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on 12 June 2011
Mancur Olson along with Milton Friedman and Michael Porter may well be one of the key figures of late 20th century economics. In some respects he is more universal in his outlook than the other two as his life's work represented in this book synthesises economics and politics in a sort of evolutionary life cycle view of societies.

He probably wouldn't have liked to hear it but his ideas have a nice Taoist flavour. As a society becomes more successful, advanced and stable it's institutions become more complex and invariably start to turn the favourable stability into undesirable rigidity. Legislation starts to mushroom along with the people who create and administer it and somehow the society finds that the achievements of it's youth are no longer possible.

He identifies various strands in this process of sclerosis, the main one here being the activity of special interest groups. As he puts it; "the larger the number of individuals or firms that would benefit from a collective good, the smaller the share of the gains from action in the group interest that will accrue to the individual or firm that undertakes the action. Thus, in the absence of selective incentives, the incentive for group action diminishes as group size increases, so that large groups are less able to act in their common interest than small ones."

In normal language, this means that somebody lobbying government for the general good is not going to get as much as somebody lobbying for a small group. A fine example of this would be the farmers in the European Common Agricultural Policy. They gain a great deal in subsidies and controlled prices, managing to spread the cost over a large number of taxpayers and consumers. No individual shopper knows how much extra they are paying for their butter etc., it's not going to be very much anyway and they're not going to hire a lawyer to fight about it.

However, keep this process going on long enough and apply it to enough goods and services and you find a magical growth in prices / regulation / administration / number of lawyers and government share of G.D.P.

In a sense this is the old pre-civilisation tribalism in modern guise. "If you have the power use it. " The common-good on this reading has a very local definition and is blind to the good of the society as a whole.

This seems to be a cultural problem and Olson sheds light on the uncomfortable dual nature of economic liberalism. On the one hand competition is good because it promotes efficiency/ choice and lowers prices but on the other it is an anti-society instinct that easily slides out of control.

The book is heavy going since it has to try to be acceptable to the economic "science" theologians. Unfortunately for Olson it is still heretical to suggest that sociological observation or any of the useful established work in psychology has any relevance to economics.

In fact the economics profession itself seems to have undergone the very process that Olson describes as the open flexible texts of Adam Smith have turned into a rigid mass of irrelevant mathematics.
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on 9 January 2006
Mancur Olson is one of the intellectual giants of our time. His Nobel Prize was awarded for ground breaking work which he presented in his prior major work, "The Logic of Collective Action." This work, as with any economic theorizing that must be taken seriously by the establishment, is formal and quantitative, as are his many published papers in the peer reviewed press.
In the "Rise and Decline of Nations" Mancur Olson revealed the teacher in himself with a lucid readable account that left the mathematics in the footnotes. It was one of those books that Samuel Britten would give to his bright nephew who wants to know what it is all about without doing the difficult math.
His thesis can be simply expressed as follows: societies that are governed by an encompassing interest will function better than societies that are governed by exclusive interests, whether these be tyrants, kings, oligarchs or representative democratic institutions corrupted by narrow interests. It is the inexorable development of the influence of powerful but minority groups that threatens to bring down the efficiency of governments in countries that have been stable for a long time. There is much to say for this interpretation of the evidence. But Olson says more than this. Why, he asks, does this occur?
Why does a successful and vital democratic system become hollowed out from inside? Olson points to the tragedy of the commons. Reviewers on Amazon seem to have missed this central point. Olson shows with rigorous logic why this occurs, and why it is inevitable. An average voter generally feels that his voice is tiny in the sea of a wider electorate. He instinctively knows that a large personal investment in becoming aware of the details of the political and economic life of his country yields a poor individual return, and so he lets someone else do it, or trusts that the politicians will not mess it up too badly. This is a limitation on the ability of the mass to govern itself in addition to the inability of that segment of the electorate that do not have enough schooling to grasp the salient issues. Unless someone is a political pundit, paid for expressing informed political opinion, he will go with the flow or vote according to superficial impressions and imperfect heuristics.
On the other hand, the logic is quite different when the individuals are lobbying for a minority interest that may return direct minority benefits. The commons is smaller. The Coaseian bargain easier to put together. There is a structural bias for those who wish to corrupt the system in the favour of narrow interests to want to invest more effort to do so. That bias easily outweighs any inclination for average citizens to prevent it from happening. And so, in the long term, the governments of stable nations become progressively more corrupt and less representative.
Mancur Olson did not live to see how vividly his theory would be confirmed under the presidency of Bush, junior. It is we who can see this as one more piece of empirical evidence that Olson's theory is correct.
Olson's theory predicts that this will get worse, not better. On the other hand, it is also Olson's prediction that when a very serious crisis takes place, many of the corrupting forces clustered about the centre of power can be flushed away. It is precisely this process in the form of Mao's Cultural Revolution that wiped out the middle cadre of the Communist Party in China, that paved the way for the Chinese miracle taking place today.
We might ask, if we follow Olson's logic, whether the coming economic crash that the current Republican administration of the USA is engineering will be severe enough to bring about a thorough going clean out and an American revival? (And let's face it; Bush's economic policies are incompetent to the point of ruinous. His military and political ones too.) Or will the USA continue throughout the coming 50 years to sink inexorably into a quagmire of economic and political rigidities, to become a has-been nation as the UK did in the last century? Olson seems to predict the latter.
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on 8 January 2006
Mancur Olson is one of the intellectual giants of our time. His Nobel Prize was awarded for ground breaking work which he presented in his prior major work, "The Logic of Collective Action." This work, as with any economic theorizing that must be taken seriously by the establishment, is formal and quantitative, as are his many published papers in the peer reviewed press.
In the "Rise and Decline of Nations" Mancur Olson revealed the teacher in himself with a lucid readable account that left the mathematics in the footnotes. It was one of those books that Samuel Britten would give to his bright nephew who wants to know what it is all about without doing the difficult math.
His thesis can be simply expressed as follows: societies that are governed by an encompassing interest will function better than societies that are governed by exclusive interests, whether these be tyrants, kings, oligarchs or representative democratic institutions corrupted by narrow interests. It is the inexorable development of the influence of powerful but minority groups that threatens to bring down the efficiency of governments in countries that have been stable for a long time. There is much to say for this interpretation of the evidence. But Olson says more than this. Why, he asks, does this occur?
Why does a successful and vital democratic system become hollowed out from inside? Olson points to the tragedy of the commons. Reviewers on Amazon seem to have missed this central point. Olson shows with rigorous logic why this occurs, and why it is inevitable. An average voter generally feels that his voice is tiny in the sea of a wider electorate. He instinctively knows that a large personal investment in becoming aware of the details of the political and economic life of his country yields a poor individual return, and so he lets someone else do it, or trusts that the politicians will not mess it up too badly. This is a limitation on the ability of the mass to govern itself in addition to the inability of that segment of the electorate that do not have enough schooling to grasp the salient issues. Unless someone is a political pundit, paid for expressing informed political opinion, he will go with the flow or vote according to superficial impressions and imperfect heuristics.
On the other hand, the logic is quite different when the individuals are lobbying for a minority interest that may return direct minority benefits. The commons is smaller. The Coaseian bargain easier to put together. There is a structural bias for those who wish to corrupt the system in the favour of narrow interests to want to invest more effort to do so. That bias easily outweighs any inclination for average citizens to prevent it from happening. And so, in the long term, the governments of stable nations become progressively more corrupt and less representative.
Mancur Olson did not live to see how vividly his theory would be confirmed under the presidency of Bush, junior. It is we who can see this as one more piece of empirical evidence that Olson's theory is correct.
Olson's theory predicts that this will get worse, not better. On the other hand, it is also Olson's prediction that when a very serious crisis takes place, many of the corrupting forces clustered about the centre of power can be flushed away. It is precisely this process in the form of Mao's Cultural Revolution that wiped out the middle cadre of the Communist Party in China, that paved the way for the Chinese miracle taking place today.
We might ask, if we follow Olson's logic, whether the coming economic crash that the current Republican administration of the USA is engineering will be severe enough to bring about a thorough going clean out and an American revival? (And let's face it; Bush's economic policies are incompetent to the point of ruinous. His military and political ones too.) Or will the USA continue throughout the coming 50 years to sink inexorably into a quagmire of economic and political rigidities, to become a has-been nation as the UK did in the last century? Olson seems to predict the latter.
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TOP 1000 REVIEWERon 27 August 2014
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!
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on 12 October 2009
Easy to read - easy to digest - easy to understand - a brilliant book - relating how through group behaviour our system becomes ever increasingly difficult to navigate with initial wins for some turning into wholesale losses for the rest of us.

Well worth taking on vacation
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on 18 December 2000
A classic. It elucidates Olson's characteristic theory of interest group formation and their interaction with government, both in theory and in practice. The postwar performance of Western developed economies is directly linked to the extent to which interest representation has developed. Well set out, clear and an impressive work.
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