Economics and finance, Government and governance, Arts, culture & society | Australia, Asia, The World

28 November 2019

Investigating the struggle of people against power, Quentin Grafton looks to the past, finding implications for people power today and Australia’s future prosperity.

The fall of the Berlin Wall 30 years ago this month was as unexpected as it was welcome. It showed how people power, in the right circumstance, could change the world, and for the better. In 2019 people power appears to be resurgent, at least in Lebanon, Chile, Iraq, and Hong Kong where popular movements are demanding change in how they are governed.

Is history repeating itself? Or will people power peter out like the Arab Spring or splinter like Occupy Wall Street? In 1982, Mancur Olson published The Rise and Decline of Nations, which provides a useful lens to view people movements. His key thesis was that, over time, stable societies accumulate the ‘barnacles of special interests’.

These special interests cause ‘institutional sclerosis’ that reduces the prosperity of the people because rent-seeking impedes innovation and productive investment, increases inequality, and, ultimately, stifles economic growth.

More on this: The umbrella revolution

The solution to institutional sclerosis is periodic reform and renewal to remove the barnacles that are slowing the ship of the state. Olson provided multiple cases, such as the US Deep South, which grew much faster after the 1965 Voting Rights Act, to support his thesis. Since his book was published there has emerged a substantial, but contested, body of empirical evidence in support of institutional sclerosis.

Special interests include groups from both the left, such as unions, and the right, industry groups. According to Olson, groups that might lobby for the national (as opposed the vested or special interest) interest have less incentive to do so because the benefits of reform are shared among everyone.

This is what he called the problem of collective action. By contrast, gains from lobbying by special interests are shared with only a few. Thus, the incentive is greater for persons of like interest to collaborate for their own and their group’s gain rather than the national interest.

What has this got to do with power versus the people? Olson’s logic is that in long-standing and stable democracies incentives for collective action in the national interest are much smaller than collective action that delivers for special interests.

This is especially true when the economy is continuing the deliver the goods for most of the population – a country like Australia that has not had a recession in 28 years and experienced its last wave of economic reform decades ago fits the bill perfectly.

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Australia now has a triple-whammy: well-entrenched special interests helping themselves to the cream on top of the economic pie, sclerotic growth in per capita income, and much of its populace disinclined to collective action in the national interest, at least in the economic realm.

Evidence in support of an Australian institutional sclerosis is everywhere. A lack of meaningful tax reform is holding Australia back. The Financial Services Royal Commission, to which some politicians had to be dragged kicking and screaming to allow, identified a banking culture that ignored the interests of the many while public regulators sat on the side-line.

South Australia’s Murray-Darling Royal Commission identified the waste of billions of dollars of taxpayers’ money for little or no public benefit and ‘maladministration’ by those charged to deliver water reform in the public interest.

Australia’s carbon emissions have increased every year since 2014 and it still lacks an effective national energy policy – and those Australian apartment owners in multi-story buildings that are at risk of collapse, and the many more in apartments with unsafe cladding, must be wondering just whose interests took priority when it came to state-building relations and inspections.

So how does Australia cure its institutional sclerosis? It will probably require an economic recession or crisis to incentivise the many to work together to overcome the ‘push back’ from special interests.  If Australia is lucky, such reform, like in past crises, will deliver a type of ‘New Deal’ that pushes our leaders to prioritise the many, and the future, over the few and the present.

If we are unlucky, just like those in the Middle East who witnessed their democratic and reformist dreams in the Arab Spring wither away, the demand for reform may be hijacked by self-serving populists. Such populist hijackers rail against the ‘corrupt elite’ and talk about ‘draining the swamp’ but appear to deliver principally for themselves and their own special interests, with little respect for democracy.

As with those who broke down the wall that divided Berlin, people power can only be successful when the many come together to deliver collective action in the national interest.

As in East Germany before the fall of the wall, it may take many years before people say ‘enough is enough’.

Perhaps a ‘Berlin Moment’ moment is happening in 2019 in Lebanon where 37 per cent of youths are unemployed and a quarter of those who are able to work are without jobs. In such an extreme situation, the young may have little to lose and much to gain by working together to effect real political and economic reform.

For those peacefully protesting for effective action to prevent catastrophic climate change, the costs of inaction are more than outweighed by the benefits of collective action. The fact that the young are at the forefront of this movement with climate strikes may be because they have the most to lose from business as usual and have the lowest costs of collective action. Unsurprisingly, special interests are trying to shut down such protests; a case of power versus people.

We are at a watershed whether we live in Baghdad, Beirut, or Brisbane. Will the Logic of Collective Action lead us to a system of government that truly delivers for the people? Whatever unfolds, Policy Forum will continue to report on what is happening and analyse what is behind the headlines.

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