For a Distinguished Professor of Economics at the University of Maryland, Mancur Olson cuts a sprightly figure, and he has a not-so-distinguished way, in the middle of an interview, of bounding from his seat, waving his arms in the air and stalking the blackboard like a lion stalking its lunch. But where economic growth is concerned, Olson means to be taken seriously.
While he is careful not to dismiss other economists' theories out of hand, in his unimperious way Olson believes he has the answer to one of the most vexing economic questions of our time: why certain countries outhustle other countries, and why this one, of late, has been among the outhustled.
"New Theory," it says on the back cover of Olson's "The Rise and Decline of Nations." The words are printed in big white letters, the kind that might be used to announce a "new formula" on a bottle of non-prescription medicine. And just as you would expect the medicine bottle to list all the physical ills its formula promises to cure, Olson's book jacket lists all the economic ills his theory promises to explain--unemployment, recession, stagflation, the rapid growth of postwar Germany and Japan, the slow growth of postwar Britain and the United States, the economic gap between the Sun Belt and the Frost Belt, the rise of modern England, Holland and France, "and a great deal more."
Clearly, this is no ordinary theory. Equally clearly, it sprang from the mind of no ordinary economist.
"Mancur" is a variation on the Arabic word for victory. It is also a traditional given name in Mancur Olson's Norwegian-American family, for reasons no one has explained to his satisfaction. "In fanciful moments, I imagine a Viking raid on the Levant," says the 50-year-old Olson, a fair-skinned man whose reddish-blond beard matches the color of his tortoise-shell glasses. "But of course that's pretty fancy."
Slow growth is not a matter of weak "national character" or too little investment in research and development, says Olson, who was interviewed at Resources for the Future, the Massachusetts Avenue think tank that is sponsoring his next book and giving him a part-time refuge from his duties as, in his phrase, "priest and psychiatrist" to his students. The real source of our economic doldrums, he says, lies paradoxically in the long-term success and stability that went before.
The "national character" argument falls down, according to Olson, on timing grounds. "Not only now but in times past," he says, "whoever has been doing well has had some cultural or racial characteristic attached to them which supposedly explains their success." The Japanese, for example, are said to be an unusually cooperative people, but they presumably had the same gift for cooperation a hundred years ago, when, says Olson, they were "desperately poor."
And R&D is not the answer either, he argues. "Science and technology may or may not be applied to meeting the needs of the people," he told a recent gathering at the National Science Foundation, which helped underwrite his book. "There are some periods of history when technical and scientific advances will be applied and other periods when it will not . . . We should think of expenditures on pure science and of R&D as stocking the lakes with fish so that there's more there for the fisherman to catch, but however many fish are in the lake, they're not going to be caught unless there's incentive for someone to go out and buy a boat and catch them."
When the word "incentive" is mentioned in Washington these days, can "supply side" be far behind? In Olson's case, it can. To this former deputy assistant secretary of Health, Education and Welfare in the Johnson administration, the villain is not the government, except insofar as certain government agencies have fallen into the clutches of certain entrenched private interests connected with management or labor. The villain, in Olson's analysis, is the interest group as such, the gradual accumulation of interest groups that comes with long-term national stability, and all the nefarious arrangements they strike in order to ensure their members a better-than-fair slice of the economic pie.
"But the slice of the pie is perhaps not the most apt analogy," says Olson. "Perhaps the analogy is to wrestlers battling in a china shop, destroying more than they take away."
According to Olson, Japan and West Germany can thank the United States, among other countries, for their recent success. By winning World War II, the Allies effectively demolished the existing networks of interest groups in those countries. Or in other words, "We wiped the institutional slate clean for them."
Olson has been a student of interest groups ever since his boyhood on a farm midway between Buxton, N.D., and Climax, Minn., when he noticed a peculiar fact about farm organizations--that team spirit alone could not explain their popularity. "The human moral impulse is no doubt a very strong impulse," he says, "but it doesn't sustain big organizations with the resources they need decade after decade. One way to think of it is to draw an analogy with the country . . . Can you name me a country that supports itself solely with patriotic contributions? Certainly not. They all need taxes."
Similarly, he argues, "the private association needs something special, rather like taxes, if it's going to support itself." Hence the farm groups used what Olson calls "positive selective incentives"--chiefly discounts on insurance, fuel and farm supplies--to build up their memberships. (They were able to offer auto insurance discounts, he says, because they had discovered something that had eluded the major insurance companies--the fact that farmers, living in rural areas, have lower accident rates and thus cost less to insure.)
Even with such extra incentives, groups need favorable circumstances and effective leadership to come together, says Olson. One of his favorite case studies involves the young Jimmy Hoffa, working in a non-union warehouse in Detroit on a hot summer day when the management had a fresh shipment of strawberries on its hands. Hoffa, "cunning and courageous as he was," says Olson, "chose that moment to organize a strike and a union, and he succeeded."
So it takes time for interest groups to cohere, and "the longer any society is stable the more groups will have been formed." And ultimately, says Olson, the marketplace becomes so clogged with groups and with fixed prices, fixed wages, monopolies and closed shops that all traffic comes to a halt in a kind of economic gridlock--which is the state of affairs, he says, that Britain is approaching.
It is a disarmingly simple theory that any layman can understand. But does Olson really believe that if we could curtail the influence of interest groups over the American economy, prosperity would be around the corner? He believes that and more, he says.
Without interest groups, unemployment would disappear completely, because "if you don't have prices and wages set by complex committee-like procedures that move very slowly, prices and wages will adjust to give you constant full employment." And real wages and profits would eventually rise even for the most successful of today's entrenched groups, because "what is it that happens when there is economic growth? What happens is that there are more buyers out there with resources to buy things, which means that every kind of labor, skilled or unskilled, is in greater demand."
Meanwhile, back in the real world, he is setting his sights lower, taking modest comfort from the fact that Americans are fed up with the traditional remedies. "How many Americans," he asks, "would disagree now with the statement that neither party and neither of the classical liberal-conservative ideologies have been able to make the economy work very well?"
Among professional economists, Olson sees signs of a parallel development -- a growing plague-on-both-your-houses attitude toward Keynesians and monetarists alike, because neither school of thought, he says, can explain involuntary unemployment. The Keynesians attribute it to "the stickiness of wages, for which there is no underlying human explanation," while the monetarists and equilibrium theorists belittle it as the product of "miscalculations" by potential workers.
His own approach, says Olson, synthesizes elements of both Keynesian and monetarist reasoning into "the first macro-economic theory that explains involuntary unemployment and business cycles without at any point failing to derive what happens from reasonable economic behavior." And it does all that, he adds with a modest smile, "in a way so simple that it seems astonishing to me that people didn't talk about it long before."