BY LIMITING TRADE opportunities, hampering the
flow of resources, and limiting society's ability to adapt new technologies, argues Mancur Olson in his new book, "special interest organizations and collusions reduce efficiency and . . . income in the societies in which they operate and make political life more divisive." Olson goes even futher, finding in the operations of special interest groups a fundamental explanation for differences in growth rates among different countries, various states of the Union, even different metropolitan areas.
The implications of this thesis are far-reaching. In Olson's view, long periods of political stability encourage the formation of distributive income groups. In Germany and Japan war and revolution, by destroying and inhibiting the growth of such groups, laid the basis for rapid postwar economic growth. In Switzerland there are strong constitutional obstacles to the function of such groups, while in Sweden and Norway the all-inclusive nature of labor and business organization has managed to soften special interests in favor of joint concern with growth. It is in Great Britain and the United States that the activities of special interests have flourished most freely and with the most damaging impact on growth. Also in Australia and New Zealand, Olson finds that growth rates have been handicapped by tariffs and other impediments to imports introduced to protect local interests.
In the United States special interest groups have a relatively narrow focus and therefore can be more restrictive than in most other countries. "The longer a state has been settled and the longer the time it has had to accumulate special-interest groups, the slower the rate of growth," says Olson. At least, according to the author, this has been true since World War II and particularly since 1960. The only special-interest groups that have yielded state-by-state membership statistics are labor unions but "it is important not to attribute all the losses caused by such organizations and collusions to labor unions." Although unions and other special interest groups are, according to the author, primarily responsible for the movement of "footloose" industries from the long-settled Northeast and Middle West to the newer states of the West and Southwest, and for the fact that new industries prefer to settle there. He finds a similar explanation for the economic decline of certain metropolitan areas. "The best known manifestation of (decline) and of the ungovernability brought about by dense networks of such coalitions is the bankruptcy that New York City would have suffered in the absence of special loan guarantees from the federal government."
In pursuit of his thesis Olson delves into the history of economic development in Western Europe and elsewhere. Olson finds that the industrial revolution did not unfold in the traditional centers of trade in pre-industrial Europe because of the prevalence of guilds and other interest-imposed obstacles to trade in older centers. Local restrictions tended to disappear or become less effective as the area of trade expanded, as illustrated by the union of the 13 colonies, the Zollverein in Germany, and the contemporary European Common Market. He finds the advantages of the Common Market to exist not so much in trade creation as in a more efficient use of resources with the elimintion of special interest-created tariffs.
Olson's analysis of the counterproductive influence of interest groups and combinations is not limited to the developed world. He calls attention to the guild system in China, the feudal restriction to trade in pre-Meiji Japan, the caste system in India and the color bar in South Africa. Laissez faire is not enough to promote an efficient use of resources if there are coalitions hampering trade and the movement of those resources.
The author concludes his study with a chapter on "Stagflation, Unemployment and Business Cycles: An Evolutionary Approach to Macroeconomics." Again he finds that counter-productive interest groups constitute the monkey wrench in the machinery. Neither Keynesianism nor monetarism can explain how inflation and high unemployment can exist together. "Involuntary unemployment can only be explained in terms of the interests and policies that rule out mutually advantageous bargains between those who have their own labor or other goods to sell and those who would gain by buying what is offered." Olson goes on to say that "if combinations dominate markets throughout the economy and the government is always intervening on behalf of special interests, there is no macroeconomic policy that can put things right."
While recognizing that there are other influences that impinge on economic development, the author maintains that the role of interest groups and collusive action is a major, perhaps the major, explanation of divergence of growth rates among countries and areas throughout recorded history. These are large claims but Olson makes a good case for them and, if he is guilty of a certain amount of exaggeration, he has advanced a thesis well worth careful study.