Survey of Interest Groups Influence in an Economy

Survey of Interest Groups Influence in an Economy

Haris Nikolaos Papadakis (Technical University of Crete School of Production Engineering and Management, Greece) and George Stelios Atsalakis (Technical University of Crete School of Production Engineering and Management, Crete, Greece)
Copyright: © 2019 |Pages: 19
DOI: 10.4018/IJSEM.2019040104

Abstract

The role of special interest groups (SIGs) is a major area of research for economists, political scientists, sociologists and historians. The interest of economists mainly focus on the incentives that encourage the creation and development of these groups and the effect on domestic growth. In a pioneering book, “The rise and decline of nations”, Mancur Olson describes in-detail the macroeconomic impact of the activities of these groups. In this article, a survey is carried out with regard to the miscellaneous factors referred to in the bibliography which affect the formation of SIG's and their subsequent influence on the economy of each individual country. The aim is to underline all the variables that have been used in the literature to estimate how interest groups affect the domestic economy.
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1. Introduction

A special interest group is an organized collective that operates in order to promote the common interests of its members. It is a term that includes pressure groups, business groups, monopolistic or oligopolistic firms in the same industry which forms cartels, labor unions, government vendors, professional associations etc.

A thorough study of interest groups is presented by Mancur Olson in “The Logic of Collective action” (1965), which indicates and explains the process of formation, structure and operation of these groups. Olson develops the theory of “collective action”, in which the maximization of the individual profit is considered to be an essential prerequisite. Olson continues this study in his second book “The rise and decline of nations” (1982) where he clearly indicates the actual impact on society due to the action of interest groups and clarifies its nine consequences for the economy of each country.

According to Olson’s theory, interest groups find significant chance to grow mainly in countries with long-term political stability where they tend to extend time for decision-making and usually keep the prices of products and services stable to protect their interests by reducing both the ability of a society to adapt to new technologies or applications and the absorption degree of resources which are meant to be utilized for productive use as required in a developing country. If the volume of the offered resources decreases continuously or is wasted or redistribution is not allowed, then the economy can’t grow at the same rate as the countries without lobbyists.

The more interest groups are activated, the more significant the results of their operation will be. Non-adoption of new technologies in the production of goods and the exclusion of younger age workforce compels the economy to reduce competitiveness, efficiency and growth.

In each country is concluded, that the level of lobbying action in the economy, society and politics is different. How can be quantified the level of action of lobbying in the economy of each country? How could be determined a model to what extent the impact of special interest groups on the economies of these countries has developed?

Making a thorough and comprehensive literature search in this field of research, one finds out that there is a significant lack of papers to quantify mainly the influence of special interest groups on the economies of the countries. The majority of studies test three out of the nine implications of Olson’s theory. Specifically, in chapter 3 of Rise and Decline, Olson lays out nine distinct implications deriving from his analysis (Heckelman 2007). Although all the hypotheses are discussed, to some extent, in the remaining four chapters Olson pays particular attention to three of these implications (Heckelman 2007):

  • Implication 2: Stable societies with permanent boundaries tend to accumulate more collusions and organizations for collective action over time.

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

  • Implication 7: Distributional coalitions slow down a society’s capacity to adopt new technologies and reallocate resources as a response to changing conditions, thereby reducing the rate of economic growth.

In this paper, is presented a survey only of the studies that had as main subject the test of Olson’s theory and their influence on the economies. Is recorded all the variables used per study, dependent and independent and in order to identify, based to bibliography, on a certain number of variables that best express the influence of special interest groups on the economies.

Also, a brief summary of the studies on the related consequences of Olson’s theory is presented either by studying the factors affecting the formation of interest groups and the financial sectors affected by the operation of these groups or by testing the implications of Olson’s theory.

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