special interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.”
The debasing of the industry of the US and its economic power lies exactly on relying on that "shrewd politicking and consorting".
Time for you to persuade the people you mix with some Mancur Olsson:
The relationship between distributional coalitions, also known as special interest groups, and economic growth is founded in the theoretical framework of Mancur Olson’s The Rise and Decline of Nations (1982), which was grounded in the argument of his The Logic of Collective Action (1965).
Pulling together from seemingly unrelated elements of economics, political science and sociology, Mancur Olson’s unifying theme in these seminal pieces is that in the presence of concentrated benefits and dispersed costs, economic agents are capable of collusion or incrementally organizing for collective action. Such collusive behavior, in spite of a stable economic setting, has serious adverse ramifications for the efficient allocation of goods, thus the hindrance of both economic growth and satisfactory macroeconomic performance (Olson, 1982, 1983, 1984 and 1988; Manzetti, 1982; Lee, 1998; Hanson, 2002). It is important to vigilantly scrutinize the relationship between distributional considerations and economic opulence drawing on major aspects of Mancur Olson’s theories such as group incentives, barriers to collective action and the existence of encompassing interests.
Group Incentives and Economic Growth
Mancur Olson posits a fascinating paradox: a stable economic setting characterized by representative government and freedom of association, i.e., a liberal democracy, and the absence of war existing for an extended period of time provides a potent formula for the transformation of special interests into distributional coalitions (Unger, 1999). Distributional coalitions are associations with a comparative advantage in group organization, or, more specifically, collective action. As a result, such groups have a natural incentive to advocate inefficient public policies. It is possible to think of an efficient national economy as a common interest or a public good with both non-rival and non-excludable1 attributes (Sandler, 2001). Consequentially, no interest group has a reasoned incentive to make sacrifices in its behalf or, more importantly, to abstain from lobbying efforts that impair its functionality (Maitland, 1985).
Barriers to Collective Action and Selective Incentives
Interestingly, not all groups find lobbying efforts to be in their best interests (Keefer, 2004). For example, suppose that suppliers in a particular industry lobby for favorable legislation enabling them to raise price above the competitive equilibrium level; because the higher prices are available to all suppliers of a particular category, collective action fails. More specifically, because all relevant suppliers benefit from the legislation in terms of higher prices and therefore higher profits, and have not incurred a significant percentage of the costs of collective action, a natural incentive to free-ride is created preventing rational economic agents from acting voluntarily (Olson, 1965). As a result, large interest groups will face considerable difficulties organizing in the absence of selective incentives2, i.e. automatic rewards that incite agents to contribute toward the costs of lobbying efforts (Olson, 1984, p.15). Beyond the actual size of the economic gain and the distributional coalition, informational and organizational capabilities as well as associational competition may enhance or impede the triumph of collective action (Cameron, 1988 and Keefer, 2004).
Encompassing Organizations
In exemplifying the connection between interests and society, Mancur Olson (1982, p. 47-48) highlights the existence of encompassing interests, for which collective action is probable in the absence of selective incentives and despite the depth and breadth of organization. Due to the fact that encompassing organizations comprise a significant percentage of the population, they too must bear a significant percentage of the costs associated with inefficient bargaining processes and lobbying efforts3. Therefore, due to a vastly different incentive structure as compared to more parochial or narrow based interests, encompassing organizations are less likely to promote public policies injurious to society (Maitland, 1985). The flip side of the above reasoning is that encompassing interest groups might actually advocate the implementation of policies that are advantageous to society, policies that enable national interests to prosper such as ecological and environmental preservation, national welfare and the protection of civil rights (Cameron, 1988 and Sachs, 1994). Encompassing organizations are, however, few and far between, which leads us to a discussion over the efficiency altering effects of interest activity and the sources of economic stagnation.
The Rise and Decline of Nations - Implications
Essentially, Mancur Olson’s theory of distributional coalitions is a variant of both pubic choice theory (Tang, 1996) and pluralism (Cameron, 1988). The chief argument of the public choice school of thought is that state intervention into free markets creates “rents” which induce well organized interest groups to debase governmental policies in search of profits (Tang, 1996). John Quiggin (1992) points to two essential features of Public Choice Theory: 1) liberal democracy and 2) the rule of law. Obviously, freedom of organization is imperative for the gradual accumulation of interests in favor of redistributive policy. In case of the absence of the rule of law, the ability to extract rents from specific individuals becomes likely, doing away with the free rider problem and a significant barrier to collective action (Quiggin, 1992). Pluralists believe that the locus of power within the government and the economy lies within both interest groups and the government; and as a result, the actions that constitute the process of governmental administration are inseparable from the organized and potential interest groups all throughout society (Truman, 1995). These statements provide support for the logic emphasized in Mancur Olson’s The Rise and Decline of Nations (1982) leading to three interrelated growth implications:
Implication – “There will be no countries that attain symmetrical organization of all groups with a common interest and thereby attain optimal outcomes through comprehensive bargaining.”
Implication – “Distributional coalitions make decisions more slowly than the individuals and firms of which they are comprised, tend to have crowded agendas and bargaining tables and more often fix prices than quantities.”
Implication – “The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution.”
The above implications shed some light on the reason why decision-making is so devastatingly incremental. Charles Lindblom (1959) postulates that the rational comprehensive approach to decision making, also known as the root method, is not workable for complicated policy dilemmas. Subsequently, administrators must adhere to more of a bounded rationality approach to devising solutions to economic policymaking problems. On the first, it is highly improbable that agenda setting will run smoothly due to asymmetries in multiple group sizes and powers, creating bottlenecks and, in some cases, gridlock among societal groups (Manzetti, 1982 and Schamis, 1999). The next two implications are direct consequences of the first, further elaborating on the latent effects of representative democracy such as damaging government intervention and stagnant technology (Unger, 1999).
Government is not at the whim of the market forces of supply and demand, and operating in a system absent of incentives, it tends to misallocate resources and engage in the implementation of protective barriers to entry and exit, appeasing parochial interests. Once a particular sector of the economy falls within the powers of government, or once the government attains extensive regulatory influence, coercion distorts market equilibriums and it becomes considerably more difficult for policymakers to engage in the formulation of deregulatory legislation (Von Hayek, 1944).
Jeffery Sachs (1994) and Aseem Prakash (2000) link the presence of governments to the importance of technological advancements concluding that in the absence of trade liberalization or free trade, autarkic economies will never be able to enjoy the benefits associated with wealth improving technologies. It is now understood that quick, decisive policymaking is curtailed by the presence of interlocking special interests and government, but it still remains crucial to be able to measure the features of economic augmentation.
Measurable Growth Implications
It is important to note that Mancur Olson’s theory of distributional coalitions was constructed based upon the assumption of rational decision-making of both policy makers and lobbyists as utility maximizing economic agents, which is another key aspect of public choice theory (Olson, 1984 and Cameron, 1988). The primary benefit of using such a theory is that it provides testable hypotheses, and if implemented properly, mathematical models can be used to provide strong explanatory and predictive evidence. As a result, the next grouping of implications worked out by Mancur Olson tap into measurable aspects of economic growth.
Implication – “Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time.”
Implication – “Distributional coalitions slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.”
Implication – “On balance, special interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.”
The Rise and Decline of Nations by Mancur Olson |
