THE GRIDLOCKED SOCIETY

...Similarily, the Davis-Bacon Act requires, in effect, that the government pay the highest union wage for construction projects...

...Other thinkers, from Gibbon to Spengler, have also dwelt on the enfeebled state of a mature society, but they based their judgments mainly on moral grounds...

...Or of India, with its caste rules defining the whole society as a collection of special-interest groups...

...One thing this meant, of course, was that other politicians were put in Johnson's debt...

...All these things are, by definition, difficult to accomplish within the normal workings of the market, since they amount to bending the curves of supply and demand...

...But if it takes steps that help its own members, it gets 100 percent of the benefits and pays only a fraction of the overall costs...

...A Nation of OPECs At first glance, all this may seem obvious, although Olson does hammer home the nonobvious argument that special-interest groups are the result of people acting "routinely," by the same economic rules that are supposed to guide the invisible hand, and not "greedily" or"immorally...

...in the postwar generation...

...They could start from the understanding that a booming, prosperous nation will want more roads...

...After the coalitions have done their work, nearly everyone will be worse off than otherwise, because the pie itself will have shrunk...

...He took money from Eastern liberals and gave it to conservatives in the Midwest...

...they would pressure the labor unions to get rid of senseless work rules, enabling the company to lower its prices...

...If a small group tightens its belt to help the overall economy, it gets perhaps 1 percent of the benefits—and has endured all of the belt-tightening...

...Caro dwells on this at length...

...In either case, the crucial step is to organize in order to put pressure on the government or the other participants in the marketplace...

...The result is to make these groups' interests far more closely aligned with the interests of the entire nation...

...But it is alarming, and it suggests that our hope for economic survival may lie in the unexpected figure of the traditional, party-minded politician...

...One of Olson's recommendations, consistent with his hostility to cartels, is that we should support free trade...

...According to Mancur Olson, such a development should not be surprising...

...If you're growing corn, you have to worry about the others who might decide to grow it...

...More people will do so, threatening your own position in the market, whenever the price of corn seems likely to rise...

...The reason is that they have much, much more to gain by taking money from other groups than by helping everyone generate more wealth...

...But beyond that, he has little to suggest — except, by implication, that we lose a war and hope that our conquerers treat us as MacArthur treated Japan, not as the Romans treated Carthage...

...But he does remind us that economists of every political persuasion agree that production is most efficient when prices are flexible...

...Therefore, each special-interest group fights for a larger slice, not a larger pie, and the strongest groups fight hardest...

...That is approach number one...

...For argument's sake, let us imagine that eight big road-building companies make up this group...

...In the beginning of his book, Olson says that his theory will help explain such widely noticed developments as the postwar rise of Japan and Germany relative to the U.S., the decline of England relative to nearly everybody, the modern booms in California and Texas, the depression in the industrial Midwest, and the pathetic inability of such big, muscular organizations as labor unions and government to do much about the situation...

...But these small organizations, which are the first to appear (according to Olson's evidence) and always remain the strongest, are also the most destructive to their society's overall well-being...

...Mancur Olson does not suggest that he has come up with today's equivalent to Keynes, but in The Rise and Decline of Nations (Yale University Press, $14.95) he extends the reasoning to its next logical step...

...Instead of construction workers, they include all workers...

...That phrase was coined by William James, who contrasted the noble human qualities evoked by war with the destructive purpose they served...

...Olson also goes back to Economics 101 to demonstrate why special interests choke an economy...

...They would modernize their own machinery to make it more efficient...

...Tariffs are just another form of special-interest protection...

...The worst thing about it, as with so many other things in the Carter years, was its execution...

...Part of the evidence is historical...

...How much more agreeable the whole process would be if you could shunt off some of this competition...

...The reward for pleasing those to whom we sell our goods or labor declines, while the reward for evading or exploiting regulations, politics, and bureaucracy and for asserting our rights through bargaining...

...As portrayed in microeconomics, the world of economic competition is a harsh, demanding place...

...This is part of the story of England today, thick with cartels, unions, and class barriers, versus England 150 years ago, when it was the engine of the industrial revolution...

...For an illustration of the latter, think back on Carter's closing statement in his debate against Ronald Reagan, in which he ticked off the favors he had done for Hispanics, farmers, women, the disabled...

...The bulk of Olson's book consists of evidence to establish this point...

...There Johnson developed a technique that is now commonplace but was revolutionary at the time: he raised money not just for his own political purposes but to spread around to other candidates...

...Approach number two involves saying, To hell with the national economy, I'm looking for mine...

...These may be labor unions, business cartels, aristocratic groups protected by caste traditions, or other assemblages that use tools beyond those strictly of the market to increase their share of the pie...

...Why have Germany and Japan done so much better than England and even the U.S...

...The problem is that they are weaker now, compared with more narrowly focused groups...

...He says that these coalitions are most likely to develop, and develop fast, in precisely the forms that do the most damage to the rest of the society...

...During the 1940 campaign, Johnson, then a congressman, ran the Democratic Congressional Campaign Committee, which assisted Democratic candidates across the country...

...This will make much of the book rough going for those outside the academic world...

...If Olson's argument is persuasive, as it obviously is to me, it implies that our economic distortions can be corrected only through a political response...

...Then came the Depression, and John Maynard Keynes made his name by explaining that, in certain circumstances, what was good for one might not be good for all...

...Democrats and Republicans may see their interests as opposed, but each of the parties contains a broad enough sample of regional and economic groups to prevent the most harmful forms of special-interest action...

...Economic equilibrium depends on flexibility— when prices go up so should supply, and when demand goes down so should prices...

...They would urge that foreign firms be allowed to bid on construction projects, in hopes that the job could be done for the lowest possible price...

...Mancur Olson is not talking about morality, but about economics: specifically, about the reasonable, understandable, but ultimately very harmful things people do to shield themselves from the rigors of the market...

...Each one of the five would get a large share of, say, the bigger defense appropriations the firms had lobbied for, while any one of the two million might feel that he would gain less from the formation of a union than he would have to sacrifice (in time, inconvenience, or harassment) to get his fellow workers organized...

...One response, then, to Olson's diagnosis is politicians who understand how to speak to us as a nation, not as a grab-bag of interests...

...If they want to make more money, they have two choices...

...Is it merely coincidental that the three big American cities with the greatest sense of economic vitality—Houston, Miami, and Los Angeles—are the very places where society is being most rapidly shaken up by immigrants from the rest of the country and overseas...

...Under the old "Fair-trade" pricing system, Schwinn might insist that a bicycle that cost $30 to make be sold for no less than $65...

...This last paragraph is a head-of-a-pin condensation of one of Olson's previous books, The Logic of Collective Action, as well as of the early part of his new book...

...Olson shows, in convincing, careful detail, that societies with dense networks of special-interest groups have stagnated, compared with their less-encumbered neighbors...

...Carter's approach illustrates the best and the worst of the politician's ability to deal with the special-interest problem...

...becomes greater...

...He understood that part of his job, part of the potential of his bully pulpit, was to teach people about the consequences of their actions, and to suggest another path...

...His book is really addressed to his professional brethren, since it builds to a full charts-and-formulae demonstration of where he stands in the post-Keynesian debates that have kept the academic world hopping in recent years...

...In a case like that of our hypothetical road builders, with their one percent of the national income, they will have a reason to fight for special protection unless the harm it imposes on the society is 100 times greater than the immediate benefit to the group...

...As a side benefit, he also undertakes to explain why India's caste system choked its development, and why the customs of primogeniture and apartheid arose from a similar economic impulse, working in two different societies...

...If you're selling your services, you have to price them at a level that people can afford—to avoid drawing in other competitors lured by the prospect of easy profits...

...Not only are the logistics easier, but the payoff is more dramatic...

...THE GRIDLOCKED SOCIETY James Follows For the first century and a half of their existence as a "scientific" discipline, economists offered the world a message that could be boiled down to this: What's good for me is good for you...

...The preferred approach will be number two, whether we are talking about a company fighting for tariffs or a "tight-budget" congressman who votes to have a dam built in his district...

...If only you could control how much corn would come onto the market, or force people to buy your services at a higher price than they'd willingly pay, or forbid other people from horning in on your business...

...In his biography of Lyndon Johnson, Robert Caro provides a dramatic illustration of how parties can transcend parochial interests...

...As time goes on, plaque accumulates on the arterial walls...

...By refusing to explain what this mysterious phrase originally implied, Carter left most of the public, who had never read William James or heard of his essay, with the impression that the "moral equivalent of war" was a kind of holy war against the Arabs...

...they pass costs onto everyone else in the economy, and they shelter the inefficient producer...

...This would mean relentless pressure for highway-building projects, perhaps advertised as an anti-recession plan...

...they would oppose dubious federal spending, in hopes that the money returned to private pockets would eventually wind up in theirs...

...Still, Olson has performed the most valuable service a general reader can ask of an economist: he helps us understand behavior that we all recognize but can't easily explain...

...In American politics, the broadest, most inclusive institutions are the political parties...

...But it also meant that the party's interests comparatively broad and moderate—could outweigh extreme local concerns...

...That is, they assume that when the dust has cleared, when the cartels have set their prices and the unions have bargained for their work rules, things will reach a natural equilibrium...

...The tendencies he's talking about are not limited to the 20th century, but his modern evidence is what concerns me here...

...Many people shrug off the special-interest question, assuming that the squabbling interests are roughly equivalent to vector forces in physics or checks and balances in constitutional government...

...The invisible hand will steer each man to the proper application of his talents—and will thereby guide the happy republic to the most efficient use of its men, money, and machines...

...Because there is a certain cost attached to undertaking any "collective action"—the dues withheld from union members' paychecks, the fees that corporations pay to their lobbyists and public relations men—special-interest groups will develop most quickly when the number of necessary participants is small...

...What stands between the two halves of that equation is an inflexible wage...

...Johnson took money from Texas oil men and shunted it to labor candidates in the North and Northwest...

...instead of road builders, all major businesses...

...The best thing about it was its intention: Carter understood that there was a special-interest problem, that the accumulation of self-interested decisions could leave everyone worse off...

...The point he is building toward is that the natura/tendency of any society will be for its members to agglomerate into "distributional coalitions," also known as special-interest groups...

...His next step is more inventive...

...All the potential $50 sales— still profitable for the company, and worthwhile for the customer—that the Fair-trade rules prohibited would represent the collective social loss...

...Olson is an economist from the University of Maryland...

...Chamber of Commerce...

...For example: Suppose one small, powerful "distributional coalition" consists of firms that account for one percent of the entire gross national product...

...political collusion with their supposed adversary, the labor unions, to get those projects passed...

...Give up...

...This is one of several differences between Olson and the doctrinaire "conservative" who concedes that the Teamsters distort the free market but feels only reverence for the U.S...

...Five aerospace companies will get together more easily than two million farm workers...

...Not true, says Olson...

...In emphasizing the efficiency of the market, Olson does not mean to say what some Ayn Rand devotees and other free marketeers do: that whatever distribution of income the market "naturally produces" is ideal...

...What power can work such a feat...

...Everyone will be about as well-off as if there were no "distributional coalitions...

...Therefore, the road builders would do whatever they could to get the nation back on keel...

...James &Mows is Washington editor of The Atlantic and a contributing editor of The Washington Monthly...

...But another answer involves institutions...

...Sometimes the same things can be done without formal government action, through agreements between private groups such as guilds and cartels...

...Or of stable, built-up Snowbelt America versus the newer cities of the Southwest...

...Some of the countries Olson describes have avoided the handicap of special interests because their main "distributional coalitions" are broad...

...The response would not be a losing war but the "moral equivalent of war," in which the same willingness to sacrifice, the same ability to rise above parochial interests for the good of the nation would be applied to peaceful ends...

...The power of government, for one...

...Implied in this argument is the most important lesson Olson has to preach...

...Olson carefully explains this commonsense preference as a matter of costs and benefits...

...If "moral equivalent of war" is now a familiar phrase, the responsibility belongs not to James but to Jimmy Carter, who used it in his speeches appealing for energy legislation in 1977...

...One response to Olson's diagnosis is politicians who understand how to speak to us as a nation, not as a grabbag of interests...

...According to Olson's theory, the longer a society exists with unchanged borders and a stable political situation, the more it will be bound, like Gulliver, by these tiny strands...

...A government can pass a tariff, grant a subsidy, fix a base price for your product, or permit you to "license"—and thereby keep out—potential competitors in your field...

...the incentive to seek a larger share of what is produced increases...

...Political parties still have that mediating potential...

...The incentive to produce is diminished...

...He pulls off nearly all of it, leaving us at the end of the book with everything except a clear idea of what we're supposed to do...

...Romans became degenerate when life grew too easy, and then they were run over by hardier barbarians...

...Olson's metaphor for our modern economy is a heart becoming sclerotic...

...requests for special tax breaks and depreciation rules for the vital infrastructure-repair equipment...

...After a while, things are so gummed up that the life fluids can barely ooze through...

...Olson says: "The growth of coalitions with an incentive to capture a larger share of the national income . . . alters the pattern of incentives and the direction of evolution in a society...

...Under conditions like those of the thirties, expectations for the future were so bleak that few sane businessmen would hire new workers or invest in new machines...

...It was not because their old foundries were razed during the war, Olson says, but because their societies were...

...Though each of their decisions was perfectly reasonable on its own terms, cumulatively they produced not wealth, but breadlines and soup kitchens...

...In the tangled, modern political economy that has replaced Adam Smith's simple pinmakers and David Ricardo's olive growers, Olson demonstrates that what is good for me will most often be bad for you...

...Ina world of free economic competition, the steps each person takes to use his talents and sell his wares will create the wealth on which other people live...

...and perhaps a "national security" clause in the highwayfund bill freezing all foreign competitors out of the bidding...

...Is it not possible, he asked, to call forth the same heroism without the gunshots and the blood...

...When an economy is inflexible, it is inefficient, which means, in the economist's terms, that demand goes unsatisfied and labor stands unused...

...There is a lot of public construction work to be done, and many workers who would like to do it—for $12 an hour, instead of the unionized $16...

...Party Favors Where does it leave us...

...Their common need for campaign money forced the bitterly divided wings of the party to work out a way of living together— a way of giving a little bit to everyone without pushing any claim to the hilt...