Mancur Olson

Business Prosperity Depends on Long-term Political Stability and Effective Restraint on Government

Mancur Lloyd Olson, Jr. (January 22, 1932 – February 19, 1998)


Was an American economist and social scientist. From 1967 until his death in 1998 he was a Professor of Economics at the University of Maryland, College Park. His most influential contributions were in institutional economics, and in the role which private property, taxation, public goods, collective action and contract rights play in economic development.


Academic work

In his first book, The Logic of Collective Action: Public Goods and the Theory of Groups (1965), he theorized that what stimulates people to act in groups is incentive; members of large groups do not act in accordance with a common interest unless motivated by personal gain (economic, social, etc.). While small groups can act on shared objectives, large groups will not work towards shared objectives unless their individual members are sufficiently motivated.

In 1982, he expanded the scope of his earlier work in an attempt to explain The Rise and Decline of Nations (1982). He argues that groups such as cotton-farmers, steel-producers, and labor unions have an incentive to form lobby groups and influence policies in their favor. These policies will tend to be protectionist, which will hurt economic growth; but because the benefits of such policies are concentrated, and their costs are diffused throughout the whole population, there will be little public resistance to them. As distributional coalitions accumulate, nations burdened by them will fall into economic decline. His work influenced the formulation of the Calmfors–Driffill hypothesis of collective bargaining.

In his final book, Power and Prosperity (2000), Olson distinguished between the economic effects of different types of government, in particular, tyranny, anarchy and democracy. Olson argued that a "roving bandit" (under anarchy) only has an incentive to steal and destroy, whilst a "stationary bandit" (a tyrant) has an incentive to encourage a degree of economic success, since he will expect to be in power long enough to take a share of it. A stationary bandit thereby begins to take on the government function of protecting citizens and their property against roving bandits. In the move from roving bandits to stationary bandits Olson sees the seeds of civilization, paving the way eventually for democracy, which by giving power to those who align with the wishes of the population, improves incentives for good government.

Policy Work
To help bring his ideas to the attention of policymakers Olson founded the Center For Institutional Reform in the Informal Sector ("Iris Center") funded by USAID, the IRIS Center, based at the University of Maryland, sought to supply an intellectual foundation for legal and economic reform projects carried out by USAID in formerly communist states that were attempting to make the transition to market driven democratic governments governed by the rule of law. It was particularly active in East and Central Europe and the former Soviet Union.

The Center also became actively involved in projects in South America, Africa and Asia, where it became a proponent of judicial independence. It sponsored the first conference on corruption in francophone Africa in the 1990s at a time when this was a very sensitive subject. The IRIS Center continued to operate after Olson's death, but was eventually folded into other programs at the University of Maryland.


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