The intrusion of messy reality into economics generates most of its intellectual issues. The world escapes the simple axioms of market exchanges mediated through freely negotiated prices. An American economist called Mancur Olson wrote “The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities” in 1982. It discussed issues not within the scope of either monetarists or Keynsians, namely how economies do not work according to the ideas of either schools.
For Olson, the question to be answered was why some economies were performing better than others after World War 2. Why, for instance, was Britain in such a mess (pre-Thatcher) and Germany and Japan increasing in wealth by leaps and bounds?
Olson observed the behaviour of what he called “distributional coalitions”, which are normally economic associations but which can morph overtime into castes, tribes, or even races. Usually we call them “special interest groups”, and usually we think of them as things like the dairy farmers, or other organized economic groups with formal legal status which seek legal or regulatory privileges (professional associations, banks, etc). Olson pointed out that they are usually small, they exercize disproportionate power, they reduce efficiency in the economy, they slow a society’s adaptation to change, and once successful, are exclusive and seek to limit the diversity of incomes and values of their membership.
His final rule of interest groups was:
9. The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution.
Olson pointed out how expensive it is for anyone to discriminate racially (or any other way) as individuals, but by contrast, how rewarding it is to discriminate when it is done collectively. South Africa, in the apartheid days, could engineer much higher standards for whites by keeping blacks out of skilled and semi-skilled work.
Moreover, a racially, linguistically and culturally distinctive group finds it easier to maintain a multi-generational coalition. “The linguistic and cultural similarities will reduce differences in values and facilitate social interaction, and … this reduces conflict and makes it easier to generate social selective pressures.” (p.159)
And here is the kicker: if you can reinforce the “distributional coalition” with inbreeding – marrying within the tribe, the class, the group, the caste – you will make the group work better over time. This is called “endogamy”.
Unfortunately, the promotion of prejudices about race, ethnicity, culture and intergroup differences in lifestyle will also make the coalition work better. The inculcation of these prejudices will increase the probability that the members will follow the rule of endogamy and strengthen selective incentives by interacting socially only with their own group, of their own accord.” (p160)
A good deal of whatever I learned as a kid from the osmosis of attitudes about the other tribe in Quebec, the French Canadians, reflected this truth of behaviour, and they had stronger if not deeper prejudices against us “English” (not a tribe, really just a foreign bourgeoisie). A distributional coalition can be an ethnic majority as well as an ethnic minority. I am not saying that the prejudices of each tribe were unfounded; I am saying that looking at each group, the English in Quebec, or the French in Quebec, as a distributional coalition, generates some insights. It suggests that wherever you see strong barriers to intermarriage, you might be in the presence of a distributional coalition, as well as that of a tribe, caste, or religion. It also suggests that when barriers to intermarriage are falling, a distributional coalition is fading out.
Olson was suggesting that racial and other forms of discrimination can work as the enforcers of the privileges of a “distributional coalition”, but note that, in his view, he makes no assertion that we have some innate drive to discriminate – an issue on which he is silent. He says that maintaining in-group marriage (maintaining racial, tribal or religious boundaries) will strengthen the distributional coalition over time, indeed, it is the only way to maintain it over long periods of time.
In conclusion, Olson’s views balance the problems caused by instability against the problem s caused by distributional coalitions.
On the whole, stable countries are more prosperous than unstable ones and this is no surprise. But, other things being equal, the most rapid growth will occur in societies that have lately experienced upheaval but are expected nonetheless to be stable for the foreseeable future.
In short, they have had a chance to purge themselves of distributional coalitions.