In the paper “Mancur Olson’s Power and Prosperity,” the author analyzes the book by Mancur Olson. The key problem addressed in this book was a “no-nonsense dictatorship that would impose a free-market regime on the Soviet Union”…
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Olson did not agree, and this book represents his answer. Olson’s main argument is that individual rights are a cause of prosperity, not a luxury that the less developed countries may need to do without (187). These individual rights must be protected from predation by the government or by other private parties. Finally, the most likely environment where these two conditions are satisfied is “secure, rights-respecting democracies where institutions are structured in a way that gives authoritative decision making as much as possible to encompassing interests” (198). This places Olson alongside Nobel prize-winner, Amartya Sen, who argued a similar case in his famous book, Development as Freedom. ARGUMENT Olson follows the long tradition of analysts who seek the explanation of social phenomena by deductive reasoning about the behavior of abstract self-interested individuals (Berliner 755), accepting Adam Smith’s famous argument that an “invisible hand” makes the pursuit of rational self-interest more effective in promoting society’s interests than conscious intentions by individuals. Olson builds his argument on his path-breaking theory developed in 1965 in his book The Logic of Collective Action, and extended in 1982 to the realm of political science in The Rise and Decline of Nations where he established, even among devotees of Adam Smith, that there were particular conditions where the rational pursuit of self-interest could be demonstrably proven to be detrimental to social welfare. In Power and Prosperity, he uses the collective action framework to develop answers to his new questions. Olson begins by asserting that the establishment of clear incentives for firms and individuals “to make” rather than “to take” is the most important factor that allows societies to prosper (1). He argues that these incentives are established by those in power and that accordingly, we must find out what “those in power have an incentive to do and why they obtained power” (3). Olson then elaborates his theory of government by using the metaphor of criminals – stationary bandits and roving bandits – arguing that stationary bandits have an interest in ensuring that the people from whom they are stealing have an incentive to produce over the long term. Stationary bandits have an “encompassing interest”. Roving bandits, on the other hand, will take as much as they can and move on. Accordingly, the time duration of rulers, i.e. the “bandits”, becomes important: the longer time-horizon that rulers have, the more their interests are aligned with the general social welfare. It is accordingly the task of constitution and policymakers to create incentives for encompassing interests to prevail in society. However, this becomes difficult as, over time, lobby groups with narrow interests begin to accrete, and eventually the society and economy becomes “sclerotic”, showing little growth.
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