Chapter 2: The Logic
If individuals in some category or class had a sufficient degree of self-interest and if they all agreed on some common interest, then the group would to some extent also act in a self-interested or group-interested manner (17) --> this is fundamentally and indisputably faulty
Share of gains is minute in larger groups, and even nonparticipants in the action gain
The paradox is that large groups, if composed of rational individuals, will not act in their group interest

II.
Something other than collective goods must be provided by governments and other organizations to account for their existence; if they just provide collective goods, rational individuals have no reason to voluntarily support them; hence, compulsory taxation
Key point: orgs. that provide collective goods to client groups through political or market action are not supported due to reward of collective goods but through selective incentives
Selective incentives: applies selectively to the individuals depending on whether they do or do not contribute to the provision of the collective good (e.g. negative: union dues, tax payments; positive: insurance policies, group air fares, other member benefits)

III.
Social selective incentives can be powerful and inexpensive, but are limited to certain situations:

• limited by existence of large groups unless made up of interacting smaller federations
• limited by the social heterogeneity of some groups (makes interactions and agreement tough)
• agreement in these groups is possible, but at extra costs
• organizers, thus, strive to form homogeneous groups, increased through indoctrination and selective recruitment, and aimed toward easy consensus

V.
Contributions w/o selective incentives can occur if groups involved are small enough and if the cost-benefit ratio of action in the common interest is favorable (e.g. they may work together to secure a “group optimal outcome”)
Key point: the larger the number of groups, the smaller the individual gains; in the absence of selective incentives, the incentive for group action diminishes as group size increases; large groups are therefore less able to act in their common interest

VI.
Summary/restatement of two key points above
See p. 31 for mathematical fun in the footnote

Chapter 3: The Implications (**see p. 74 for the uninterrupted list of implications)
I.
Implication 1: there will be no countries that attain symmetrical organization of all groups with a common interest and thereby attain optimal outcomes through comprehensive bargaining.

• Can society achieve a rational or efficient economy through bargaining among organized groups? NO. Certain people or smaller groups would be left out; organized groups would focus on their own gains and put the costs onto the unorganized; increased costs come with bargaining and slow decision-making

• Bargaining that occurs in small groups takes time before developing; social pressure and social rewards also add to delays; establishing social networks and creating positive selective incentives further delays action
• Orgs. that have secured selective incentives to maintain themselves will often survive even if the collective good is no longer needed

IV.
Implication 4: On balance, special-interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.

• Orgs. can reward members by helping society increase the size of the collectively-shared pie, or by working to secure more pieces of the pie for its members; typical orgs. will choose the latter option because there is no constraint on the social cost such an organization will find it expedient to impose on the society in the course of obtaining a larger share of the social output for itself” (44)--they struggle over distribution of income/wealth, not production
• Thus, cartels and special interest orgs. emerge, redistributing income, not creating it, and contributing to overall inefficiency

• These orgs. are large, encompassing big segments of the population
• These orgs. will often consider increasing society’s production, as long as the burden does not exceed the expected reward, and are encouraged to bargain with other substantial groups in an effort to increase the productivity of society
• The efficiency of firms and industries can be influenced by whether or not the relevant institutions for collective action are encompassing in relation to them (i.e. encompassing orgs. have an interest to increase efficiency and productivity of firms/industries

• Due to need to use consensual bargaining or constitutional procedures, decisions are delayed
• Required built in incentives or rules for collective action (e.g. seniority rules, simple formulas for decisions, use of outsiders) to overcome conflict of interests over sharing costs; these conflicts and other built in delays in decision-making encourage price fixing which constrains supply production --> leaves cost decisions to the market or other impartial forces

• “Slow down” inherent to delays and nature of org. acting on interests (e.g. a union is encouraged to prevent new technology from replacing workers); other barriers exist to reallocation of resources due to cartelism or existence of powerful orgs.

• Would OPEC want new members? it could only create problems and threaten profits
• Many professions have barriers to entry for this reason
• Coalitions: you only want as many people/orgs. as you need to succeed

• Distributional coalitions, on top of affecting efficiency and growth, also affect the relative importance of different institutions and activities; resources devoted to politics and cartel activity are directed away from production, which in turn influences the attitudes and culture that evolve in society (e.g. attitudes, values, education) (69)
• Regulatory complexity grows due to lobbies, in a continual process of loophole discovery, closing, discovery, closing…increasing scale of bureaucracy and govt.

II.
Implications of stability (i.e. restricted growth) explain why England, with few disruptions such as invasion, dictatorships, etc., would suffer from restricted growth; so many strong orgs. and collusions it suffers from “institutional sclerosis” slowing adaptation; additionally, many powerful orgs. are narrowly focused and not encompassing (e.g. some factories may have several competing unions involved)

III.
“There cannot be much doubt that totalitarianism, instability, and war reduced special-interest orgs. in Germany, Japan, and France, and that stability and the absence of invasion allowed continued development of such orgs. in the United Kingdom” (79)

IV.
Discounts arguments that account for post-war growth due to human capital in relation to physical capital destroyed during the war; knowledge of productive techniques had not been destroyed in the war, but even that can’t account for post-war growth beyond pre-war levels;
Discounts arguments that the British don’t work as hard or aren’t as industrious as Germans and Japanese; this is only relevant to their absolute level of income, not its rate of increase/growth; better accounts look to role of incentives, economic institutions and policies, to explain differences in growth rates

V.
Discounts arguments that growth rates can be explained by “alleged national economic ideologies” and extent of govt. involvement in economic life (Britain is the key example); govt. involvement in Britain is no greater than France and Germany, and the growth rate has slowed for last 100 years (back when the state was involved very little in the economy)
Tests of inverse relationship b/w size of government and economic growth are inconclusive

VI.
Discounts arguments that Britain’s growth was slowed by class consciousness that allegedly slows social mobility, structures that deter entrants and innovators, or medieval prejudices opposed to commercial pursuits; great growth during Ind. Rev. shows exactly the opposite—it’s not something inherent in their character; evidence of greater flexibility of class structures on the continent point toward class structure comparisons for answers

VII.
On the continent, Napoleanism and totalitarianism demolished feudal structures and concomitant cultural attitudes; Britain has not suffered the institutional destruction, the forcible replacement of elites, or the decimation of social classes as did the continent (84); the stability and immunity from invasion made it easier for firms and families to organize and/or collude to protect their interests
Discounts the power of middle class unity, class conspiracies, or class-coordinated action as an explanation for the preservation of these firms and industries; its is a far subtler process
See p. 85 for connection of theoretical arguments to the English case re: class consciousness and the preservation and expansion of aristocratic and feudal prejudices against commerce and industry; see also the closing paragraph to this section on p. 87 for Olson’s disclaimer

VIII.
Looks to other countries with long histories of stability and security (despite lacking as long a history of stability and immunity from invasion): Switzerland, Sweden, US
Switzerland: despite slow growth following WWII, we must factor in they have had less “catch-up” growth because had higher per capita income than most other European countries; disruptions in neighboring countries, combined with its internal structures, made it a leader in international banking and a recipient of large amounts of capital; it seems restrictive constitutional arrangements restrict passing of new legislation, but more evidence is needed

IX.
Sweden: same “catch-up” growth factor as Switzerland, but appears to contradict Olson’s theory; industrialized late, but has freedom of org. and immunity from invasion; superior growth to Britain despite equally and exceptionally strong special-interest orgs.; the answer lies in the unique nature of the orgs, which are highly encompassing (more than any other democracy) but with a tolerance of market forces; labor orgs. are known for growth-increasing policies
There is no natural tendency for encompassing orgs. to replace narrow ones (leaders of narrow orgs. have no interest in doing so for they would likely lose leadership status)
There is no natural tendency for encompassing orgs. to take interest of society into account, but encompassing special-interest orgs. do have institutions with an incentive to do so

X.
United States: free from invasion, less encompassing special-interest orgs. than any other country, and the slowest growing of the developed democracies--seems to support theory
But, we must look at the US in parts to recognize differences in timing and history of organization (e.g. Civil War); no direct legacy from feudal Middle Ages; theory predicts that countries settled after medieval period should resemble Great Britain in their labor unions and modern types of lobbying orgs.; US growth likely underestimated, but more data needed

XI.
Strength of this theory is that it offers an explanation for the most strikingly anomalous growth rates among developing countries, and looking inside the US at specific states' growth since WWII can demonstrate this usefulness
Statistical tests reveal that especially since the 1960s, there has been a strong and systematic relationship between the length of time since state settlement and its per capita and total income rate of growth (97)--the relationship is negative (i.e. due to time for orgs. to grow)
Civil War states suffer from less orgs. because faced disruptions/invasion
Higher rate of special-interest org., slower rate of growth

XII.
Preliminary test of model: a simple regression b/w years since statehood and rates of growth
99-101 for statistical reasoning/methods (elaboration of US analysis in section XI.)
Tested and eliminated the possible importance of western expansion

XIII.
More stats stuff pp. 102-09: conclusion--the model is predicting well

XIV.
Tested to rule out other explanations of growth trends (e.g. climate influences)--theory holds

XV.
The South is a complex case, given its racially-based history and policies (pp. 109-11)

XVI.
Must consider differential use and growth of technology across states; less advanced states have the benefit of the “catch-up” factor, increasing their growth rates vis-à-vis other states
48 states present unique test of “catch-up” and Olson’s theory together; two theories appear compatible, as the catch-up results support growth theory (though less significant than length of time state had to develop orgs.)

XVII.
Nothing special

XVIII.
Short summary on p. 117

pp. 140-145
XI.
What are the policy implications? His arguments do tilt toward revolutionary side, but you must consider other factors (and he doesn’t consider the revolutionary implications seriously)
This theory does show that the conservative (and functionalist) argument that if social institutions survive they must be useful is wrong
Key policy implication: there should be freer trade and fewer impediments to the free movement of factors of production and of firms (141)
Discusses how in this chapter he pinpointed “jurisdictional integration” as key to reducing barriers to the flow of products (reduction in length, not height, of barriers): all of these things, taking matters out of cartels or other orgs. hands, weaken distributional coalitions.  Not sure I get this concept except that it shows how freedom in the market weakens orgs.
Most barriers to foreign entry into markets are driven by special interest orgs. and multinational corporations (including labor unions, medical societies, etc.)
See 142-43 for details on this and role of immigrant flows
Is Britain’s economic plight due to trade unions? Yes and no--see 143-44 (it’s tough to summarize here because it’s based on unread parts of the chapter
Freedom of trade and of factor mobility have to be used in combination with other policies to reduce or countervail cartelization and lobbying (144); but, orgs. are powerful, so the development of stable societies leads to a natural contradiction: powerful orgs. spring up due to stability, but long-term losses that come from accumulating networks of distributional coalitions are the cost

pp. 165-72
IX.
What about unstable countries? (e.g. Latin American and African countries)
Great growth is expected in recent (but expected to continue) stability; although orgs. eventually hurt stable countries, they hurt less than ongoing instability
The theory predicts small groups will rise and be able to further their common interests through easier ability to collude than large orgs. (from Implication 3); this is accentuated in unstable societies due to: they present less of a threat to ruling juntas or military dictatorships; and, the smaller groups can be discreet and inconspicuous…stay invisible until the time for action is appropriate and they can take advantage

X.
Metropolitan areas have disproportionate influence due to lack of infrastructures that link rural people to urban ones
Usually in developing nations the largest firms and wealthiest individuals are involved in producing import substitutes and goods that compete with foreign firms…combined with poor transportation in rural areas, this creates a “perverse policy syndrome”: the key to this policy syndrome is the markedly disproportionate strength of small groups in unstable societies (168); interests have an obvious interest in protection against imports and anti-foreign company legislation; prices are driven up, but lack of organizational strength of the people makes it possible
How does this affect the distribution of income? Protection favors the wealthy; owners of labour and natural resources are victims of the loss of exports; they naturally have a comparative advantage, but not if resources are devoted to domestic goods over exports
Overall, the distribution of income becomes far more unequal; perverse policy syndrome promotes inefficiency, stagnation, and inequality
This policy situation also encourages more workers to the cities, creating inefficiently large capital cities and major metropolitan areas
Most of this, though, is speculative and requires better data and historical analysis