that manages to feel both original and important. Its main thesis is simplicity itself - that societies over time accumulate interest groups like ships' hulls accumulate barnacles, and over time these groups become more interested in rerouting the benefits of progress to themselves than investing in the future. Think labor unions, manufacturer's groups, advocacy organizations, even charities. He builds on his earlier work, The Logic of Collective Action, in identifying why special interests form, some barriers to their formation and success, and how they persist and operate once formed.
It seems both inarguable and almost obvious, in the way of the best economic logic, but in much the same way that an idea as seemingly non-controversial today as division of labor had to be explained over hundreds of pages way back in the day by Adam Smith, so Olson has to spend his time laying out all the background detail on how groups decide to grab their slice of the economic pie rather than investing in bakeries and making more pies, instead of just condensing his arguments to bullet points and getting on with it. One of the things that endeared this book to me is that it neatly complements the existing schools of economic thought - you can still be a die-hard Friedmanite or Keynesian while still accepting his regressions on the effects of interest groups on growth rates. Additionally, he doesn't take an ideological stance on whether these groups are good or bad; special interests are simply advocating for whatever is special to them, and rare is the reader who won't agree that at least some special interest groups are doing some good overall.
The ultimate implications of his book as I understand them are not so good for the US: once a society becomes encrusted to a point with groups dedicated to redirecting output towards their members (e.g. Social Security and Medicare for the AARP, farm and energy subsidies for the folks in flyover states, the military-industrial complex in its entirety), it becomes almost impossible to dislodge them without some kind of shock to the political system equivalent to a revolution or a defeat in a war (the temporary lack of interest groups is his major explanation for the rapid growth of the seemingly ruined Axis nations after World War 2). So after political shocks, countries can experience years or decades of "catch-up" growth until coalitions start forming to argue for special treatment, and ironically fast-growing societies can sow the seeds of their own stagnation by betting that it's cheaper to buy off these coalitions rather than fight them, until lo and behold they grind to a halt. The United States has been blessed with an unusually stable political system relative to most other advanced nations, and stability is the perfect breeding ground for parasites, so even the recent recession, as traumatic as it is for average people, has made little impact on Capitol Hill where the real action and lobbying and horse-trading have continued practically uninterrupted.
This all has real consequences: if you look at a graph of American GDP growth by decade, each one is inevitably less than the one before, with the sole exception of the 90s as the Baby Boomers entered their working prime. Lacking that irreproducible demographic bonus, and barring future technological miracles (the "New Economy" of internet companies doesn't look like it's going too well), America can look forward to ever-slower growth in spite of all its other advantages like plentiful immigration and its world-class universities, simply because there are so many interest groups trying to grab goodies for themselves. This is of course on top of other challenges like climate change, the steady evaporation of the middle class, and transnationalized businesses that don't really care about the average chump who can't afford their stuff anyway, and so it's kind of tough to see where we can go from here.
However, I'm not really sure his ending arguments about the way that flexible prices operate in an era of stagflation - supposedly the climax of the book and the strongest formulation of his alternative to Keynes - is very accurate, at least with respect to the Great Recession: unemployment has doubled across the board in every industry, in every state, for every educational level, which is something that's tough to explain as the result of distributional coalitions and constrained movement between the "flexprice" versus "fixprice" sectors. Also, a lot of his regression tests seem to have broken down completely in the intervening years (this book was published in 1982), like the relationship between state-level unionization and unemployment, which obviously considerably weakens his theory.
I still think Keynes has the best foundational framework for thinking through the mechanics of recessions. Still, it's an interesting book, even inarguably "true" in parts, and so I think it's a valuable addition to everyone's mental economics toolbox, especially the parts emphasizing how historically dependent a lot of economic theories are. Unfortunately his is too, but that's pretty much unavoidable. Economics is often nothing more than philosophy with a veneer of psychology, rather than the physics with a veneer of politics it pretends to be.
It seems both inarguable and almost obvious, in the way of the best economic logic, but in much the same way that an idea as seemingly non-controversial today as division of labor had to be explained over hundreds of pages way back in the day by Adam Smith, so Olson has to spend his time laying out all the background detail on how groups decide to grab their slice of the economic pie rather than investing in bakeries and making more pies, instead of just condensing his arguments to bullet points and getting on with it. One of the things that endeared this book to me is that it neatly complements the existing schools of economic thought - you can still be a die-hard Friedmanite or Keynesian while still accepting his regressions on the effects of interest groups on growth rates. Additionally, he doesn't take an ideological stance on whether these groups are good or bad; special interests are simply advocating for whatever is special to them, and rare is the reader who won't agree that at least some special interest groups are doing some good overall.
The ultimate implications of his book as I understand them are not so good for the US: once a society becomes encrusted to a point with groups dedicated to redirecting output towards their members (e.g. Social Security and Medicare for the AARP, farm and energy subsidies for the folks in flyover states, the military-industrial complex in its entirety), it becomes almost impossible to dislodge them without some kind of shock to the political system equivalent to a revolution or a defeat in a war (the temporary lack of interest groups is his major explanation for the rapid growth of the seemingly ruined Axis nations after World War 2). So after political shocks, countries can experience years or decades of "catch-up" growth until coalitions start forming to argue for special treatment, and ironically fast-growing societies can sow the seeds of their own stagnation by betting that it's cheaper to buy off these coalitions rather than fight them, until lo and behold they grind to a halt. The United States has been blessed with an unusually stable political system relative to most other advanced nations, and stability is the perfect breeding ground for parasites, so even the recent recession, as traumatic as it is for average people, has made little impact on Capitol Hill where the real action and lobbying and horse-trading have continued practically uninterrupted.
This all has real consequences: if you look at a graph of American GDP growth by decade, each one is inevitably less than the one before, with the sole exception of the 90s as the Baby Boomers entered their working prime. Lacking that irreproducible demographic bonus, and barring future technological miracles (the "New Economy" of internet companies doesn't look like it's going too well), America can look forward to ever-slower growth in spite of all its other advantages like plentiful immigration and its world-class universities, simply because there are so many interest groups trying to grab goodies for themselves. This is of course on top of other challenges like climate change, the steady evaporation of the middle class, and transnationalized businesses that don't really care about the average chump who can't afford their stuff anyway, and so it's kind of tough to see where we can go from here.
However, I'm not really sure his ending arguments about the way that flexible prices operate in an era of stagflation - supposedly the climax of the book and the strongest formulation of his alternative to Keynes - is very accurate, at least with respect to the Great Recession: unemployment has doubled across the board in every industry, in every state, for every educational level, which is something that's tough to explain as the result of distributional coalitions and constrained movement between the "flexprice" versus "fixprice" sectors. Also, a lot of his regression tests seem to have broken down completely in the intervening years (this book was published in 1982), like the relationship between state-level unionization and unemployment, which obviously considerably weakens his theory.
I still think Keynes has the best foundational framework for thinking through the mechanics of recessions. Still, it's an interesting book, even inarguably "true" in parts, and so I think it's a valuable addition to everyone's mental economics toolbox, especially the parts emphasizing how historically dependent a lot of economic theories are. Unfortunately his is too, but that's pretty much unavoidable. Economics is often nothing more than philosophy with a veneer of psychology, rather than the physics with a veneer of politics it pretends to be.
Want to read
November 4, 2021I think I was reading the article
The passing of western civilization
and got seduced into thinking I wanted to dig in deeper. I’m already pretty convinced that a collapse of our global economy is coming in a few decades — I was telling my sister that in another decade or two we are going to have people in climate refugee camps (we won’t call them that, of course) within a decade or so, and it’s going to get worse from there. And that the U.S. will be far better off than places that already have too much heat and/or too little water.
But I’ve got a lot of other reading to do that’ll be more rewarding, so I probably shouldn’t have bought a copy of this. It’s just going to sit on one of my stacks of aspirational reading material unless I someday get organized enough to shelve it on one of my bookshelves of the same.
But I’ve got a lot of other reading to do that’ll be more rewarding, so I probably shouldn’t have bought a copy of this. It’s just going to sit on one of my stacks of aspirational reading material unless I someday get organized enough to shelve it on one of my bookshelves of the same.
Maybe I’ll sneak it into a neighborhood Little Free Library and inflict it on someone else?
February 11, 2021
TL;DR: parasitic coalitions - unions, subsidized industries, licensed professions, etc - multiply, causing distributive conflicts and allocative inefficiency, and those coalitions can’t be destroyed unless there is radical institutional change, like foreign occupation or totalitarianism.
There are lots of political, social, and cultural implications. But we can't do much about any of that, so instead I wrote about the financial implications - what does Olson's argument mean for our savings and investiments? It's here: http://thiagomarzagao.com/2021/02/11/...
There are lots of political, social, and cultural implications. But we can't do much about any of that, so instead I wrote about the financial implications - what does Olson's argument mean for our savings and investiments? It's here: http://thiagomarzagao.com/2021/02/11/...
Want to read
July 3, 2023HD82 O565 1982 Memorial Library and College Library Rm. 1191
July 5, 2018
Five-star ideas and two-star writing. Olson is brilliant but this book is a terrible slog - meandering, verbose, unstructured, unfocused. Spare yourself the trudge and pick up the useful cliffs notes here:
http://marieljohn.blogspot.com/2010/0...
The main takeaway of this book is that special interest groups are a drag on national economies. This is an intuitively appealing concept - don’t we all hate special interest groups? or at least the special interest groups run by Those People? But its very appeal justifies a deep skepticism - beware sciency-looking explanations of things you already agree with, especially when they are based on regressions. To his credit, Olson acknowledges this and sets himself a high bar (and writes about the challenge at length!). And then he tackles the (very small) data set of very dissimilar national examples and US states and runs a lot of regressions and voila, presents evidence that does support his point.
But does the evidence prove his point? Not really. The length of time a jurisdiction has had to develop interest groups appears, at best, to have *some limited explanatory power* for the economic measurement of national productive output. Not enough to declare the question of economic growth solved and develop deep-digging policy solutions based on the theory.
Two problems interest me:
1) The measurement of economic growth itself is a poor proxy for national well-being. Consider that it does not capture, for example, environmental degradation. So we may find that environmental conservation groups are a drag on “the economy” but only to the extent that “the economy” is defined to exclude environmental values.
2) The interrelationship between non-governmental interest groups and governmental/bureaucratic interests is not really explained when treating government as a monolithic black box against which private interest groups operate. Seems much more complicated than this.
Still, the ideas in the book are absolutely worth understanding and keeping in mind - as rarely will there be a policy question that does not involve collective action, and the inequalities and inefficiencies inherent in collusive advocacy.
http://marieljohn.blogspot.com/2010/0...
The main takeaway of this book is that special interest groups are a drag on national economies. This is an intuitively appealing concept - don’t we all hate special interest groups? or at least the special interest groups run by Those People? But its very appeal justifies a deep skepticism - beware sciency-looking explanations of things you already agree with, especially when they are based on regressions. To his credit, Olson acknowledges this and sets himself a high bar (and writes about the challenge at length!). And then he tackles the (very small) data set of very dissimilar national examples and US states and runs a lot of regressions and voila, presents evidence that does support his point.
But does the evidence prove his point? Not really. The length of time a jurisdiction has had to develop interest groups appears, at best, to have *some limited explanatory power* for the economic measurement of national productive output. Not enough to declare the question of economic growth solved and develop deep-digging policy solutions based on the theory.
Two problems interest me:
1) The measurement of economic growth itself is a poor proxy for national well-being. Consider that it does not capture, for example, environmental degradation. So we may find that environmental conservation groups are a drag on “the economy” but only to the extent that “the economy” is defined to exclude environmental values.
2) The interrelationship between non-governmental interest groups and governmental/bureaucratic interests is not really explained when treating government as a monolithic black box against which private interest groups operate. Seems much more complicated than this.
Still, the ideas in the book are absolutely worth understanding and keeping in mind - as rarely will there be a policy question that does not involve collective action, and the inequalities and inefficiencies inherent in collusive advocacy.
August 9, 2016
The second of three major works by the late University of Maryland economist Mancur Olson, The Rise and Decline of Nations builds on the theories of his first work, The Logic of Collective Action: Public Goods and the Theory of Groups, and applies them to macroeconomic issues, in particular: stagflation, unemployment, and business cycles. Olson writes for a general audience, with both the economic theory and the examples presented in plain English and well explained. The final chapter delves a bit deeper into economic theory, but will still be within the grasp of non-economists.
For centuries, if not millennia, people have been fascinated by the rise and fall of nations. Many have written about the issue in various ways: Edward Gibbon opted for an historical case study in The Decline and Fall of the Roman Empire; Jared Diamond took a broad, resource-based geographic approach in his bestselling Guns, Germs and Steel; while Thomas Piketty in Capital in the Twenty-first Century used an economic approach to note that extreme divergences in wealth have historically led to civil unrest, revolution, and the collapse of regimes.
Olson acknowledges in his first chapter John Maynard Keynes’ enormous contribution to economic theory, but notes too the gap between his macro-economic focus and the micro-economic context within which individuals operate. Olson aims to link macro and micro, and endeavors to show over the course of his book “how involuntary unemployment, and also deep depressions, can occur even when each decision maker in the economy acts in accordance with his or her best interests.”
Like Piketty, Olson looks to more recent history. He cites European countries’ varied rates of economic growth or decline and the many, varied theories advanced in their explanation, and then wonders if there might not be some more unified explanation, something that has been missed. Olson uses a bottom-up approach, drawing on his earlier work in Logic to propose that the incentive and ability of groups to self-organize within a society has a growing impact over time on economic efficiency and growth. From this, he draws nine implications:
1. “There will be no countries that attain symmetrical organization of all groups with a common interest and thereby attain optimal outcomes through comprehensive bargaining.
2. Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time.
3. Members of "small" groups have disproportionate organizational power for collective action, and this disproportion diminishes but does not disappear over time in stable societies.
4. On balance, special-interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.
5. Encompassing organizations have some incentive to make the society in which they operate more prosperous, and an incentive to redistribute income to their members with as little excess burden as possible, and to cease such redistribution unless the amount redistributed is substantial in relation to the social cost of the redistribution.
6. Distributional coalitions make decisions more slowly than the individuals and firms of which they are comprised, tend to have crowded agendas and bargaining tables, and more often fix prices than quantities.
7. Distributional coalitions slow down a society's capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.
8. Distributional coalitions, once big enough to succeed, are exclusive, and seek to limit the diversity of incomes and values of their membership.
9. The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution."
Bolstering the data-set, Olson expands the historical European figures to include the growth rates of different states within the US, and then of various countries around the world. He then matches the economic growth rates with the growth and intensity of each jurisdiction’s special interest groups, paying close attention his theory’s nine implications.
“The logic of the argument implies that countries that have had democratic freedom of organization without upheaval or invasion the longest will suffer the most from growth-repressing organizations and combinations”, but Olson warns that forward looking citizens shouldn’t hope for upheaval to spur growth any more than Piketty’s poorer citizens should look for the wealthy to go bankrupt as a way of reducing inequality. Rather, they should look to improve economic outcomes for all through cross-border free trade and the mobility of the factors of production, because Olson’s nine implications break down across borders (i.e. without a stable nation-state to nurture them).
In his concluding chapter, Olson brings his theoretical framework to address his (and other economists’) concerns about Keynsian and monetarist (and two related) models, and in particular their failure to address high unemployment or the combination of high unemployment and high inflation (stagflation). The explanatory variable, contends Olson, is the societal and labour rigidities, in part caused by special interest groups and imperfect information.
The book was written in 1982, when stagflation was presumed economically impossible. (The Philips Curve predicted a trade-off between unemployment and inflation, not both together). Reading today, though, Olson’s theories are still fresh, and can be used to frame many inefficient (and often annoying) structures we see around us: sclerotic labour unions; powerful industry lobbies; antiquated organisations; and – following Olson’s second implication that organisational difficulty increases with group size – also groups that would be welcome but haven’t been able to organise. With the internet age and new communication tools, Olsen’s theories will provoke further thought still.
For centuries, if not millennia, people have been fascinated by the rise and fall of nations. Many have written about the issue in various ways: Edward Gibbon opted for an historical case study in The Decline and Fall of the Roman Empire; Jared Diamond took a broad, resource-based geographic approach in his bestselling Guns, Germs and Steel; while Thomas Piketty in Capital in the Twenty-first Century used an economic approach to note that extreme divergences in wealth have historically led to civil unrest, revolution, and the collapse of regimes.
Olson acknowledges in his first chapter John Maynard Keynes’ enormous contribution to economic theory, but notes too the gap between his macro-economic focus and the micro-economic context within which individuals operate. Olson aims to link macro and micro, and endeavors to show over the course of his book “how involuntary unemployment, and also deep depressions, can occur even when each decision maker in the economy acts in accordance with his or her best interests.”
Like Piketty, Olson looks to more recent history. He cites European countries’ varied rates of economic growth or decline and the many, varied theories advanced in their explanation, and then wonders if there might not be some more unified explanation, something that has been missed. Olson uses a bottom-up approach, drawing on his earlier work in Logic to propose that the incentive and ability of groups to self-organize within a society has a growing impact over time on economic efficiency and growth. From this, he draws nine implications:
1. “There will be no countries that attain symmetrical organization of all groups with a common interest and thereby attain optimal outcomes through comprehensive bargaining.
2. Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time.
3. Members of "small" groups have disproportionate organizational power for collective action, and this disproportion diminishes but does not disappear over time in stable societies.
4. On balance, special-interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.
5. Encompassing organizations have some incentive to make the society in which they operate more prosperous, and an incentive to redistribute income to their members with as little excess burden as possible, and to cease such redistribution unless the amount redistributed is substantial in relation to the social cost of the redistribution.
6. Distributional coalitions make decisions more slowly than the individuals and firms of which they are comprised, tend to have crowded agendas and bargaining tables, and more often fix prices than quantities.
7. Distributional coalitions slow down a society's capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.
8. Distributional coalitions, once big enough to succeed, are exclusive, and seek to limit the diversity of incomes and values of their membership.
9. The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution."
Bolstering the data-set, Olson expands the historical European figures to include the growth rates of different states within the US, and then of various countries around the world. He then matches the economic growth rates with the growth and intensity of each jurisdiction’s special interest groups, paying close attention his theory’s nine implications.
“The logic of the argument implies that countries that have had democratic freedom of organization without upheaval or invasion the longest will suffer the most from growth-repressing organizations and combinations”, but Olson warns that forward looking citizens shouldn’t hope for upheaval to spur growth any more than Piketty’s poorer citizens should look for the wealthy to go bankrupt as a way of reducing inequality. Rather, they should look to improve economic outcomes for all through cross-border free trade and the mobility of the factors of production, because Olson’s nine implications break down across borders (i.e. without a stable nation-state to nurture them).
In his concluding chapter, Olson brings his theoretical framework to address his (and other economists’) concerns about Keynsian and monetarist (and two related) models, and in particular their failure to address high unemployment or the combination of high unemployment and high inflation (stagflation). The explanatory variable, contends Olson, is the societal and labour rigidities, in part caused by special interest groups and imperfect information.
The book was written in 1982, when stagflation was presumed economically impossible. (The Philips Curve predicted a trade-off between unemployment and inflation, not both together). Reading today, though, Olson’s theories are still fresh, and can be used to frame many inefficient (and often annoying) structures we see around us: sclerotic labour unions; powerful industry lobbies; antiquated organisations; and – following Olson’s second implication that organisational difficulty increases with group size – also groups that would be welcome but haven’t been able to organise. With the internet age and new communication tools, Olsen’s theories will provoke further thought still.
October 14, 2009
Mancur Olson was a first class thinker and an economist held in high esteem. His "The Logic of Collective Action" is rightly regarded as a classic (not hype in this case). This book is another fascinating product from Olson's mind. It is not a classic at the level of the book just mentioned, but this volume did have an effect on thinking and research.
The thesis is relatively straightforward. The longer any society experiences political stability and economic success, one natural consequence is the development of an expanded and more active interest group system. The end result? The interest groups work to build preferences into the country's legislative and administrative structures, with deleterious results on economic growth and vibrancy. Inefficiencies burgeon and economies stagnate. . . .
The thesis, thus stated, is surely plausible. We hear routinely of how interest groups prevent change and lobby hard for protection of their position. Thus stated, Olson's book develops this thesis nicely and provides some historical examples and other evidence to support the perspective.
Since publication of the book, a number of emprircal studies have been carried out to test Oldon's thesis--with mixed results.
However, sometimes a book is more important for the thinking that it stimulates rather than for simple tests of the author's arguments. In some senses, I think that this book had a substantial impact in its day on thinking about the consequences of interest groups from a "big picture" perspective. Worth reading for the thinking that will result! From my perspective? A bit simplistic. . . .
The thesis is relatively straightforward. The longer any society experiences political stability and economic success, one natural consequence is the development of an expanded and more active interest group system. The end result? The interest groups work to build preferences into the country's legislative and administrative structures, with deleterious results on economic growth and vibrancy. Inefficiencies burgeon and economies stagnate. . . .
The thesis, thus stated, is surely plausible. We hear routinely of how interest groups prevent change and lobby hard for protection of their position. Thus stated, Olson's book develops this thesis nicely and provides some historical examples and other evidence to support the perspective.
Since publication of the book, a number of emprircal studies have been carried out to test Oldon's thesis--with mixed results.
However, sometimes a book is more important for the thinking that it stimulates rather than for simple tests of the author's arguments. In some senses, I think that this book had a substantial impact in its day on thinking about the consequences of interest groups from a "big picture" perspective. Worth reading for the thinking that will result! From my perspective? A bit simplistic. . . .
May 7, 2021
This book marked the rise and decline of my interest in economics. I am an engineer by trade with no formal economics training; as a result, despite my diligence in looking up terms and theories, as well as studying the enigmatic figures and tables, a majority of the content escaped me. I am eager to get an economist’s take on the quality of this book. Olson himself claims his writing style is such that a studious non-economist should be able to understand his arguments and models; this was not the case for me. The clearest takeaway in my mind is the retarding impact special interest groups tend to have over time on economic growth. Olson makes this point time and again, and he does give some examples to substantiate it.
I assume Olson was a competent economist; he was not a good writer. I did not count them, but I would estimate that Olson spends a few thousand words outlining why he will not address a given topic either in the immediate chapter, or in the book at all. These qualifications may be important, but Olson uses them as opportunities to interject excessive passages of exposition. My favorite word from the book is "parsimonious", Olson's use of which ironically is anything but.
Perhaps Olson wrote this book for a reader with a higher IQ and education level than mine. I anticipate that there are well-read individuals with understandings of Keynesian economics, stagflation, comparative advantage, etc. who would rate this book higher. For mortal readers, I would not recommend this book.
I assume Olson was a competent economist; he was not a good writer. I did not count them, but I would estimate that Olson spends a few thousand words outlining why he will not address a given topic either in the immediate chapter, or in the book at all. These qualifications may be important, but Olson uses them as opportunities to interject excessive passages of exposition. My favorite word from the book is "parsimonious", Olson's use of which ironically is anything but.
Perhaps Olson wrote this book for a reader with a higher IQ and education level than mine. I anticipate that there are well-read individuals with understandings of Keynesian economics, stagflation, comparative advantage, etc. who would rate this book higher. For mortal readers, I would not recommend this book.
January 25, 2013
I had to read this book for school and it was one of my least-favorite books I have read in a long time. The first chapters of the book that set up his argument were okay, but the chapters on why his argument was right (and especially the last chapter on macroeconomic theory) did not interest me much. I also did not really like the author's writing style of "talking" to the reader and inserting himself in the first person. He did not do this often, but I thought it was unnecessary when he did it.
March 23, 2023
Societies that experience long periods of peace and stability accumulate coalitions of special interests that work to shape the economy to their own benefit, in ways that restrict innovation and reduce economic efficiency.
This book is a paragon of social science - it combines strong theoretical and empirical arguments in tackling a big, important question and providing a coherent, convincing answer. It isn't the final word on the topic, and there is plenty of ground that isn't covered, but it is an impressive piece of work.
This book is a paragon of social science - it combines strong theoretical and empirical arguments in tackling a big, important question and providing a coherent, convincing answer. It isn't the final word on the topic, and there is plenty of ground that isn't covered, but it is an impressive piece of work.
August 3, 2013
Important 1982 book that explains how nations are eventually swallowed by their own growing governments and by the special interests who together gradually take control of the economy.
December 29, 2017
I'm one of the laymen (engineering by training) who tried to read this for personal comprehension. Hmmm. It's a tough slog, since the (obviously brilliant) author meanders around the subject and embeds the pearls of wisdom inside a broad treatment. I would have thought that Yale University would have chained a good editor to Olson's ankle, as the reader has to (at least this reader had to) go back and forth to keep up with the reasoning and context. An index would have been valuable to say the least!
The basic take-away is pretty basic; anything that stifles availability of labor or product occurs more frequently over time in stable economies, and has an effect over time of reducing the growth potential of the society. He admits that pure laissez faire capitalism is likely to end up with most of the riches in the hands of the few, and his method to avoid that outcome was not clear to me.
Olson's historical treatment of several large democracies including the USA, UK, Germany, France, as well as India and South Africa also brought out the damages that any racial and/or caste discrimination brings to the potential of an economy. Those are interesting observations.
Much of the intellectual challenge of the concept he offers is included in "figure 1," which is not titled, and is on page 198 of my paperback copy. I'd love to attend a one hour seminar to understand that better, but after several "goes at it," with several cups of coffee over several mornings, I made decent progress and would give myself a C on groking it.
Not quite sure what to do with this, other than to say it's a timely book given the "dog whistles" and overt policy changes of nationalism, protectionism, and barely hidden white pride that are only vaguely hidden behind Trump's statements and policies. History might show that we are on the cusp of some very dangerous developments.
The basic take-away is pretty basic; anything that stifles availability of labor or product occurs more frequently over time in stable economies, and has an effect over time of reducing the growth potential of the society. He admits that pure laissez faire capitalism is likely to end up with most of the riches in the hands of the few, and his method to avoid that outcome was not clear to me.
Olson's historical treatment of several large democracies including the USA, UK, Germany, France, as well as India and South Africa also brought out the damages that any racial and/or caste discrimination brings to the potential of an economy. Those are interesting observations.
Much of the intellectual challenge of the concept he offers is included in "figure 1," which is not titled, and is on page 198 of my paperback copy. I'd love to attend a one hour seminar to understand that better, but after several "goes at it," with several cups of coffee over several mornings, I made decent progress and would give myself a C on groking it.
Not quite sure what to do with this, other than to say it's a timely book given the "dog whistles" and overt policy changes of nationalism, protectionism, and barely hidden white pride that are only vaguely hidden behind Trump's statements and policies. History might show that we are on the cusp of some very dangerous developments.
Read
February 23, 2022I suspect this is one of these books that is difficult to assess in hindsight because it contributed to introducing and normalizing certain concepts & frameworks of understanding; it's hard to know water when you're already swimming in it. Nonetheless some of the terminology coined was useful just to see it laid out: "jurisdictional integration", "distributional coalitions", etc.
I'm not sure I agreed with his macro-economic framings, his focus on Keynesian microeconomics is perhaps warranted, but he didn't really tackle the consequences of "underconsumption" as an aspect of Keynes with respect to his framework? His statistical analysis also felt, well, quaint, given the massive complexity of what he was trying to show, though I appreciated the effort.
I'm not sure I agreed with his macro-economic framings, his focus on Keynesian microeconomics is perhaps warranted, but he didn't really tackle the consequences of "underconsumption" as an aspect of Keynes with respect to his framework? His statistical analysis also felt, well, quaint, given the massive complexity of what he was trying to show, though I appreciated the effort.
December 21, 2022
What a fascinating jaunt back to the early 80's: the terminology (West Germany, the economic miracles), the first and second worlds still intact and the North South issues held in abeyance for the Northern Hemisphere's resolution. But the thesis that special interests grow and mutate like infections in civil society are strangely prescient given our butchered body politic of the 2020s. Does hope still exist?
July 4, 2023
Olsen doesn’t discuss population IQ factors and these explain almost all variation between region in regards to wealth in the long run. That being said in the short run cartelization is a compelling reason for why it took certain regions, such as East Asia, so long to develop despite their relatively high IQs.
December 4, 2023
Excellent and timeless book applying economic analysis to the realm of politics, and informs how politics affects economics and vice versa. However, towards the end where Olson tries to apply this analysis to stagflation, is definitely inaccurate looking back.
April 23, 2021
Great book, interesting ideas. Sometimes slightly harder to read, maybe it was caused by czech translation.
November 4, 2021
Mandatory reading!
November 25, 2021
economics
Not really sure why I picked this book up and lost the thread very quickly. Go figure an economist espousing free and open markets free of special interests.
Not really sure why I picked this book up and lost the thread very quickly. Go figure an economist espousing free and open markets free of special interests.
February 26, 2022
Simply brilliant
July 20, 2023
The author makes some interesting points, though the book is quite academical and has a dry-fact writing style which dulls the importance of these ideas a bit.
January 3, 2024
Interesting concepts, but I read it for a class that talked abt it way to much!!!
February 18, 2024
interesting, but the argument doesn't hold up post 1989....
April 7, 2024
Perhaps I'll add a review later since right away, I have little time.
Been struggling and re-reading while absorbing the text.
Been struggling and re-reading while absorbing the text.
May 15, 2021
[Imported automatically from my blog. Some formatting there may not have translated here.]
Last month I noted an interview with Indiana Governor Mitch Daniels, in which he discussed his "best five" books. This was the one I hadn't read. For the record, the other four were Hayek's The Road to Serfdom[image error]; Free to Choose[image error] by Milton and Rose Friedman; What It Means to Be a Libertarian[image error] by Charles Murray; and The Future and Its Enemies[image error] by Virginia Postrel.
This one is different from those others; in fact, it sticks out like a sore thumb. It's aimed very much at Olson's fellow scholars and researchers, delving occasionally into technical statistical and economic arguments. And the late Olson's prose style makes Hayek look like Danielle Steele. So when I say I "read" this book, I pretty much mean: I looked at least once at every darn page. I can't claim to have grokked his thesis in all its caveats and subtleties. Bear that in mind as you read on.
The book is a sequel of sorts to one based on Olson's Ph. D. thesis research, The Logic of Collective Action[image error], describing a theory of how common-interest organizations evolve in society, and conspire to further their well-being, possibly at the expense of those outside the group. You don't have to have read Logic, though, Olson summarizes its thesis before covering the new ground.
Simply stated: Olson demonstrates that, other things being equal, those "special interest" groups will (a) work to grab more than their share of the economic pie, and furthermore (b) as special interests become vested interests, they act to protect that disproportionate share against erosion. In stable, long-lived polities, special interests have had plenty of time to develop and cement their effectiveness. The economic effects are straightforward: everyone outside the special interest group is worse off than they would otherwise be, and overall prosperity is damaged. The economy also loses dynamism, since the special interests have every motive to resist true innovation; it can upset their tidy little apple carts.
Olson supports this thesis via investigation of such groups around the world and through the ages. He discusses the features of the Indian caste system, South African apartheid, medieval guilds, etc. This is only sporadically interesting. (YMMV.)
Although Olson's book was written decades ago, you don't have to look any further than the daily paper to find examples of what he was talking about: corporate welfare, unions, regulations and laws that benefit old and entrenched firms over young upstarts, … From Daniels' interview:
It was some of the books on this list that helped me to see that the real reactionary movements in a country like ours are what we call the left. These really are the forces of status quo: they may travel under different banners or masquerade as something else but these are the folks who are more often than not trying to freeze in place arrangements that worked well for the 'ins'. So Olson shows you how that happens, Postrel shows you how this happens, Hayek shows you how this happens.But, as noted, Hayek and (especially) Postrel are more accessible.
September 30, 2013
This book is more than an exegesis of economic concerns in the 1980s. It deals with a philosophical question of the nature of Western economies: when the market is perfectly free where everyone in the economy acts in accordance with his or her best interests, why do depression and unemployment still occur?
In this book, the culprits are the wide-spread special interest groups opposing the mainstream economic policies and seeking their own collective economic sanctuaries. By answering the question, the book unveils the relationship between national economies and influence of interest groups. It argues that countless interest groups introduces chaos to economy by restraining free movement of human and capital resources, causing decline in production efficiency, slowing down technical innovations and triggering the problem of ungovernability.
Without any doubts, these problems would only occur in an open access society where formation of private organzitions is unrestricte, and thus can be seen as inevitable consequences of binding Capitalism and modern democracy. However, the necessity of social interest groups as a cause does not imply that it is the only cause. The book diverts readers' attention from other equally probable factors of economic downturn despite the existence of a perfect market economy.
There are three most commonly viewed factors. One often discussed in later works is the "creative destruction". Technological innovations would make a certain portion of work force obsolete. Such unemployment results from the gap between the rate of innovation and the rate of public adaptation to work with these innovations. The other factor would be public's deminishing motivation to work. In Capitalistic society, human motivation to work often derives from their inner insecurity due to lack of wealth, but when the majority of work force becomes middle class, accumulation of wealth reduces public's insecurity and thus thwarts their motivation. The last one is the inevitable economic circles associated with circles of central bank's policies. Central bank's infliction on commercial credit lending usually causes depression; whereas ease of credit tends to forge economic prosperity. The circle of monetary policy, therefore, is a factor of economic wellbeing and often the most crucial one. In fact, one can argue that with central bank's intervention, the market isn't perfectly free.
Turbulence caused by social interest groups, therefore, is clearly one facet of economcy downturn, but these groups are not sufficient to cause depression not to mention the decline of a nation. That having been said, let's move attention back to the book.
Author's analysis of interest groups shows that when society absent from war and other major crisis, individuals with common interests tend to coalesce to seek priviledges. Such coalitions of special interests and consequent competition among them sabotage economy's potential of speedy growth. In countries who just recovered from disorder, like postwar Germany and Japan, coalition of special interest is depressed and their economies experienced the fastest growth. In the US where labor unions prevail, a clear negative correlation was found between labor union growth and local economies' growth.
The book also discusses how distributional coalition puts burden on governmental regulations and relies on heavy historical instances and illustrations to prove author's points. Finally, it suggests that the Western pluralist political structure is incapable to heal wounds inflicted by coalitions and their competitions.
Overall, the book persuaded me to see eye-to-eye with author about the delimma : upheaval of storms made all ships to sail in the same direction at a high speed, whereas ships seeking their own directions in peaceful water slow down the entire fleet. The former is a Keynesian triumph, and the later is a laissez-faire tradegy.
In this book, the culprits are the wide-spread special interest groups opposing the mainstream economic policies and seeking their own collective economic sanctuaries. By answering the question, the book unveils the relationship between national economies and influence of interest groups. It argues that countless interest groups introduces chaos to economy by restraining free movement of human and capital resources, causing decline in production efficiency, slowing down technical innovations and triggering the problem of ungovernability.
Without any doubts, these problems would only occur in an open access society where formation of private organzitions is unrestricte, and thus can be seen as inevitable consequences of binding Capitalism and modern democracy. However, the necessity of social interest groups as a cause does not imply that it is the only cause. The book diverts readers' attention from other equally probable factors of economic downturn despite the existence of a perfect market economy.
There are three most commonly viewed factors. One often discussed in later works is the "creative destruction". Technological innovations would make a certain portion of work force obsolete. Such unemployment results from the gap between the rate of innovation and the rate of public adaptation to work with these innovations. The other factor would be public's deminishing motivation to work. In Capitalistic society, human motivation to work often derives from their inner insecurity due to lack of wealth, but when the majority of work force becomes middle class, accumulation of wealth reduces public's insecurity and thus thwarts their motivation. The last one is the inevitable economic circles associated with circles of central bank's policies. Central bank's infliction on commercial credit lending usually causes depression; whereas ease of credit tends to forge economic prosperity. The circle of monetary policy, therefore, is a factor of economic wellbeing and often the most crucial one. In fact, one can argue that with central bank's intervention, the market isn't perfectly free.
Turbulence caused by social interest groups, therefore, is clearly one facet of economcy downturn, but these groups are not sufficient to cause depression not to mention the decline of a nation. That having been said, let's move attention back to the book.
Author's analysis of interest groups shows that when society absent from war and other major crisis, individuals with common interests tend to coalesce to seek priviledges. Such coalitions of special interests and consequent competition among them sabotage economy's potential of speedy growth. In countries who just recovered from disorder, like postwar Germany and Japan, coalition of special interest is depressed and their economies experienced the fastest growth. In the US where labor unions prevail, a clear negative correlation was found between labor union growth and local economies' growth.
The book also discusses how distributional coalition puts burden on governmental regulations and relies on heavy historical instances and illustrations to prove author's points. Finally, it suggests that the Western pluralist political structure is incapable to heal wounds inflicted by coalitions and their competitions.
Overall, the book persuaded me to see eye-to-eye with author about the delimma : upheaval of storms made all ships to sail in the same direction at a high speed, whereas ships seeking their own directions in peaceful water slow down the entire fleet. The former is a Keynesian triumph, and the later is a laissez-faire tradegy.
May 10, 2014
In The Rise and Decline of Nations, Mancur Olson posits a quite credible theory of why nations grow, stagnate or decline. As I understand it, as nations age they acquire more and more what Olson calls "distributional organizations," (unions, trade unions, manufacturing associations, professional associations, etc.) which tend to make the commercial process sclerotic. (Although he admits that there are multiple other forces at work.)
He supports the theory very well, showing how it explains the rapid growth of Britain in the late 16th and through the early 19th century (and then its decline), the rapid growth of the U.S. from its formation to the early 20th century. He also makes a very good case for his theory explaining the rapid growth of Germany and Japan after WWII, the Caste system in India, Apartheid in South Africa, developing nations, third world nations, etc., etc.
Only the last chapter is not an easy read for those non-economists among us (like me!). But a fascinating theory and book.
He supports the theory very well, showing how it explains the rapid growth of Britain in the late 16th and through the early 19th century (and then its decline), the rapid growth of the U.S. from its formation to the early 20th century. He also makes a very good case for his theory explaining the rapid growth of Germany and Japan after WWII, the Caste system in India, Apartheid in South Africa, developing nations, third world nations, etc., etc.
Only the last chapter is not an easy read for those non-economists among us (like me!). But a fascinating theory and book.
August 3, 2017
The most interesting chapter was the early one where he summarizes his Logic of Collective Action.
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