THE RISE AND DECLINE OF NATIONS by Mancur Olson

Yale University Press 1982. ISBN 0-300-02307-3

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 its 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 its 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 (top)		 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 relevence to economics.

In fact the economics profession itself seems to have undergone the very proccess that Olson describes as the open flexible texts of Adam Smith have turned into a rigid mass of irrelevant mathematics.

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