THE RISE AND DECLINE OF NATIONS: Economic Growth, Stagflation, and Social Rigidities

The title may presage an awful lot for one book, but University of Maryland economist Olson is in the business of constructing theories that explain a lot in the simplest way. His Logic of Collective Action (1971) made a big social-science splash by arguing that people can't act for the public good in large groups because the personal sacrifice appears to outweigh the collective benefit, ha this follow-up, he extends his theory to say that those groups that can form for collective action-because they are small enough, and/or are able to employ sanctions to get people to join (e.g., union picketing)--will take time to get going (because of ""start-up costs""), and therefore require a stable environment. Since these groups seek to get more for themselves, they are detrimental to the efficiency of the economy as a whole. It follows that the various problems associated with the ""ungovernability"" of democracies stem from the proliferation of collective-action groups. The English malaise isn't hard to figure out--Britain has the longest history of stability. That doesn't mean that Olson advocates instability to foster economic growth; in fact, his prescriptions are as orthodox as the accepted microeconomic theories (i.e., theories of individual and firm behavior) that are the bedrock of his construct. Rather than revolution, he favors government action to free up trade through reductions in tariffs and protective barriers. In the course of filling out his theory with empirical evidence, Olson drags in everything from Jacksonian America to the Indian caste system. The late-19th-century Japanese leap is seen here to have resulted from the destruction of Japan's internal barriers by the demands of Britain and the Western powers for free trade. But while laissez faire worked to destroy cartelization in Japan, it did not do so in India--where the caste system, unchallenged by governmental authority, prevailed. So Olson is not an unbridled advocate of the dogmas, as he calls them, of the left or the right. His analysis of stagflation is based on the implications of the overall theory--and calls, at the moment, for shorter-term contracts at lower wage rates. Whatever its merits, the theory will have appeal.