
How Rich Countries Die - lackbeard
http://blogs.law.harvard.edu/philg/2009/03/16/how-rich-countries-die/
======
davidw
> Table 1.1 shows annual rates of growth in per-capita GDP for each of three
> decades, the 1950s, 60s, and 70s, in a range of rich countries. Contrary to
> our perception of the U.S. as a growth dynamo and the Europeans as
> sclerotic, France and Germany tremendously outperformed the U.S., as did
> most of the other countries.

It's easier to grow fast if you're a country that has been blown to bits and
is putting everything back together, rather than one that's already
prosperous.

~~~
r7000
Yes but why did Britain become "the sick man of Europe" at the same time?

"Germany and Japan did well because their special interest groups were
shattered by military defeat. When new labor unions formed in Germany and
Japan, they tended to be very broad-based and therefore had an incentive in
the overall welfare of their societies.

'Great Britain, the major nation with the longest immunity from dictatorship,
invasion, and revolution, has had in this century a lower rate of growth than
other large, developed democracies. Britain has [a] powerful network of
special-interest organizations. The number and power of its trade unions need
no description.' " (2nd quote written pre-Thatcher)

Britain also rebuilt but at a slower rate. The point is the longer a society
remains (politically?) stable the more cruft it accumulates, like the dirty
copper bottom of a long sailing ship.

~~~
watmough
Germany and Japan, once the war was over, were prevented from re-arming.

Think of the amount that the UK and US spend on expensive weapons systems,
compounded over that period of time.

It's not really surprising, given those additional funds that Germany was able
to do so well. I can't speak at all to Japan, since they have had their own
problems.

------
lupin_sansei
It's the 80s and 90s where the US and the UK became distinctly more free-
market oriented than the rest of Europe. During the 50s-70s there wasn't that
much difference between the economic policies of say France and the US.

During the 80s and 90s unemployment fell in the US and UK with respect to
Europe and growth rates increased.

US Unemployment:
[http://upload.wikimedia.org/wikipedia/commons/archive/c/c3/2...](http://upload.wikimedia.org/wikipedia/commons/archive/c/c3/20090217012533!Us_unemployment_rates_1950_2005.png)

French Unemployment:
[http://upload.wikimedia.org/wikipedia/commons/archive/9/9f/2...](http://upload.wikimedia.org/wikipedia/commons/archive/9/9f/20071219000154!Unemployment_France,_UE-15,_G7.png)

Comparative growth rates of countries from 1988-2007
[http://topforeignstocks.com/wp/wp-
content/uploads/2008/12/1-...](http://topforeignstocks.com/wp/wp-
content/uploads/2008/12/1-oecd-gdp-growth.JPG)

Take a look at the current unemployment and growth rates here:
<http://www.heritage.org/Index/Ranking.aspx>

------
biohacker42
_Olson preempts the question of “How come the Swiss aren’t poor given that
they’ve had stability for so many centuries?” by looking at their
constitution, which “makes it extremely difficult to pass new legislation.
This makes it difficult for lobbies to get their way and thus greatly limits
Switzerland’s losses from special interest legislation.”_

Switzerland is like a hack of democracy, worth studying.

\-- EDIT --

Great article, this quite stuck with also: _Olson suggests that a rational
voter should remain as ignorant as possible about politics and policies. Even
if special interests manage to siphon off 80 percent of the voter’s income,
the voter is better off devoting his or her energy to earning more rather than
attempting to change the system (likely to require full-time effort, reducing
income to $0, and be futile because the voter has no money compared to the
special interests)._

Sadly this is the absolute hard truth.

Some of the conclusions use a straw man when it comes to critiquing accepted
economic theory. The economics are not quite as simple as their are being
presented, never the less the vast majority of that article was excellent.

------
helveticaman
My understanding is that lobbying is far and away the most profitable
industry, with a 100-to-1 return on investment. Rationale: the lobbying
industry is about 13 billion per year, and it controls the flow of about 1
trillion per year.

~~~
3pt14159
More like this:

    
    
      1000 Billion * federal, state, municipal government waste
      -> 400 Billion * paper work costs (non-lobbying)
      -> 300 Billion * actual costs
      -> 100 Billion - Lobbying
      -> 87 Billion - under the table bribe & political contributions
      -> 70 Billion / (lobbying + bribing + contributions)
      -> 230% ROI
    

If it were any higher every single American would have a lobbyist.

~~~
rjurney
I don't know you just said, but sign me up!

------
jibiki
"Olson notes that special-interest groups increase inequality in a society. A
union prevents companies from hiring black workers at the same wages at
whites. A caste system prevents someone from rising above the station to which
he was born. Effective lobbying turns welfare or health care programs into
cash cows for government workers or health care providers."

One of these things is not like the others!

~~~
rw
All of them are almost orthogonal.

~~~
jjs
Not quite: all of them represent a theft from the public good for the benefit
of the few.

~~~
jibiki
His point is that special interest groups cause inequality, but his last
example is government workers. How are government workers unequal? Do postmen
think they're superior to those lowly I-bankers? Do school principals look
down on lawyers? It's ridiculous. The US does not have a civil service caste;
the US bureaucracy does not create inequality, unless we redefine inequality
to be something totally different than the normal usage. I'm not just
nitpicking: this kind of sloppy thinking absolutely kills this essay.

~~~
randallsquared
A job in which the worker is nearly immune to job loss is quite valuable in
and of itself.

------
blahblahblah
FTA: "Japan’s history is mined for evidence supporting Olson’s theory."

This is why economics is not yet a respectable science. I can't say that I
disagree with the analysis presented in the article, but that says nothing at
all about its truth value. Unfortunately, many of the arguments presented by
economists, including theories that are diametrically opposed to one another,
seem quite plausible and that is precisely the problem with economics as a
discipline. The standard of proof is still stuck in the dark ages.

~~~
jacoblyles
Economic epistemology is hard. Your data can never be controlled for all
confounding variables. So you try to do the best you can.

With the difficulty of isolating variables in social data, I doubt the
objectivity of large-scale empirical economics ever improves.

Other social sciences are probably worse. That's why they are stuck with the
modifier "social".

So your criticism is right. The best large-scale empirical economics can offer
is plausible-sounding models and examples that back them up.

------
arohner
Excellent article. Now the only question is, what to do about it?. It's
depressing that (edit: the book) was published in 1984, and yet the mainstream
doesn't seem to have learned from it.

~~~
jacoblyles
Seastead governments, having fewer barriers on exit for their citizens, will
face better incentives to govern for the social good.

In more general terms: the interesting suggestions require rethinking how
governments are organized, not just passing some suite of legislation in our
current democracies.

Of course, it may turn out that technological progress generates new wealth
faster than government can waste it, and we all turn out alright in the end,
just not as well-off as we could have been.

~~~
randallsquared
"Seastead governments, having fewer barriers on exit for their citizens, will
face better incentives to govern for the social good."

If individuals do not own their own seasteads, barriers to exit may be
_higher_ on some seasteads.

"Of course, it may turn out that technological progress generates new wealth
faster than government can waste it"

This has been the case so far in most places. It remains to be seen whether it
will continue that way. :)

~~~
jacoblyles
>"If individuals do not own their own seasteads, barriers to exit may be
higher on some seasteads."

Yes. Patri hopes for modularity, but there is no guarantee that a huge
monolithic seastead won't be cheaper and more appealing to potential
residents.

Still, I am in favor of trying new things. One of them might turn out to be a
good idea. Having 95% of the world covered by liberal democracies nearly
identical in governing structure does not appeal to me, as I am not sold on
the optimality of liberal democracy.

------
jacoblyles
The title is slightly misleading. Olson discusses how the economic growth of
countries slows down through the process of accumulating interest groups
("economic sclerosis", if memory serves). However, I don't think he has an
example of economic growth going negative.

"How Young Countries Age" fits better than "How Rich Countries Die".

------
sharpn
Well spotted - a very good summary of an thought-provoking & well reasoned
argument. This has some interesting macro insights for startups, I'd not
thought about socio-economic development in this light before.

------
kiba
It seem that hackers are late on the special interest wagons. Hackers have yet
to unionize.

~~~
swinghammer
Yeah I don't see that ever happening. It's one of the things I enjoy about the
software industry.

~~~
thalur
I agree, but I think it's something we may come to regret. While I don't see
hackers unionizing, I wouldn't be at all surprised if the "it's just a job"
programmers do, and as they count for the majority of programmers, that might
leave the rest of us in an awkward position (or not?).

~~~
Calamitous
I don't see unions ever becoming necessary for hackers. Such organization
might become for someone with highly-specialized, non-transferrable skills,
such as operating Ford auto plant equipment, or engineering Amtrak trains. If
you've devoted your career and livelihood to a single company, the thinking is
that that company has certain responsibilities to care for you (whether this
is indeed the case is an argument for another day).

Quality programmers, on the other hand, are highly mobile, highly sought-
after, and can quickly and easily upgrade and alter their skillset. They
aren't married to a single company, or even a single industry.

I think unions can be can't be considered even marginally feasible unless
available labor supply outstrips demand. In this case, the situation is
reversed, and I can't imagine what benefit unionization could possibly bring
to the programming industry.

------
paul_houle
This is ludicrous.

You might have been able to blame labor unions for the economic problems of
the 1970's, but capital has been ascendant everywhere since the 1980's. Power
has become increasingly concentrated in the hands of the rich, and now there's
only one part of society to blame for the economic crisis.

Yes, the UAW plays a role in the problems of the US auto industry. The
financial services industry, which is at the epicenter of the current crisis,
is not unionized. You can't blame unions for AIG, Lehman Brothers, Bank Of
America, Merrill Lynch, CDOs or the housing bubble.

I'm sick and tired of the "Atlas Shrugged" fantasies that many people have.
Most billionaires are billionaires because they own large blocks of stocks in
public companies. These are worth billions because:

(i) People buy their stock in the (false) hope that they will grow in value
faster than the GDP and finance a comfortable retirement ( _) (ii) There's a
large population of people who have money to spend on goods and services. Mass
prosperity is the trunk of the tree that holds the rich up. (iii) People do
work in their companies that creates a stream of revenue.

I'm no communist.

Capitalists play an important role in deciding where resources can be
profitably used. The root of the financial crisis is that the financial system
is no longer capable of performing this crucial role.

Capital and labor need to be in balance. The growth of capital's power over
the past 30 years has destroyed the social infrastructure that it needs to
create wealth: thus we've got a deflationary process that is making wealth
disappear..

\---

(_) The stock market finances retirement on a pay-as-you-go basis, just as
does social security. The number of dollars spent buying stocks has to equal
the number of dollars made selling stocks. It's simple math.

The average return on investment across the economy equals the rate of growth
of GDP in the long term: where can you get the returns from? from changing the
way that wealth is partitioned in the economy. Some inequality of wealth
creates an incentive for people to work and invest -- but the game ends when
all of the money is in one person's pocket, just as it does in the game of
monopoly.

We've managed to fool ourselves in the last decade by (i) taking on
unsustainable debts, and (ii) stealing from ourselves as workers in the name
of (imaginary) returns that we thought we'd benefit from when we're retired.
Trouble is, the jig is up,

------
time_management
I disagree with him strongly on a lot of political issues, but he's right on
the overarching philosophical point that people in most circumstances
(business bureaucracies with extensive lobbying arms being the worst
offenders) want exemptions for themselves from "market discipline". It's
amusing to me that those who seem to be in full support of "capitalism" still
want an byzantine, violent (cf. Iraq) and incredibly expensive welfare system
to protect their own standard of living.

It seems that the secret for success in such an economy is to create a game in
which nearly everyone's "wealth" increases, so no one gets pissed off because
the game's being played in accordance with the comfortable and decadent lie
that no one's standard of living can ever go down. Gradually this game drifts
from reality, but aggregate psychology is such that the disparity isn't
noticed until enormous, at which point a massive and painful correction
occurs. This is when the maestros say "Sorry, we fucked up, but we can't help
you now!" while chuckling all the way to the bank. Well... at least, that is
what they do supposing there still _are_ banks.

~~~
kiba
People you think who are full supporter of capitalism, are actually supporter
of bastarized capitalism.

You want people who are called anarcho-capitalists.

These group of people litterally believe that everything should be run by the
free market. IE. polycentric law system, private courts, and private defense
agencies.

One interesting study of free market anarchism is midevial iceland. It managed
to last for centuries.

Basically, the title and office of cheftain were litterally for sale and
anybody can buy the title. However, those cheftains doesn't collect taxes. No,
they compete for people to follow them. This creates virtual jurisdictions
rather than physical. Cheftains's job is to appoint judge and keep the peace.

It work well too. In fact, abritation was so deeply embedded in their society,
that they even tries a ghost for trespassing a house, making it haunted. They
were confident that a good icelander ghost would respect the court.

Even murder was treated as a private matter too. The dude that murdered the
other dude have to pay the family's such and such fines after settling. If the
family is too poor, they can sell the claim to somebody who can persecute the
murderer.

Otherwise, if the murderer refuse to pay his retribution fines. He will have
no protection under the law and anybody can kill him with no consequences.

A murderer also can be punished even harsher if he tries to conceal his guilt.
Upon the murder of a man, he have to announce the fact and not travel beyond a
certain distance.

The eventual collapse of system is due to the fact that cheftains voted
unanimously to convert to Christianity. So they got the first real tax in the
form of a chruch tithe, which everybody is bound to support. The cheftains, no
longer contrained by competition, can start misbehaving. Eventually it got so
bad that the icelanders choose a Danish king over those warring cheftains.

~~~
berntb
That was fun, but... a clan culture as a better way for modern society? :-)

I thought a clan society was by definition made up of organized special
interest groups?

Just consider hiring someone at a company that wasn't from your clan, when
your clan eldest/boss tell you that your idiot cousin needs a job. :-)

The article formalized things for me I've always wondered about. But it
reminds me a bit of the laments during the dying of the Roman empire. Everyone
saw the problems but couldn't solve them.

Is there any work on how to organize a society which avoids special interest
groups? Or, at least, keeps the light on them?

~~~
kiba
The clan society actually remind me more of modern day Somalian system rather
than Iceland. That society was actually doing better in comparsion with their
neighbors in some aspect. Did you know that they have the cheapest
international call rate on the continent?

However, I know little about them since I never travel there.(Iceland is
historical so that's a different story) One has to travel to Somalia to decide
for themsleves if anarchy actually work. Even then, you have to take into
political situtation so you don't get a skewed view.(The UN is trying to
establish a state I heard)

In as so much for special interest group. I thought such society will
undobutly exists in a free market society but they probably will be kept in
check by the free market. My big worry is more about the system collapsing
into a centralized system, which become a big vector for corruption.

If you want the definte work on how a free market society might work, you
might want to read the Machinery of Freedom, written by David Friedman.

However, I know no such works dealing only with organizing a society's
incentive and disincentive structure to deal with corruption.

~~~
berntb
Check the term "holmgang" for an insight into how life was in the bad old
days.

I'm not an expert but from what I've read, research implies that the "ting"
was more regulating/discussing the clan quarrels/warfare than judging as we
define it today. (No reference saved, sorry.)

Afaik, traditional societies before a central violence monopoly were
generally, well, violent. Iceland was a hard place to survive, so the
population might have had to work more and "play" less.

(You can make some form of analogy between the old times and present
international interactions; there is no police force to stop violence -- and
clans with mutual support agreements abound... Ask an expert.)

As a hard line atheist, it is not an easy thing for me to say that
Christianity seemed to be an improvement. :-)

Anyway, there is an old joke that the problem with anarchy is that it is too
unstable. The time before a central state wasn't fun. I believe the tribal
areas of Pakistan is a good indication on how it worked in Scandinavia.

