In The Rise and Decline of Nations, Mancur Olson argued that political stability fosters institutional `sclerosis' through the formation of interest associations that damage long-term growth; greater numbers of such `distributional coalitions' increase particularism in public policy; and their formation takes time, which war and political instability can disrupt. In Discussion Paper No. 894, Brigitte Unger and Frans van Waarden use the results of various previous studies of business interest associations and cross-country data on long-term growth and sectoral corporatism to dispute all these sub-theses. They maintain that a rise in the number of interest associations may reduce their political influence; asymmetries in their ability to organize need not favour business interests (which oppose each other while other groups organize over time); and asymmetries in the capacity to organize need not entail asymmetries in political influence.

Unger and van Waarden also show that the number of associations does not increase steadily over time; and World War II tended to strengthen rather than break up `distributional coalitions'. Such interest associations may even promote inefficiency or spur growth by compensating for other market failures. Even such measures as entry barriers and price cartels can sometimes have positive effects (as in the Dutch construction sector, which performs well compared with other countries in terms of static and dynamic efficiency); such market restrictions reduce volatility of prices and profits, market entry and exit and destructive competition. Some business associations also provide public goods such as R&D and vocational training, which allow long-term planning and foster growth by reducing intertemporal market failure and uncertainty. Whether the positive or negative effects dominate in a given sector depends on characteristics such as the extent of domestic and international competition. Finally, relating national growth rates over 1929-94 to the extent of countries' sectoral corporatism indicates that regulated sectoral markets are not associated with lower growth over the long term.

Interest Associations and Economic Growth. A Critique of Mancur Olson's `Rise and Decline of Nations'
Brigitte Unger and Frans van Waarden

Discussion Paper No. 894, March 1994 (HR)