What is Mancur Olson's theory of institutional sclerosis?

Institutional sclerosis is a concept introduced by the American economist and social scientist Mancur Olson. It explains differences in the growth of societies by focusing on the role of interest groups. In his 1982 book The Rise and Decline of Nations, Olson argued that special interest groups develop over time and compete for shares of the economic pie, to the detriment of growth in the size of that pie. The harmful effect on growth is what is called institutional sclerosis, as described by [wikipedia.org](https://en.wikipedia.org/wiki/Institutional_sclerosis) and [heckeljc.sites.wfu.edu](https://heckeljc.sites.wfu.edu/papers/published/CollectiveChoice8.pdf). [1] [2]

The theory rests on a problem of collective action. Olson observed that when a group shares an interest, an individual who sacrifices time and money to serve it gets only a minute share of the gain, because everyone in the group benefits whether or not they contributed. In large groups, this gives people little reason to act, as Olson wrote in [publics22.classes.ryansafner.com](https://publics22.classes.ryansafner.com/readings/Olson-1982.pdf). [3]

Heckelman and Coates summarize the consequence. The benefits of growth are widely dispersed, so a pro-growth group would capture a small share of the benefits while bearing all the costs. Groups seeking excludable redistribution, by contrast, gain large benefits for themselves and impose costs on society. Narrow special interests therefore organize more readily than broad ones, according to [heckeljc.sites.wfu.edu](https://heckeljc.sites.wfu.edu/papers/published/CollectiveChoice1.pdf). [4]

Olson's hypothesis has several parts. Stable societies with unchanged boundaries accumulate more collusions and organizations for collective action over time. On balance these organizations reduce efficiency and aggregate income and make political life more divisive. Distributional coalitions also slow a society's capacity to adopt new technologies and to reallocate resources as conditions change, which reduces the rate of growth. This formulation appears in a [mercatus.org](https://www.mercatus.org/media/177636/download?attachment=) paper. The same logic implies that resources are diverted from technological advances and other non-excludable, growth-enhancing activity toward redistribution, so growth should decline over time. [5] [4]

Because forming groups takes time, Olson held that upheaval such as coups, revolutions or wartime destruction clears away existing groups and restores growth prospects. Constant upheaval is also harmful, since people lose faith in institutions and avoid long-term contracts. The best growth prospects should follow recent upheaval and then long stability. [4]

Olson pointed to Germany, Japan and Italy, whose prewar governments were eliminated and which grew fastest after World War II, while countries whose institutions survived, such as the United States, Britain, Australia and New Zealand, grew much more slowly. His econometric work used US states, finding that a state's age was inversely correlated with income per capita, and that union membership was higher in older, more stable states. [4]

Olson's approach was attacked from many sides, according to Coates and Heckelman. Many cross-national tests used years of stable borders as a proxy for sclerosis. Heckelman and Coates argue this fits Olson's theory poorly, since wars or coups can cause upheaval without changing borders, and Olson himself treated the Civil War and the 1965 Voting Rights Act as fresh starts for southern states. Others built measures of the destruction caused by wars and revolutions. The search results do not give the findings of these tests, so how well the theory holds up is not settled here. [2] [4]