Coalitions strengthen a nation, and then strangle it whole.
Or so it’s been argued. In his influential 1982 political treatise called The Rise and Decline of Nations, political scientist Mancur Olson (1932-1998) builds on his earlier work on collective action to argue that stable societies tend to accumulate powerful special-interest groups over time, which in turn create institutional sclerosis.
These groups—unions, industry associations and other lobbying blocs—develop to protect their members’ economic rents, but their growing influence eventually stifles innovation, efficiency and long-term economic growth. Olson argues that this “accumulation of distributional coalitions” explains why some rich nations stagnate while others surge ahead. Post-war Germany and Japan, having lost these entrenched coalitions due to military defeat, grew rapidly in contrast to countries like the UK or the US, which retained their institutional inertia. I share notes from the book below.
Published during the economic turbulence of the late 1970s and early 1980s—stagflation, oil shocks, and the unraveling of postwar Keynesian consensus—Olson’s work offered a political-economic diagnosis of long-term stagnation that cut across ideological lines. Rather than blaming solely state intervention or market failures, Olson introduced the idea that economic decline could be endogenous to success and stability. His argument was influential in public choice economics and later neoliberal critiques of regulatory capture, even as it attracted criticism from institutionalists who saw more complex relationships between interest groups and development.
Below, my notes for future reference:
- “Stable societies with unchanged boundaries tend to accumulate more collusions and organizations with vested interests in the distribution of income.”
- . “Economic decline is not the result of cultural decay or loss of industriousness, but of the political economy of collective action.”
- “Special-interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.” (47)
- “Encompassing organizations—that is, those with a stake in the overall economy—may behave more moderately than narrow interest groups.”
- “Distributional coalitions slow down a society’s capacity to adopt new technologies and reallocate resources in response to new conditions.” (65)
- “The accumulation of distributional coalitions leads to economic inefficiency and political rigidity.” (73)
- “The great postwar economic miracles were made possible by the destruction of the old order during World War II.” (78)
- (Referring to Germany and Japan as counterexamples to Olson’s theory of sclerosis in victorious, stable nations.)
- “The length of time a society has enjoyed political stability is positively correlated with the density of distributional coalitions and inversely correlated with the rate of economic growth.”
- “The beneficiaries of protectionist measures are often few, well-organized and powerful, while the losers are many, diffuse, and politically weak.”
- “There is no invisible hand that ensures group interests align with the general welfare.” (This echoes his earlier work in The Logic of Collective Action.)
- His framework presents a paradox when applied to U.S. economic dominance post-1980s. According to his theory, the U.S.—a long-stable democracy with deeply entrenched interest groups—should have experienced a steady economic decline due to increasing institutional sclerosis. And yet, the U.S. economy grew dramatically through the 1990s tech boom, remained dominant in global finance, and led innovation in digital platforms and (maybe?) AI.
Why the American endurance? A few thoughts:
- Schumpeterian Disruption and Republican Geographic Dispersion: Olson acknowledged that distributional coalitions can slow adaptation, but not that they make innovation impossible. The U.S. may have retained enough decentralized economic flexibility—particularly through its venture capital system, entrepreneurial culture and research universities—to enable bursts of creative destruction that offset sclerosis. Silicon Valley, for instance, was a relatively coalition-free zone in the 1980s and 1990s.
- Encompassing Coalitions and Globalization: Olson distinguishes between narrow interest groups and “encompassing organizations” (like national business federations) that may internalize broader social costs. The rise of multinational firms and globally-oriented U.S. companies in finance and tech may have acted like encompassing groups, promoting pro-growth reforms such as deregulation and trade liberalization in the 1980s and 1990s.
- Institutional Renewal Through Crisis: Olson argued that “shocks”—like war or economic crisis—can dismantle entrenched coalitions. The U.S. faced stagflation in the 1970s, and the Volcker-Reagan policy regime shift in the early 1980s might have constituted a partial reset. Deregulation, globalization, and tax reform weakened some domestic coalitions (e.g. unions) while empowering mobile capital.
- Delayed Effects and Increasing Fragility: A die-hard Olsonian might argue the U.S. has only postponed its reckoning. Distributional coalitions have re-emerged—think tech lobbying, healthcare, and finance—contributing to inequality and political polarization. Olson wrote that the costs of sclerosis accumulate slowly and may only appear decades later.