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The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities

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BOOK REVIEW Mancur Olson: The Rise and Decline of Nations: Economic Growth, Stagflation, ,and Social Rigidities. Yale University Press, 1982, New Haven.

Writing in the political economy tradition, Olson's focus is on the role of institutional factors in explaining the economic performance of a society. His thesis is that a) narrowly based interest groups proliferate in stable societies, and that b) such interest groups interrupts economic growth. Applicating his theory to phenomena as diverse as the Indian caste system, the differential growth rates of various economies , and the macroeconomics of stagflation, he certainly overstates the point when concluding the book by saying that "... the theory certainly explains each of these phenomena far better than any other theories do" (p. 236) ) .

I.

Having at the outset imposed some tough methodological requirements for his theory to meet (it does not) , Olson outlines a rational explanation of the organization of interests, i.e. "the logic of collective action". Drawing on this, he elaborates deductively a model accounting for the behavior of such groups. To this model he connects a neoclassical perspective on resource allocation, and from this framework he derives a chain of implications. The basic content of these is that

-societies that are stable, i.e. undisturbed by wars and revolutions, tend over time to accumulate rent-seeking organizations ,

-these "distributional coalitions", taking on as diverse appearances as castes, professional organizations, social classes, and unions, have' more to gain from concentrating on having national income redistributed in their favor, rather than making their societies more productive, and

-they also reduce society's flexibility in adjusting to change, and increase regulation, bureaucracy, and political intervention in markets, thereby retarding growth.

These evil effects of interest organizations will be alleviated to the extent that these groups are "encompassing", that is, they take the...