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Power and Prosperity
Book
Mancur Olson
January 2000 |
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“Many researchers have…an instinct for the capillaries and there is some work in the journals that, even when it is right, is hardly worth bothering about. Just as the great fighter is looking for the jugular, so the great scientist is looking for areas where there can be a breakthrough — for areas where strong claims are in order. Thus I think it is a good research strategy to search for stark and simplifying propositions. In my career I like to think that I have always done that. That is certainly the only thing that I want to do.” — Mancur Olson
The "stark idea" in this book combines two central topics in political science and economics: power and prosperity — themes that had previously been viewed in isolation. Olson here continues his life’s work of re-establishing political economy as a central intellectual concern for social scientists and policy advocates alike
In this volume, Olson identifies two broad conditions necessary for economic success: secure and well-defined rights for all to private property and impartial enforcement of contracts; and the absence of predation. He observes that these conditions occur most reliably, and thus with greatest economic effect, in rights-respecting democracies, where “institutions are structured in ways that give authoritative decision-making to encompassing [rather than narrow] interests.” These arrangements, Olson suggested, describe the type of governments needed for growth. While there may be contract enforcement and systems of property in small groups or isolated markets, in the absence of government the complex markets needed for growth cannot develop. Without the constraints provided by political institutions of democracy, it is more difficult to develop credible systems of property or contract enforcement.
Olson explores this conclusion with particular focus on the Soviet Union and its successor states, but with applicability to many other places where prosperity remains elusive. Olson looks behind the picture to ask why some governments provide public goods that support markets while others undermine the prosperity of the nation, and perhaps even of the ruling elites as well.
The debate about post-communist development has often viewed the state and market as incompatible alternatives, not complements. While this view may be understandable as a reaction to the historical anti-market role of the Soviet state, it does not, Olson noted, recognize the necessary role of the state in places that have prospered.
The differences in the depth of the post-communist economic collapse, and the differences in the pace of recovery, have much to do with the strength of the state and how the state uses its power. Levels of foreign and domestic investment, the growth of new, private, firms and other measures of transition success depend on the state supplying basic institutions and forbearing from its own predation. If courts will not reliably enforce contracts, or if their judgements are unenforceable; if the state or its officials are necessary partners in any private investment, then the state falls short. Olson brings rigorous attention to the incentives of regimes and the specifics of how governance interacts with growth-affecting institutions.
After he wrote this manuscript Olson coined a phrase that gathers up his answer to the question of what type of government is needed to achieve prosperity. He suggested that a government powerful enough to create and protect private property rights and to enforce contracts; yet constrained so as to not, by its own actions, deprive individuals of these same rights will be a market-augmenting government.
The question of how to credibly provide market-augmenting arrangements has broad applicability: from questions of the adequacies of courts and contract enforcement to the regularity of fiscal activities of government or access to education. The issues emphasized by Olson’s phrase are relevant across a wide range of countries facing challenges today. |
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| Last updated on: 3/23/2006 |
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