A Summary of The Logic of Collective Action
Before Mancur Olson‘s 1965 classic “The Logic of Collective Action“, the main problem with democracy was thought to be the tyranny of the majority. However, many policies in democracies favor special interests over the majority, even though the majority should be able to outvote them. Such policies are very difficult to explain by appeals to morality, public good provision or rent seeking by officials. Some examples include sugar and other farm subsidies, occupational licensing, corporate welfare of all sorts, and any industry specific tariff. Olson combined the idea of transactions costs and the tragedy of the commons in a new way to explain the phenomenon of policies in a democratic state that favor small organized groups over the majority.
Provision of public goods requires that a large number of people contribute to producing a good that is non-excludable and non-rival. Because the good is non-excludable, people have an incentive to free ride – consume the good without paying for it. The free rider problem can be solved by using the coercive power of government to force people to pay, but invoking government should never be the last step of economic analysis. Economists need to be able to analyze the institutions and individual incentives which guide those who are trying to resolve the problem.
Olson’s key insight is that public policy is itself a public good, and is thus vulnerable to the free rider problem. In order to get a law passed, people need to already be able to overcome the free rider problem to lobby the government. A single person or firm will not want to devote the money and resources to lobbying if they can just free ride on others’ campaign contributions and lobbyists. Unless the issue is important enough to shift the votes of the masses, the only policies that will be passed will be those favoring organized groups who can impose discipline on their members.
“The consumers are at least as numerous as any other group in the society, but they have no organization to countervail the power of organized monopolistic producers. There are multitudes with an interest in peace, but they have no lobby to match those of the “special interests” that may on occasion have an interest in war. There are vast numbers who have a common interest in preventing inflation and depression, but they have no organization to express that interest.” – TLoCA (p. 165)
The smaller the group is which is benefitting from the policy, the less it costs the average member of society to provide them with a benefit. For example, an organized group of 100 members could vote themselves $1 million each at the taxpayers’ expense and it would only cost the government about $.50 per taxpayer (for 200 million taxpayers). Very few people will change their votes based on a policy which only affects them $.50 either way. Smaller groups are also better able to communicate with one another and discipline members who deviate. The smaller the group, the lower the transactions costs of organizing.
There are a couple ways to avoid the collective action problem. If the transfers get too large as a group, people could switch to voting for a politician who abolished them as a group. If there was a cultural norm against government transfers, people could shun or boycott groups who lobbied for and accepted them. Small, open jurisdictions would lower the benefit of lobbying by firms and raise the ability of voters to oppose the transfers, which is one of the reasons why the micronation movement could be so helpful in opposing corruption.
TLoCA does not explain mass popular social movements, such as the environmental movement, women’s rights or things of that nature. To explain those, I would use Hansonian reasoning or even Iannaconnean economics of religion. Neither does it explain the cultural norms people share, but it was definitely an improvement on the simple tyranny of the majority based reasoning of the past.