A University of Maryland economist has developed what is being regarded as an important new theory to explain why some nations -- particularly West Germany and Japan -- have grown so rapidly since World War II.
According to Prof. Mancur Olson, organizations such as trade associations and unions act to slow down economic expansion because of their monopoly powers and capacity to obtain special interest legislation.
Such groups are most entrenched where there has been a long period of political stability, freedom of organization and the absence of invasion -- such as the United States and Britain, which have recorded relatively slow economic growth since World War II, Olson concluded.
But in Germany and Japan, totalitarian governments had abolished such organizations and the Allies later did away with groups that had collaborated with the governments that were destroyed.
Olson's theory of comparative growth rates has attracted attention throughout the world and more than 40 leading economists gathered at College Park yesterday to begin a three-day conference on his ideas.
Among the visitors from other countries is Sir John Hicks, of Oxford University, winner of the Nobel Prize for economics in 1972. He told the conference yesterday that any process which slows down decision-making -- such as protracted negotiations with government or labor unions -- contributes to slower overall economic growth for a country.
Olson, who is expected to make a detailed presentation today, also tested his theory on the 48 contiguous states of this country with the aid of a graduate student, Kwang Choi.
They found that the earlier a state was settled and achieved statehood, the greater the membership in sectional interest groups and a slower rate of growth. Similarly, states defeated in the Civil War have lower rates of membership in such organizations and faster growth rates.
Olson's theory runs counter to common explanations (he calls it "folk wisdom") for the unusual expansion in Germany and Japan in recent decades -- that a special industriousness is inherent in their populations, that much of their factories were destroyed and they had no alternative but to rebuild with the most modern technology.
In the case of Britain, slow growth has been attributed to the strength and obstructionism of trade unions and an alleged lack of industry or willingness to accept change, or establishment attitudes and rigid class structure.
These descriptions contain major elements of truth but do not offer an adequate explanation of the phenomenon, Olson said.
The economist, who has a doctorate from Harvard and has taught at Maryland since 1969, focuses his theory on the relative power of labor unions, trade groups, farm organizations, cartels and lobbyists.
In the U.S. and Britain, he concluded, such common-interest organization have an adverse effect on rates of economic growth.
In brief, here are some of the key points to the Olson theory.
An "institutional sclerosis" grips the British and American economies, with associations and groups gaining political and economic power of sufficient strength to delay innovations and reallocation of resources that bring economic growth.
Such common groups as consumers, taxpayers, the unemployed and the poor could benefit from mass organization on their behalf but they never will be able to organize on such a basis for collective action, because they lack incentives of economic benefit that apply to smaller special interest groups.
Countries where common-interest organizations have been emasculated or abolished should tend to grow relatively quickly after a free and stable legal order is established.
In the U.S., common-interest groups are more narrow in relation to the whole economy than those of any other nation. Pressure groups obtain tariffs that keep resources from working where there may be a comparative advantage, or price supports that raise the cost of a product so much that the overall economy is hurt, or tax loopholes that encourage capital to "crowd into" activities where overall benefits are low.