The Journal of Socio-Economics 37 (2008) 194212

An ecological perspective on interest groups and economic stagnation

Gregory G. Brunk a , Kennith G. Hunter
a

PO Box 125, Hudson, IA 50643-125, USA

Abstract There has been a great deal of public policy concern about the negative impact of interest groups, particularly since Olson portrayed them as the cause of the slowdown of mature economies. While his thesis remains the dominant academic and popular perspective, it has not been strongly conrmed. That is because such political-economic theorists committed a fallacy of reasoning in moving from individual-level motives to explaining macro-level outcomes. Firms initially have no difculty nding productive niches as an economy evolves, but by the time economics reach maturity, the ecological-style rules have created so many interdependencies and their accompanying rigidities that few options remain for sustaining aggregate growth. It is this much more fundamental process that produces sclerosis, and so the policy remedies that ow from more traditional analyses are likely to exacerbate, rather than resolve, many macro-economic problems. 2007 Elsevier Inc. All rights reserved.
JEL classication: B52; D72; H2; O1 Keywords: Interest groups; Economic growth; Ecological theory; Complex systems; Causal explanation; Evolutionary economics; Darwinism; Self-organization

1. Introduction interest groups and economic decline The reasons for long-term decline have fascinated scholars for centuries.1 Among contemporary writers, Olson was the most inuential, and argued a quarter century ago in The Rise and Decline of Nations (1982) that interest groups are the source of an almost inevitable economic slow down and eventual national decline. His theory is particularly noteworthy as an academic work since it not only has had a major impact on contemporary social science, but on real world politics. Its inuence is seen every day in calls to regulate lobbying and restrict the inuence that
1

Corresponding author. E-mail address: kennith hunter@hotmail.com (K.G. Hunter). For a review see Tainter (1988).

1053-5357/$ see front matter 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.socec.2007.01.014

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interest groups have on legislatures and bureaucracies in the belief that doing so is the way to postpone economic sclerosis. While Olsons theory is elegant and well reasoned from plausible premises, subsequent research by third parties failed to conrm virtually all of his predictions regarding economic growth. Indeed, analysts have concluded that the empirical relationship between interest groups and economic growth is highly sensitive to such matters as historical time period, control variables, and whether any extreme cases are excluded. Even more damning, some quantitative researchers argue that a greater number of interest groups is associated with increased not decreased prosperity. So why has Olsons work remained so important and spawned a huge literature? The reasons for its signicance are similar to John Rawls A Theory of Justice (1971), which is another contemporary classic in the social sciences. Both saw the complexity of modern society as deep, but not impenetrable, and reected the late 20th centurys dominant belief that we could control human destiny through proper public policy. Rawls argued that it would be possible to reach an agreement on fundamental rules if people would focus beyond their own, present circumstances. Olson argued that a group representing the majority of societys members could overcome the selshness of individuals to work for the general good, and thus reverse the damage caused by the narrow aims of special interests. Today, the assumption that macro-level, political-economic activity can be modeled in a straightforward way through the simple aggregation of micro-level motives is coming under increased scrutiny, particularly as economists recognize the potential impact of non-linear dynamics and evolutionary processes (e.g., Hodgson, 1993, 1996b, 2001a; Kubon-Gilke, 1996; Magee, 1993; Rosser, 1992; Witt, 1996). Explanations based on the emergent characteristics of complex systems also are becoming more popular, but this research is scattered and not yet well integrated into the mainstream of most social science disciplines.2 Our goals are threefold. First, we will review the revisionist theorizing about the role of interest groups in the macro-economy. This research questions whether interest groups have nearly as negative an impact as their vocal critics claim. Then we will offer an ecological perspective on the role of interest groups in the economy, and argue why that perspective is a better way of interpreting macro-level, historical patterns. Finally, we will explain why this view indicates that restricting the political actions of interest groups is not the panacea for economic renewal that many commentators have suggested. In fact, doing so is likely to have negative rather than positive consequences on advanced, post-industrial economies. 1.1. Interest groups as pernicious actors Olsons grand theory, which he elaborated upon in response to his critics in the posthumously published Power and Prosperity (2000), is so popular among some contemporary students of public policy that it is easy to nd discussions of its details. The crucial issue for us is the mechanism that he concluded is the ultimate cause of declining economic growth. Olson began his analysis with the plausible assumption that interests consciously attempt to manipulate economic, political, and legal structures for their own benet. He then deducted that the reason the rate of economic growth inevitably declines is because special interests become more successful in achieving their selsh goals with the passage of time. Their success not only creates economic, but

2 For bibliographies of various and diverse portions of this literature see Bak (1996), Brunk (2001, 2002), Cederman (2003), Gray and Lowery (1996c), Peters (1994), and Somit and Peterson (1992).

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political rigidities. The government of a maturing polity nds that it is less capable of responding to economic sclerosis and to each new policy crisis as a coalition of minority interests forms to block every fundamental change. In fact, at the level of individual interest groups as opposed to the total number of organized interests there is extensive evidence that some special interests do have a major impact on public policy, and can distort the economy.3 Olson, however, went much too far and argued that interests are the ultimate source of macro-economic stagnation. Accordingly, the slowdown of national economic growth is caused by the rent seeking of interest groups, who get their patrons in government to enact regulations that force people and other rms to pay inated prices for their goods and services. This shifts resources from the more productive to the less productive, but politically favored interests of society. Anti-interest group scholars argue that such rent seeking is why the growth rate of aggregate output declines with the passage of time as more resources are diverted into less productive enterprises. While there have been many recessions and technological transitions in economic history that wiped out various economic sectors and their associated interest groups, Olson was particularly fond of describing such collapsed societies as Japan and Germany at the end of World War II as extreme cases where most of their societys interest group entanglements were suddenly swept away. The level of growth in such situations should be negatively related to the number of interest groups. Societies with a greater number of interest groups are cursed with a slower growth rate. The effect of having more interest groups then multiplies as a polity ages because more opportunities for rent seeking are exploited with the passage of time. Since it is not prot maximizing for economic groups to work altruistically, they should concentrate their efforts on getter a larger piece of the pie for themselves. This is because a non-inclusive groups actions can only marginally increase the overall size of the macro-economic pie. Nevertheless, the seemingly bleak perspective that more interest groups increase the rate of national decline still allows for a degree of optimism, and societies potentially maintain the ability to retain control of their national destiny. Given Olsons belief about the ubiquitous importance of interests and his assumption that their individual actions scale-up to the level of the macro-economy, he deduced that one policy solution would be to form a group that represented the majority of citizens since only such a group would rationally work to revitalize the economy. While the inexorable process of decline cannot be halted without modifying a politys interest group structure, two other ways to change the economic growth rate are easier to implement. These are by reducing the number of interest groups and by taking measures to reduce their policy impacts. Decreasing the effectiveness of rent seeking efforts should cause a corresponding positive inuence on the economic growth rate. No matter how many interest groups exist, placing restrictions on their activities should allow a society to reduce its rate of economic decline. This argument that derives from Olsons classic writings (1965, 1982) still provides the major justication for contemporary lobbying regulations and restrictions on campaign contributions by special interests. 2. Recent revisionist theorizing As convincing as such a deductive theory appears to be, its real world problems are so crippling that it probably is useless as a framework for analyzing the effects of interest groups in complex situations of post-industrial societies! Not only is the negative causal relationship between the

See Mitchell and Munger (1991) and Potters and Sloof (1996) for reviews of the interest group literature.

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number of interest groups and the economic growth rate unproven, but merely deduced, there is reason to believe that the relationship often is positive in complex societies. Furthermore, the policy prescription of forming encompassing groups, rather than more democratic alternatives, has been criticized, no more colorfully than by Hodgson, Olsons theory ends up being a reworked argument for the benevolent Hobbesian sovereign. . . (D)ictatorship rather than democracy helps markets to work and. . . the very presence of fascism or totalitarianism is an antidote to. . . institutional sclerosis (1996a, p. 398). In fact, Olson (2000) later made precisely this argument, which already had been ridiculed. For Olsons theory to accurately reect reality, interest groups not only must try to manipulate the formal rules of the game to unfairly benet themselves, but they must succeed in this task and be the ultimate source of economic rigidities. While some individual interest groups can be shown to have had an effect on public policy, the empirical evidence does not support this chain of causation for the macro-economy. In other words, Olsons forte was logical deduction, and he was not nearly as procient in econometric analysis. The estimated aggregated interest group effect varies greatly among studies, and the coefcients are highly sensitive to data considerations. So if Olsons theory (1982, 2000) has any validity at all, it may only be useful in understanding the economics of developing nations or autocratic states with sparse interest group populations, and not offer much insight into the political-economy of mature democracies. A substantial body of empirical research, for example, now exists on the sources of altruism, and has demolished the traditional economic assumption of narrow-mined self-interest (e.g., Field, 2001; Gowdy and Seidl, 2004; Mansbridge, 1990). In particular, the existence of many public affairs groups refutes part of Olsons original premises because their purpose is altruistic. In response to this clear contradiction, he argued that such groups are characterized by (such) a low degree of rationality that their actions cannot be modeled easily (1965, p. 150). Such ad hoc denitions of what are real interest groups are so commonly encountered in the literature that many theories of interest group impact are true only because they are tautologies. Their ultimate and perhaps unconscious goal often seems to be to provide a meta-narrative that supports a particular political-economic view. Interests sometimes are viewed as the equivalent of the Federalist Papers factions to include political parties (Yoho, 1998). Sometimes they are dened to include both private and public organizations (Schlozmann and Tierney, 1986). Sometimes an interest group is operationalized as any person, group, or entity that has registered to lobby (Hunter et al., 1990). Even more commonly, interest groups are viewed as synonymous with the innite number of all societys potential interests! That latter view can be traced to Truman (1951), who argued that most interest groups are latent because they have not yet formally organized to lobby government. So every potential association of people who share a common characteristic can legitimately be called a latent interest group that is just waiting for a reason to organize. Such denitional confusion allows one to choose the operationalization that best serves in defense of an ideological position. Even if we ignore various sorts of pro-citizen lobbying, the assumption that all economic interests have pernicious intent is highly questionable. Truman (1951) argued that even most economic groups do not organize to manipulate the formal rules of the game to benet themselves. Instead, they organize because they feel threatened by already established groups. This is an important point, and if Truman is correct: most interests are more concerned with counterbalancing their positions against the potential threats of other interests than in rent seeking to advance themselves. Furthermore, if unorganized interests increasingly feel threatened as the economic growth rate begins to slow, then the direction of political-economic causation is quite different from what

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has been argued by the vocal critics of interest groups. Declining economic growth is then the source of interest group proliferationnot the reverse. Nevertheless, the self-serving motives of powerful interests do appear to dominate economic politics in traditional and transitional industrial societies where there is only a sparse population of interest groups, and a single group often has a virtual monopoly of relevant information in its policy area. Since this has been the historically dominant situation, it has provided fodder for many accounts about Olsons insights, but that monopolistic situation changes in democracies as economic systems mature. Recent research in organizational ecology suggests that the situation actually is quite different in post-industrial societies (e.g., Gray and Lowery, 1996c). Instead of becoming more powerful as a polity evolves, individual interest groups become less inuential in densely populated systems where many groups have organized in reaction to the threats posed by their competitors. Consider, for example, the hundred of friends of the court briefs that are led regarding each US Supreme Court case, and which reect virtually every possible position. This declining inuence of interest groups in complex, maturing polities occurs because as the number of organized interests explodes, the potential of the average group to manipulate policy to benet itself declines exponentially. In really mature political-economies, interests lose their monopoly over policy information, and rarely succeed in getting the government to modify the formal rules of the game to benet themselves. Such insights offer a solution to Salisburys paradox (1990) of why the proliferation of organized interests leads to them having less impact rather than more. It further suggests why the number of organized interest groups often is positively rather than negatively associated with economic growth in complex societies (e.g., Brunk et al., 1991; Hunter et al., 1990). It also explains, in part, why political democracy and type of economic system are associated (Brunk et al., 1987). Rather than depressing growth, the most important effect of the proliferation of interest groups in increasingly complex societies is to produce self-regulating mechanisms. Virtually every rule change in a complex system has unanticipated consequences, and no conceivable change in formal rules is economically unbiased. Nevertheless, many of these biasing effects would go unnoticed if there were no organized interests to publicize them. So as interest groups proliferate, each group becomes more successful in pointing out incidents of unanticipated biases that are detrimental to its own goals than in getting the political system to bias the rules in its favor. Ergo, the more interest groups, the slower the pace of economic sclerosis, and an economy may remain forever vibrant if it achieves a high level of innovation. The empirical literature that is so critical of interest groups may be seriously myopic because its dominant, anti-interest group perspective instructs researchers about the evidence they should expect to nd: interest groups are presumed to be malevolent entities that reduce economic growth and thus rob people of their wealth. As Potters and Sloof summarized the literature in this regard, It is generally believed that interest groups carry much weight with the determination of public policy (1996, p. 433). If an interest group has not been successful in this quest, then it is deemed uninteresting, insignicant, not worthy of attention, and is not noted in the academic literature. So it is not surprising that a plethora of case studies seem to demonstrate beyond question the pernicious inuence of interest groups, but are these studies representative of the average impact of interests on the economies of contemporary Western nations? Likely not! The logic of the anti-interest group argument not only demands that interest groups want to manipulate the formal rules of the game, but that they are successful in their rent seeking efforts. Certainly they should not be a stimulus to economic growth! But to be really successful in the rent seeking quest in polities with very large numbers of interest groups likely requires so much

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sophistication, political dominance over ones rivals, and luck that most organized groups can only hope to block the selsh goals of their competitorsnot achieve their own selsh ends. Like a highly competitive market with many providers, the net political effect of a multitude of interest groups in complex societies should be to reduce the expected amount of rent seeking by reducing the number of rules that benet a few groups at the expense of the others. A greater number of interest groups in such situations actually increases the growth rate, or at least increases it over what would otherwise have been its natural level. In other words, the total number of interest groups affects the direction of the relationship between the number of interests and economic growth. Increasing their numbers at rst probably depresses economic growth in industrializing economies, but increases economic growth in post-industrial nations, which explains why empirical studies have reached such varied conclusions about the validity of Olsons theory. This means that the net impact of interest groups in many complex societies is to increase economic growth over what otherwise would have been its anticipated level. Each group is more successful in reducing the costs of its inputs (e.g., communication and transportation costs) by stopping the rent seeking of other groups than by rent seeking on its own behalf. Nevertheless, such an effect rarely would be self-obvious because the level of growth tautologically declines as an economy matures, and this is precisely the period when the number of interest groups so far has increased, given our short historical perspective. So while the clear intent of economic interests is not altruistic, their selsh actions in democracies with dense populations of interests act to promote the general good by increasing the growth rate through their competition in the political arena (Brunk et al., 1991; Furbuotin, 1989; Hoenack, 1989). Furthermore, since the rate of increase in lobbying has been shown empirically to decrease as the total number of politically active, organized interests increases (Gray and Lowery, 1993a), the marginal benet of traditional rent seeking efforts apparently declines with the complexity of a political-economic system. This revisionist position is supported by other pieces of evidence. First, a closer examination of the literature suggests that if we do not begin by assuming that interest groups are an inherent political-economic evil, they are not nearly as pernicious nor as successful as widely believed. Potters and Sloof (1996) note that some types of studies of interest group impact reached inconsistent conclusions and a number of researchers found that the actions of particular interests had no signicant impact on political or policy outcomes. Furthermore, even purely economic groups make many positive contributions to society that increases economic growth. These include humanitarian projects, educational endeavors, and advancing general technological progress. Second, some studies argue that for increasingly common situations, the level of economic growth increases in tandem with the number of interest groups. In turn, this explains why numerous studies have shown that the deduced, strong negative relationship between the number of interest groups and economic growth can be manipulated by an analyst to reach ones preferred conclusion. Changing the time period, dropping a few cases, switching the measure of interest group strength, or including control variables can even change the sign of the relationship.4 Third, there is the matter of causation. It should be possible to increase the economic growth rate by creating an encompassing group that is composed of a majority of citizens or to crown a good king. Among others, Schattschneider (1960) argues that pressure politics and party politics are the two basic types of politics. Thus, parties might be conceptualized as majority member
4 Major contributions to this debate include Barry (1983), Brace (1989), Cameron (1988), Chan (1987), Choi (1983), Coughlin et al. (1990), Dye (1980), Garand (1992), Gelb et al. (1991), Goldsmith (1986, 1987), Gray and Lowery (1988), Hodgson (1989, 1991), Hunter (1999), Kindleberger (1983), McCallum and Blais (1987), Mueller and Murrell (1986), Nardinelli et al. (1987), and Wallis and Oates (1988),

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interests, but the empirical relationship here is just as murky as between economic growth and interest groups (e.g., Cohen and Brunk, 1986; Crepaz, 1996; Salisbury, 1990; Wiggins et al., 1992). Likewise, a benevolent leader could direct society toward utopia, but such an argument is tautological since good kings are said to have governed wisely, while bad kings did not. Furthermore, autocrats often take control after calamities, precisely when it may be relatively easy to increase economic growth because so much of an economy has been destroyed. Another prescription should be much easier to accomplish for democracies. Just reduce the number of interest groups or their ability to inuence public policy by enacting restrictive laws and regulations on their activities. A society can then reverse its otherwise inevitable decline. Unfortunately, this remedy does not work very well. Perhaps that is because the number of interest groups and the amount of their lobbying are unrelated to political outcomes in complex, evolving situations, or perhaps their actions actually reduce the net amount of rent seeking in systems with a dense population of interest groups. Decreasing the number of organized interests then accelerates economic decline by eliminating the informal checks and balances that have evolved among societys various interests. Finally, there is yet another reason that the number of interest groups is an increasingly irrelevant factor in determining the economic growth of complex societies. Hiring lobbyists is becoming a fad. Put differently, contemporary lobbying can be modeled just like the spread of a contagious disease (Gray and Lowery, 1997; McKeown, 1994; Salisbury, 1990). Everybody wants to have a lobbyist on retainer, not only to keep up with the Jones, but to ensure that the Jones do not stab you in the back. So while it may be relatively easy for interests to affect public policy in polities with a sparse interest group population, their ability to do so declines exponentially as the polity matures. An arms race develops among interest groups, and as this happens the marginal impact of investing in lobbying has less value for achieving an interests presumed goal of rent seeking. At the same time, lobbying becomes increasingly valuable as a deterrent against ones competitors putting you at a disadvantage by rent seeking. 3. An ecosystem view A totally different perspective from the deductive approach of traditional economic modeling is used by those who apply concepts taken from evolutionary theory to describe the behavior of human collectivities. This view, however, remains controversial because it undermines the common assumptions of mainstream economists that history is irrelevant and that equilibria exist outside of the ow of history.5 In part, such theorists argue that to really understand the behavior of societies, one needs to focus upon their emergent, system-level characteristics because complex systems often exhibit quite unanticipated aggregate-level behaviors (e.g., Holland, 1995; Kauffman, 1992; Lavoie, 1989; Ruzavin, 1994; Sugden, 1989). These characteristics are not obvious consequences that easily can be deduced in traditional, economic style from the motives or the actions of their individual members. Instead, they require imaginative research of the econometric sort. Accordingly, empirically accurate models cannot be crafted without rst understanding the nature of the aggregate-level behaviors of complex real world environments, and reductionist thought based on micro-motives is likely to mislead, rather than to enlighten. A biological example

5 For some relevant literature see Arthur (1989), Arthur et al. (1987), Brunk (2002), Hodgson (1993, 1996a,b, 2001b), Kubon-Gilke (1996), Magee (1993), Rosser (1992), Schaffer (1989), and Witt (1996).

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is Charles Darwins principle that any characteristic which increases an organisms chance of survival has a greater probability of being transmitted to the next generation. Such principles will not be detected by a researcher who focuses on the motives of particular actors because the effects of these macro-level structuring principles are highly marginal at the individual-level. In such circumstances, it is very unlikely that even the most plausible set of self-obvious assumptions will retain its explanatory power in scaling-up from individual-level motives to macro-level patterns. The opponents of interest groups appear to have committed just such a fallacy by incorrectly concluding that important macro-level behaviors are the result of obvious micro-level motives. In doing so, they wrongly concluded that if we can affect these micro-level motives, then societies can prevent undesirable macro-economic outcomes. Firms also have bad motives in wanting to prot in a competitive market, but the same economists do not argue that such competition should be stied by reducing the number of rms because controlling competition in this way will reduce prices! Nevertheless, exactly that argument is made about the number of interests that participate in the political market place, with Olsons Hobbesian ruler being the extreme case! While aggregate-level outcomes may be a result of micro-level motives in very simple situations, the chain of causation is broken as situations become more complex. There are too many potential interactions among the various elements of any complex system to be a priori certain which motivations are important in determining outcomes of the multitude of interactions among all a systems component parts. Nevertheless, this does not mean that individual motivations are not the cause of the aggregate-level behaviors of complex human systems. It just cautions scholars and policy makers that we are unlikely to select the correct set of assumptions or really understand the nature of the numerous interactions among members of complex systems until the often unanticipated patterns that evolve in ecological-style human systems have been identied. Olson was just unlucky in having focused on the wrong causal factors and wrong mechanisms, which is why implementing his policy remedies often will be counterproductive. Such an evolutionary approach to studying the behavior of institutions was rejected by most social scientists for half a century because of the bad taste that remained from the evils of how Social Darwinism had been employed by the Nazis. In fact, it was Herbert Spencer, rather than Charles Darwin, who coined the phrase survival of the ttest. Only recently have the potential advantages of the approach been recognized more widely, and it has become increasingly popular among scholars whose style is more inductive than deductive (e.g., see Buenstorf, 2005; Hodgson, 1993, 1996a,b, 2005; Kaufman, 1985; Rosser, 1992). Universal Darwinism, a term coined by Dawkins (1983), attempts to more broadly apply Darwinian principles, but what is not yet clear is if the approach is much more than a metaphor since the crucial concept of species (or another term with the same intent) is dened in a nebulous way. Accordingly, a species can consist of organisms, nations, cultural customs, computer subprograms, ad innitum. The reason that the species concept is so important to this approach is that a species is the unit that evolves in a way which allows the permanent transmission of traits. Any sort of evolutionary mechanism that involves species must produce highly stable species, otherwise the concept is mush. Tossing a coin, for example, cannot reasonably be said to produce a species of heads and a species of tails. A species implicitly is dened in the relevant administrative science literature as all the organizations (e.g., watch and clock makers) that occupy a particular niche (horological endeavors), and a particular niche is dened by the organizations that occupy it. In other words, such researchers intuitively know a niche and a species when they see them, or they think they do, but do such species even exist? The reason why the concept has proven difcult to dene more

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precisely is because there is no direct analogy in societies to the collection of biological forms that constitutes a gene pool. The existence of a collective gene pool means that the members of a biological species can interbreed, but the concept of breeding makes no sense in most social science discussions. Kaufman argued in Time, Chance, and Organization (1985) that the characteristics of particular rms, clubs, governments and all other sorts of organizations are what determine their chance of survival in a Darwinian world of competition and evolution. Kaufman believed that the crucial characteristics for the survival of organizations are acquired mostly by chance, rather than by conscious design, just as is true for biological species. The problem then becomes what sort of evolution are we talking about? Darwinian evolution refers to traits acquired by genetic mutation, while Lamarckian evolution allows for the transmission of acquired traits (e.g., see Hodgson, 2001b). What is needed is a precise, formal denition of a species in order to know if the evolutionary analogy from biology provides a good mental model for studying institutions. Recent advances in the study of self-organizing systems suggest a solution. Fernandez et al. (1995) showed that if the traits of organisms (or organizations) are acquired randomly, then the distribution of their bell-shaped. On the other hand, if traits are acquired by a survival of the ttest mechanism, the result is a distribution of life spans that becomes increasingly skewed as the amount of time that competition among entities increases. In turn, the work of Per Bak and his associates suggests an analytical denition of species that can be adapted for social science purposes, and which ties together the evolution of biological species with economic, political and social self-organization (e.g., Witt, 1997). Accordingly, a species is a set of similar entities, such as rms in the same economic sector, and the frequency distribution of life spans of species transitions to being a power function with the passage of time (Bak, 1996; Bak and Boettcher, 1997; Bak and Sneppen, 1993). So far, the evidence concerning whether this occurs is mixed. On the one hand, the distribution of life spans of government bureaus is a Poisson process of random death (Casstevens, 1980). On the other hand, the distribution of such characteristics as the size of rms becomes increasingly skewed with the passage of time (e.g., Cabral and Mata, 2003). That observation is consistent with the evolutionary approach since the characteristics of groups of species, e.g., all mammals, become increasingly long-tailed with the passage of time if their behavior is evolutionary, rather than equilibrium-based. Nevertheless, a further complication that has not yet been resolved in the social science literature involves the issue of what is the population of interest? Some authors implicitly dene a species as a single organization, e.g., the Catholic Church. Thus, N = 1 for such an odd population, which precludes any empirical tests to conrm or refute an authors thesis. Others dene a species in the usual, biological sense as all organizations of similar type that somehow have similar traits. So the literature does not clearly tell us what to focus upon in trying to decide if species apply to economic organizations. As a result, the evolutionary analogy may be appropriate for some aspects of societal development, but not for others; basic concepts are still not operationally dened; and a great deal more empirical research is going to be needed on such matters. An ecological view allows many of the same sorts of arguments that have been made in the recent literature concerning evolutionary economics to be made about the behavior of politicaleconomic actors without focusing so intently on the denition of species and encountering related conceptual problems. The sort of biological analogies that are the basis of this new perspective used to be quite popular in many of the social sciences, but went out of vogue with the rise of behavioralism, which stressed the need to focus upon individual actors. This only began to change when social theorists started to use ecological analogies to understand why organizations

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diversify as their populations explode and their environments change. Much of the initial work on such matters was done by sociologists.6 Unfortunately, their research did not have a great deal of immediate impact on the other social sciences, and it was not until the 1990s that anyone applied an ecological perspective to studying interest groups. Since then the quest has been enthusiastically pursued, particularly by Gray and Lowery, who have published many papers that apply various ecosystem concepts to interest group behavior. 3.1. The general historical pattern The typical pattern of growth is similar in both national economies and ecosystems. The rate of growth is astronomically high for a short period after each systemic catastrophe, then moderates and levels off or even declines on the way to stagnation. In trying to understand why this happens, Olson stressed the importance of studying the history of Japan and Germany as extreme cases. World War II destroyed the anti-competitive rules that had been politically imposed on these societies by the actions of their pre-war interest groups. Olson argued that it was the destruction of these rules which produced dramatic post-war economic growth. Then, as time passed, a new set of interest groups gained political power, and these new interests became increasingly successful in rent seeking. That is what slowed economic growth. So if contemporary Japan had been able to suppress the pernicious inuences of its indigenous interest groups, it could have avoided much of the Asian growth slowdown, which is the universal plague of mature economies. In trying to explain economic decline in this way, such theorists focused too much attention on searching for a traditional cause, rather than exploring more innovative options. Since a decreasing growth rate is tautologically associated with a maturing economy, and since all economic interests have an incentive to modify the rules of the game to benet themselves, such theorists committed a fallacy of causation. They did so by concluding that since the national economies they studied have declined, then their special interests must have been successful in achieving their selsh goals, and so special interests are the ultimate cause of both economic stagnation and national decline. In focusing so intently on rational, calculating, self-interested motives, such theorists failed to see what is obvious to all ecologists. The same pattern of explosive growth, followed by a gradual slowdown in the rate of growth, and nally a comparatively stable situation of steady or even marginally declining output occurs in all ecosystems. Revival only comes about by ecological innovation or occurs after a catastrophe destroys large sectors of a system. This process recently has been formalized in a literature that is very far from our usual concerns. Physicists have devised a model of ecological evolution that explains the quasi-cyclical spurts of growth that occur in systems based a forest re analogy (SinhaRay and Jensen, 2000; Turcotte, 1999), and is reminiscent of Goodwins model of the economy as an evolutionary pulsator. Goodwin recognized that capitalism is a system controlled by the search for prot rather than any static maximization of output or utility (1986, p. 342). Explicitly building on the work of Karl Marx and Joseph Schumpeter, Goodwin (1986, pp. 341342) described his vision of economic history in this way. (W)hen producers see ways of lowering costs or increasing sales, they invest; investing, they generate demand which favours further investment, accelerating the expansion. This happy progression. . . is ultimately arrested by the constraint of available labour supply. . . The
6 Important examples include Aldrich and Pfeffer (1976), Carroll (1984, 1988), Singh and Lumsden (1990), Swaminathan (1995), and Young (1988).

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more technologically progressive sectors. . . raise wages with negligible effect on price, but this puts pressure on the less progressive sectors who will experience wages rising more than productivity thus necessitating varying degrees of price increases. The fact that unemployment falls means that output is growing at a rate which cannot be maintained; the consequent deceleration destroys the prospects necessary for investment in plant and equipment. The economy then collapses to a level determined by income and expenditure which is not dependent on the current level of production. Excess capacity as well as sticky wages bring a disastrous fall in prots and protability. Consequently there begins an urgent search for labour saving processes or new goods. . . If found and activated, investment recommences in spite of excess capacity and low prots, because the new capacity both restores protability and destroys out-moded capacity. What Goodwin describes is a self-organizing economic system that ever so often experiences crashes. Because individuals and rms search for the most efcient ways to achieve their goals, such an unfettered economy always evolves toward becoming more efcient given its present conditions, but occasionally collapses into recession or depression. When this happens the conditions change, which causes the cycle to begin again as individuals must discover new means for efciently achieving their goals. This cycle not only characterizes the great events of macroeconomic history (depressions and sustained periods of growth), but the multitude of small ones as well, where a single industry falters (photographic cameras) and is replaced by another (video records). If government does not intervene to sustain inefcient means of production by shielding its favored interests, a new technology naturally emerges, and growth continues. In our terms, every large and small catastrophe destroys part of the undergrowth in an economic system, which allows for a period of renewal.7 4. The ecosystem model of growth The pattern of growth and decay that so many social scientists and historians have tried to explain as a problem unique to human societies (Tainter, 1988) is ubiquitous in nature! It is repeated after every great forest re and other natural disaster, but in the homocentric belief that human societies are fundamentally different from other sorts of systems, we failed to recognize that many aggregate-level behaviors of human systems reect general patterns that also can be seen in biological and physical systems.8 A declining growth rate in the natural world cannot be caused by the individual grasses, bushes, and trees conspiring as calculating entities to form organized groups, and so the ultimate cause of a growth slowdown must lie at a far deeper level than the rational, self-conscious manipulation of the rules by special interests. Ecosystems rebound in spectacular fashion after such a catastrophe as a great re, and their growth increases dramatically. This happens because many of the historically dominant organisms of an ecosystem or specialized industries of an economy have little comparative advantage immediately after a collapse since the set of relationships that determines ones position in a mature system takes time to redevelop. It is this set of relationships that gives the dominant organisms of complex systems their competitive advantage.
7 Brunk (2000) devised a model of weak self-organized criticality called eipoc for the ever increasing probability of cascade process, which describes the quasi-cyclical nature of economic growth, and allows economic cycles to be understood in the context of Goodwins (1986) evolutionary pulsator. Also see Brunk (2002). 8 The latest recognized example is the minimally stable state of the international system (Brunk, 2001, 2002), Cederman (2003), and Roberts and Turcotte (1998).

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Recently collapsed systems are composed of open environmental territory. Here it is easy for organisms to initially establish a foothold, and then expand explosively because the complicated rules that govern the behavior of mature ecosystems have not yet had the time to evolve. With the passage of time, increasingly intricate rules and inter-relationships develop as a result of the evolutionary processes that operate in all ecological-style systems, and their development does not require the catalysts of individual consciousness and rational calculation for their emergence.9 As ecological-style rules evolve, the same general pattern is repeated in every system, but after each collapse there are differences in the specic rules and the specic relationships that evolve. This is because each particular systems idiosyncratic history makes a difference, and the rst organism to take dominance of an ecological niche has an advantage that perpetuates itself for a time. The parallel idea in evolutionary economics is Arthurs concept of marginally increasing returns (Arthur, 1989; Arthur et al., 1987). As a systems operating rules evolve, they not only change the composition of an ecosystem, but increasingly restrict the number of options that remain open for its components to expand further. This eventually puts the breaks on the explosive growth of all ecological-style systems. At rst, many of the dominant organisms that appear on the landscape of an undeveloped ecosystem (such as Japan and Germany after World War II) can thrive in the available ecological niches, but the level of competition intensies as time passes. A number of changes occur as a result of this competition. Each dominant type of organism increasingly nds a niche where it is more secure, and particular organisms (rms) come to dominate their competitors in their favored niches. Finally, the increasingly rigid set of ecosystem rules roughly stabilizes output at some aggregate level that is less than the maximum potential. While very productive organisms may dominate in the early stages of an ecosystems growth, as a system matures, its increasing variety of organisms ironically mitigates against reaching a maximum level of output. By the time of an ecosystems maturity, its component organisms have found their particularly successful niches, which are dened by their relationships with the other organisms. It is these relationships that constitute the ecological rules of the game. In the process, many organisms give up much of their adaptability in becoming specialists.10 So if an ecosystem maximized its output in an economic sense by being composed entirely of such prolic organisms as the particular species of potatoes that was grown in Ireland just before the great famine of 18451850, it would suffer collapses (depressions) in quasi-cyclical fashion. A further parallel can be drawn to the recent literature on economic evolution. In environments where it is possible to achieve some stability, natural selection should prefer economies that avoid catastrophic and repeated collapses. So from a Darwinian viewpoint, not only are various organisms within an ecosystem in competition with each other, but potential ecosystems, economic systems, and political systems compete with each other, as well. Further decreasing the probability that an ecosystem will achieve its maximum potential output is the fact that very quickly some parts of it will be in decline because its older members (rust-belt factories) are reaching their maximum age. As with the typical economic system, there is a similar decline in growth rate as a system ages. Since this historical progression in all ecological-style systems is accomplished without any conscious actions by the constituent parts of an ecosystem, the assumption that interest groups rationally manipulate the formal rules of the game for their
9 Bureaucratic rules also can be viewed as evolutionary adaptations that are needed to keep increasingly complex systems running (Martimort, 1997). 10 This process also describes the self-organized criticality model of species evolution (Bak, 1996; Bak and Boettcher, 1997; Bak and Sneppen, 1993).

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own benet is an unnecessary step in explaining the growth slowdown of mature economies. Over 600 years ago, William of Ockham proposed the now widely accepted principle of reasoning that the simplest explanation is most likely the correct explanation because it involves the least steps. Accordingly, we should cut out the unnecessary interest group step in explanations of macro-economic decline in post-industrial societies. At the aggregate-level, many important behaviors of economic and political systems can be modeled more fruitfully as if we are studying ecosystems composed of humans with different specialties. Recent research also has shown that interest groups exhibit similar growth patterns as ecosystems (Gray and Lowery, 1993a,b, 1996a,b,c; Lowery and Gray, 1995). The number of interest groups that inhabit a system may explode, but as time passes, their growth rate decreases until it has leveled off or may even decline. Not only can economic systems be conceptualized like ecosystems, but the behavior of aggregations of interest groups and the economies of the societies they inhabit may be largely independent of each other. Feed interest groups enormous amounts of transfer payments, and they grow explosively despite what is happening to the economy as a whole. Starve them by adopting a laissez faire policy, and the number of interest groups trying to inuence government radically declines because lobbying is no longer as effective a way to gain prots. Consequently, the number of interest groups may be determined by the level of government spending, rather than being the cause of increased government spending.11 Scholars can no longer conclude that there is a very strong causal connection between the number of special interests and the level of economic growth. Neither can we a priori be certain about the sign of this relationship, which will change during the evolution of a society. Since there is no necessary correlation between the number of interest groups and the rate of economic growth, reducing their numbers or restricting their ability to lobby are not the automatic panaceas for national renewal that many commentators would have us believe. Indeed, the harm to democratic rights that comes from restricting the growth of interest groups may be more detrimental to postindustrial nations than any marginal decrease in economic efciency which results from their unfettered actions. Ironically, reducing their numbers probably will have a counter-productive effect by making the interest groups that remain become far more powerful than they otherwise would have been, and thus depress economic growth in the process! The puzzle of interest groups and economic growth from a political-economic perspective has been that the proliferation of organized interests is not strongly associated with the growth slowdown that plagues mature economies of some modern nations. The reason for this is not obvious from a deductive perspective, but is clear if one adopts an ecological view. The most important aggregate-level effects of both large numbers of economic institutions and large numbers of interest groups can better be modeled by thinking of them as non-sentient organisms that respond to environmental circumstances as their systems mature. Their numbers expand according to the available food supply, they move into new environmental niches according to their suitability to ourish, and particular organisms have some ability to evolve in a Lamarckian way by modifying their characteristics to take advantage of the resources that become available. As economic systems mature, the behavior of interest groups is determined by the increasingly complex interactions that constitute the evolving ecological-style rules of the game. As Friedrich Hayek insightfully noted, most macro-level patterns are not the result of con-

11 See, for example, Copeland and Meier (1984), Coughlin et al. (1990), Gray and Lowery (1990), Grofman and Migalaski (1988), McCallum and Blais (1987), and Mueller and Murrell (1986).

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scious intentions, but develop spontaneously. Certainly many of the component parts of economic systems really would like to manipulate the formal rules to benet themselves, but this becomes more difcult to achieve as political and economic systems become more complex. After a catastrophe a system may at rst be populated mostly by weeds, such as the brightly colored Yukon reweed that takes over the open spaces of the Canadian North after each forest re. Like the reweed that also predominates along the sides of new roads because humans have created a habitat that favors its proliferation, government can provide the fertilizer (transfer payments) or the rules (corporatism) that create niches particularly suited to certain sorts of noxious interests. Given enough time, the initial competitive advantage of a weed can be overcome by other organisms that are better equipped to thrive in the environment of a mature system. Nevertheless, the evolving rules of ecological-style systems not only change the competitive advantage of organisms, but make it increasingly difcult to nd new opportunities for expansion. This universal process eventually puts the brakes on the explosive growth of all ecological-style systems, be they ecosystems or economic systems unless the latter can innovate themselves out of their plight. 5. Discussion So what are the advantages to conceptualizing the aggregate-level behavior of politicaleconomic systems in this way? First, it is more consistent with the macro-level, historical evidence. National economies grow in a similar way as ecosystems. They initially experience substantial growth, then increased diversity, then a slowing growth rate, and nally rigidities and eventual stagnation as the marginal benets of most actions decline. Unless innovation is rapid, this process effectively forecloses all the easy options for continued growth. In nature this pattern of stagnation or what ecologists would characterize with equal justication as stability changes only after a catastrophic event such as a great re sweeps almost everything away. This punctuated equilibria perspective was proposed by Eldredge and Gould (1972) 30 years ago to explain the quick bursts of evolution that cannot be accommodated by Darwins model of slow mutation. The idea of punctuated equilibrium also has been adapted by a number of social scientists to explain a wide variety of social processes (Somit and Peterson, 1992), including such varied matters as legal evolution (Burnham, 1999) and shifts in government budgets (Jones et al., 1998, 2003). Only a little more than a decade ago physicists formalized the punctuated equilibria mechanism as a mathematical model that explains why power function patterns can be seen in some physical, biological and societal patterns (Bak, 1996; Ito, 1995; Roberts and Turcotte, 1998; Turcotte, 1999). Unless a catastrophe occurs, the only way for a system to continue to expand is to somehow change the basic rules of the game. In ecosystems this means that more territory might be made habitable, e.g., organisms evolve that can tolerate previously forbidding landscapes such as geyser pools or deep oceanic depths. The equivalent in human societies are technological and business innovations, which produce the sort of evolutionary pulsator mechanism that Goodwin (1986) insightfully argued was the source of the pseudo-cycles of economic history. Nevertheless, the same arguments apply regarding the causal mechanism between innovation and interest groups as between economic growth and interest groups (Brunk et al., 1991). It is not the demise of interest group entanglements that is the most fundamental cause of economic revitalization. Instead, an ecological feast is created by many catastrophes, but this feast only exists when a catastrophe destroys so many organisms that the complex ecological rules are largely destroyed, as well. It is these evolving rules that determine each organisms competitive advantage,

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broadly structure the evolutionary pattern of growth, eventually create systemic rigidities, and in so doing put the brakes on aggregate growth as a system matures. This perspective indicates something else of importance. If a catastrophe is not great enough to destroy most of the existing set of rules, then there usually is no prospect for revitalization. The economy of such a nation as Japan continues to be relatively stagnate, and a nation may even stagnate at a lower level of output, as occurred in Indonesia. An ecological perspective on the phenomenon also offers an insight into why many nations of the former Soviet Block have not experienced the explosive growth of Japan and Germany after World War II (Anderson and Boettke, 1997; Banerjee and Spagat, 1991). While some of the economic equivalents of ecological-style entanglements were swept away with the collapse of communism, many other rigidities remained largely intact. On the one hand, Olson and subsequent theorists were correct in identifying increasingly restrictive rules as the fundamental cause of economic slowdowns and eventual national decline. On the other, they were wrong in believing that collusion between policy makers and special interests was the ultimate source for most of the important rules that cause rigidities in postindustrial economies. From an ecological perspective, it is clear that the self-serving rules that result from interest group activities are only a very small part of the overall rules of the game. Instead, the naturally evolving rules among the component parts of ecological-style systems dictate increasing rigidities until an event occurs that wipes out a part of a system and its old rules. This is what allows for a new period of growth. Strategic manipulation by interest groups of the sort that is at the heart of Olsons explanation of economic growth, stagnation, and national decline is not a prerequisite for the emergence of this pattern. Such strategic manipulation often has little appreciable effect at the aggregate-level in the very long-run, particularly in complex situations, where no change can be made that is economically unbiased (Rosser and Rosser, 1997). As long as some useful habitat remains after a catastrophe, the greater the percentage of a system that is destroyed, the easier it is for the organisms that remain to nd more productive territory for expansion. At rst this produces a very high level of growth, but as a system matures and its ecological-style rules evolve to encompass more complex relationships, it becomes increasingly difcult to nd more productive niches. So growth begins to decline. Unless there is a way to open up other niches for exploitation, a system continues to stagnate until after the next catastrophe. Then the stereotypical pattern of growth and subsequent stability repeats again in about the same way in economies as it does in ecosystems. Such a perspective also explains why the various empirical tests of Olsons thesis sometimes support his hypothesis, but with just a change in time period, data points, or statistical controls, the relationship vanishes or even reverses. On the one hand, if the growth rate of old economies with many interest groups is compared to new economies with few interest groups, most old economies are observed to grow slowly, while many recently devastated economies grow explosively. On the other hand, if data that allow for time period controls are analyzed, the apparent relationship between interests and the growth rate sometimes vanishes, but sometimes the relationship becomes positive. Why? In some increasingly common circumstances an expansion in the number of interest groups changes the basic rules of the game to benet economic growth by reducing the amount of habitat that is favorable to the growth of noxious economic weeds. 5.1. Practical public policy effects Some particularly important implications can be derived from an ecological understanding of the relationship between interest groups and economic growth, and these lessons differ in

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important ways from the usual, political-economy view. First, the utopian suggestion of creating an encompassing group that consists of the majority of a nations citizens or the coronation of a good king are fruitless options for complex, mature economies to pursue since it is not the conscious motives of special interests that are the ultimate cause of such an economys stagnation. Little can be achieved in the short-run by that point in the evolution of a political-economic system even if everyone gets together in an encompassing group and tries really hard to make things better, or we are blessed with an Hobbesian ruler. In really mature economic systems with the plethora of interconnections and the rigidities that are associated with them, the long-run health of a system is largely outside the realm of positive political control. Just like a dense forests ecosystem, no amount of wishful thinking is going to change the fundamental rules of mature ecological-style systems that dene the interrelationships among organisms, and marginal xes are ineffective. This is why most successful policy changes occur after such great disasters as depressions, revolutions, and societal collapses, which are the equivalent of great forest res. Only then has so much damage been inicted upon the status quo rules of the game that fundamental changes can be made to change the basic structures of a society. So the suggestion that reducing the inuence of interest groups will increase the growth rate is often a false intellectual panacea, sold to the public by rain makers who want to advance their own ideological agenda. Ironically, the reverse situation more often is the case in complex societies where the way to maintain growth is to adopt the opposite prescription. Rather than regulating interest groups directly, let their numbers naturally explode, and thereby let them regulate each other by ghting among themselves in the political and bureaucratic arenas in an analogous way to how competing rms reduce costs. To do otherwise, as often occurs in totalitarian states, shortens the time before a nation becomes so paralyzed by unanticipated economic rigidities that its growth rate approaches zero or even becomes negative. There is no Hand of God in nature that intervenes to manipulate the rules to benet Gods favored clients as an ecosystem evolves. When contemporary governments try to achieve what God does not, there are always unanticipated effects that ripple through complex ecological-style systems. Eventually these unanticipated effects come to dominant as an economy matures, but each special interest has an incentive to publicize them when they favor its competitors or increase its costs. If a democratic political system then responds by correcting these unanticipated impacts, the result is increased macro-economic vitality over what would have existed without a very large number of competing interest groups. References
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