Mancur Olson and the changing economy

2017-02-13 2 min read

    I studied economics in college but only encountered Mancur Olson years later when I picked up “The Rise and Decline of Nations” at a bookstore years later. It proposes a simple theory that explains why some countries succeed while others fail - as a country maintains growth and stability it ends up developing more and entrenched interests that hobble future growth. Olson uses a variety of historical economic examples to prove this point - ranging from the British empire to Germany and Japan post World War II - that make a compelling case. This also ties in nicely with the sharing economy since it ties into the idea of regulatory capture - where government agencies are lobbied by special interest groups to introduce laws that defend their market position. This is currently playing out with the sharing economy - the taxi and limo lobbies are fighting Uber while hotels are challenging AirBnB. Both Uber and to a slightly lesser degree bring significant value to society but spend money on lawyers and lobbyists that could be spent on pushing the economy and world forward.

    Another simple but only obvious after you hear it point is that small groups are able to achieve significantly more than large groups. Since the value to an individual in a small group is significant that one person would be willing to fight and invest to make something happen. The cost, on the other hand, is distributed across an order of magnitude more people so each person has very little incentive to challenge it. I haven’t read the book in a while but I think the example he uses is of the farming lobby. Farmers have a very strong incentive to pressure the government for farm subsidies and are willing to vast both time and money to make sure their representatives push for it. To them the value of this legislation may be thousands of dollars and they’re willing to spend nearly that much to see it through. Everyone else is hurt by this but to them the cost is pennies - this leads to the effect that small groups are able to drive more change than larger ones.

    With the economy undergoing significant changes in the coming years it’s critical to understand what’s happening and Mancur Olson provides a wonderful set of theories to help understand the change.