[THE FOUNTAIN]The impact of interest groupsBritain won World War II, while Germany lost. Yet in the 1960s, West Germany flourished while the British economy struggled. Why did two countries with many similar conditions show very different outcomes after the war? American political economist Mancur Olson found the reason in the existence of vested interest groups.
In his 1965 book “Logic of Collective Action: Public Goods and the Theory of Groups,” he proclaimed that the power of interest groups diminished the benefits for society as a whole. For example, it is easy for several automobile companies to form a cartel to prearrange prices or create a lobby group to produce a national policy favorable to them. But it is hard to expect millions of consumers to unite and stand up to the automakers. Because the benefit is substantial for the group as a whole but small for each person, individuals are reluctant to take action. This is the basis on which interest groups acquire power that is harmful to society but beneficial to themselves.
In his 1982 book “The Rise and Decline of Nations,” Mr. Olson suggests the result of collective action by small vested interest groups. Their activity continues until it erodes a nation’s economic vitality, and they are not likely to be removed until a calamity like war breaks out. Olson concludes that the economic results of the two countries were different because in Germany, which lost the war, the “cleansing” took place, while in Britain the old system was retained.
Then how can we explain that the British economy currently is performing well while Germany’s economy is faltering? In some respects Germany still bears the burden of reunification, but if Mr. Olson’s theory is applied, its economy can be seen as reflecting the accumulated negative effect of interest groups, such as strong labor unions. In contrast, in the mid-1980s, British Prime Minister Margaret Thatcher, “the Iron Lady,” fought against the labor unions and crushed the impact of small interest groups.
Mr. Olson emphasized that only when people perceive a crisis and accept reform can the rampancy of interest groups be controlled without a calamity like war. After his death in March 1998, The Economist, a British publication, paid tribute by saying that “owing to Mancur Olson, nowadays most students of economics can accept a contention like his as natural.” Perhaps Koreans do not yet perceive the crisis.
By Lee Se-jung
The writer is a deputy business news editor
of the JoongAng Ilbo.