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

Olson does a stellar job "proving" his theory using accepted scientific standards. His main thesis is that stable societies, over time, will be stifled by a steady growth of groups each committed to obtaining a disproportionate amount of society's goods. This theory, composed of only nine implications, is parsimonious with wide explanatory power. It helps to explain the post-war growth of coutries such as Japan and Germany, while providing a reason why the growth rates of the United States, and especially Great Britain, have been stagnated. Perhaps the most interesting chapter of the book is the last, in which Olson merges both Keynesianism and monetarism to form a new theory of macroeconomics. By using his theory, he is able to better explain involuntary unemployment than either of the more popular schools of macroeconomic theory. I was amazed at how many phenomena, such as slavery and the Indian caste system, can be at least partially explained by Olson's theory. Anyone seriously interested in knowing the way the world works will want to give this theory substantial consideration.

Professor Olson describes a wide range of social/economic structures and processes (unions, big government, high and rising taxes, regulation, monopolies, etc.) that characterize most economies but more so the aging economies of Western Europe (This book was written before the unification of eastern and western Europe). He then proceeds to show us what these all have in common: They each, together and with time, contribute in increasingly slowing down and stifling a nation's economy. Reading this book leads one to see that the USA is also involved in a similar progression, albeit at an earlier stage. I first read this book as an Economics student about 15 years ago. I enjoyed it tremendously. I also learned from it. His clear and powerful conveyance of concepts have kept the ideas with me. He explains the economics simply yet completely. One need not have studied Economics to follow him. I highly recommend this book. Even though the author's forescast is gloomy, his book is brilliant. Sherry S.

Most people recognize that there is something wrong about special interest groups. While most people think of special interest groups in terms of fairness, Olson examines efficiency issues. Special interest groups, or distributional coalitions, hinder economic growth in industrialized nations. Special interest groups slow the pace of change in industry. We will reorganize production and adopt new technologies more slowly as more coalitions form for the purpose of transferring wealth.

Distributional coalitions are mainly a problem of wealthy nations. Paradoxically, poor nations can experience strong growth due to the fact that they have little to redistribute. Poor nations can therefore develop rapidly. The examples of postwar Japan and Germany fit Olson's thesis well. Japan and West Germany were devastated and left poor by the War, but developed rapidly afterwards. As Japan and Germany became affluent, distributional coalitions formed to retard further economic development.

Olson does not explain the stagnation of so called third world nations. Why is it that Japan and Germany were able to "take advantage" of their postwar poverty, while many other nations remain "too poor" to support extensive distributional coalitions? Distributional coalitions actually abound in poor nations. The Rise and Decline of Nations does not explain all of history, but this is definitely part of the formula. Its examples are a little dated, but there is some great stuff here.

Olson seeks to explain why some nations achieve high rates of economic growth while others suffer bouts of stagflation. He contends that the number and strength of "distributional coalitions," coupled with the length of economic and political stability will influence a nation's rate of economic growth. As such, Olson's hypothesis is two fold. First, Olson argues that states with lower levels of "distributional coalitions" often have higher rates of economic growth. Second, states which have experienced prolonged periods of disorder or armed conflict will have lower numbers of interest-group, or collusion organizations.

Olson's explanation builds upon his early work in The Logic of Collective Action, which holds that "...large groups, at least if they are composed of rational individuals, will not act in their group interest" (18). Rather, the rational actor will seek to further his or her self-interest, and will subsequently free-ride when possible. Olson expands the scope of this logic to encompass not only the rationality of the individual, but the rationality of the firm in explaining The Rise and Decline of Nations.

As the power of the firm expands, the firm seeks to maximize its own utility at the expense of a societal common good. In order to simplify a complex argument, we can think of Olson's theory in this way. An organization or firm will not expend its energy to create a benefit to society writ large, as it, and its members, will only receive a fragment of that benefit in relation to the costs incurred. On the other hand, if the same firm seeks to maximize its utility, it will seek to obtain a larger slice of the social "pie." In so doing, it may lower the benefits of society as a whole, but will significantly expand its own gain and that of its members. Meanwhile the firm will only incur a fraction of the costs such action projects on society at large. As such, Olson writes, "The great majority of special-interest organizations redistribute income rather than create it and in the ways that reduce social efficiency and output" (47).

Olson argues that a society with long-term stability - free from war, and economic and political turmoil - tend to accrue more special-interest and collusion groups. This occurs because it takes time and reasonable amount of stability for such interest-groups to organize, solidify, and begin to achieve some collective benefits for their members. Once collective benefits are seen as the result of organization, a host of other interests will begin to coalesce and seek to obtain gains for themselves. What emerges is a highly pluralistic society.

This leads us to the second part of Olson's hypothesis, those nations with high numbers of special-interest or collusion groups have lower levels of economic growth. Olson writes, "Distributional coalitions slow down a society's capacity to adopt new technologies and reallocate resources in response to changing conditions, and they reduce the rate of economic growth" (65). First, distributional coalitions stymie technological adoption when such innovation stands to benefit a rival group. A present day illustration can be found in a labor unions vehement opposition to the implementation of labor saving machinery. Second, distributional coalitions will attempt to block policy initiatives that change the status quo. When policy needs to be developed to increase economic or social advancement, the special-interest groups are likely to feel a certain displacement and will act to prevent such policy. According to Olson, these actions, coupled with others, often lead to policies which promote policies which have the potential to stifle economic growth.