European Affairs

Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships     Print Email
Peter S. Rashish

By Mancur Olson
Reviewed by Peter S. Rashish

"Good governance" has become the mantra of organizations like the World Bank and the IMF that are devoted to promoting economic reform in transition and developing countries. Since these intergovernmental bodies do not have mandates that extend to the political institutions in emerging economies, this noble sounding but vague term is used instead of more immediately graspable, but sensitive phrases like democracy-building, rule of law, or human rights.

But make no mistake, when the World Bank says it is devoted to promoting good governance in Asia or Latin America or former Communist countries in Europe, it is talking about precisely these eminently political questions. And policies to fight corruption provide the spearhead for these economically-oriented international organizations to play a role in improving a country's politics. Corruption can be portrayed as the enemy of economic efficiency in a way that, for example, unfair elections cannot.

If this book by the late Mancur Olson is right, the World Bank and other international organizations might consider devoting something like half their budgets to fighting corruption if they want to bring functioning market economies to developing countries. It is Olson's strongly argued conviction that "the absence of predation," whether by governmental entities or private interest groups, is the key to spurring successful market economies.

In a key passage, and one that reveals his not always limpid way with words, Olson asserts "when a group that constitutes only a narrow segment of the income-earning capacity of a society is able to act collectively, its main incentive is to redistribute to itself through lobbying and price fixing and to continue such activities even when the losses to the society are large in relation to the amount the group obtains through its distributional struggle."

Olson, who until his death in 1998 was Distinguished Professor of Economics at the University of Maryland, and chair of the Center on Institutional Reform and the Informal Sector (IRIS), believes that throughout history there have been two basic conditions for the successful establishment of sound economies. The first is absence of corruption, the second "secure and well-defined individual rights." Those conditions have applied as much to the city states of Renaissance Italy as to the mature democracies of the United States and Britain today.

Often mentioned as a possible Nobel Prize recipient, Olson departs from the laissez-faire purists who see government as an impediment to the full expression of human freedom. On the contrary, "individuals may have possessions, the way a dog possesses a bone, but there is private property only if the society protects and defends a private right to that possession against other private parties and against government as well."

He believes in markets; indeed he sees markets as a kind of irrepressible, spontaneously generated phenomenon, springing up in the most unlikely places, including under Soviet Communism. But he believes that markets will survive in the long run, and maximize their benefits, only with the help of "market-augmenting government."

If Olson is right about individual rights - and this book spends a lot of time using rigorous economic argument to come to this conclusion - then agencies involved in economic assistance to developing and transition countries will either have to embrace a new, overtly political agenda (in addition to their vaguer commitments to "good governance") or hand over their responsibilities to other groups.

Olson is not at all embarrassed to suggest that there is essentially one political model to follow, mentioning the United States, Britain and Switzerland as examples. He is, however, entirely free of the gloating that sometimes accompanies works whose aim is to posit the superiority of the Anglo-Saxon political and economic model. This book is not an ideological tract, but rather an attempt to apply a development eco-nomist's thinking to how institutions affect prosperity.

If the book has a fault, it is the somewhat relentless way in which Olson pursues his argument. The great British philosopher of liberalism, Sir Isaiah Berlin, once placed all the world's thinkers and writers in one of two categories. You were either a hedgehog, knowing one big thing, or a fox, knowing many little things. Olson is pure hedgehog, seeing a single big idea in history. Every allusion in this book is aimed at proving Olson's basic premise that there is one, and only one, model of political economy that guarantees prosperity.

He may have convinced us that he is right, but in some ways that was the easy part. It is too bad he did not live long enough to write the sequel that tells the world's practitioners of economic reform what precise policies are needed to get from corruption and tyranny to free markets and individual rights. But those are books written by foxes, not hedgehogs.


This article was published in European Affairs: Volume number I, Issue number III in the Summer of 2000.