Mancur Olson at the end of history

The West can win while barely trying

Lately I’ve been thinking about Mancur Olson thanks to Ezra Klein and Alex Tabarrok, who recently offered this brief summary of Olson’s book “The Rise and Decline of Nations”:

2. Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time. The longer the country is stable, the more distributional coalitions they’re going to have.

6. Distributional coalitions make decisions more slowly than the individuals and firms of which they are comprised, tend to have crowded agendas and bargaining tables, and more often fix prices than quantities. Since there is so much bargaining, lobbying, and other interactions that need to occur among groups, the process moves more slowly in reaching a conclusion. In collusive groups, prices are easier to fix than quantities because it is easier to monitor whether other industries are selling at a different price, while it may be difficult to monitor the actual quantities they are producing.

7. Distributional coalitions slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth. Since it is difficult to make decisions, and since many groups have an interest in the status quo, it will be more difficult to adopt new technologies, create new industries, and generally adapt to changing environments.

9. The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution. As the number of distributional coalitions grows, it will make policy-making increasingly difficult, and social evolution will focus more on distributing wealth among groups than on economic efficiency and growth.

I first learned these ideas secondhand from Jonathan Rauch’s book “Demosclerosis: The Silent Killer of American Government,” which came out in the mid-1990s and which I read when I was young and impressionable. Olson develops a broad theory of history, then applies it pretty specifically to what he saw as the economic problems of the late 1970s and early 1980s.

And on some level, I think Olson had this wrong.

Governments across the western world were able to beat inflation through a mix of better monetary policy decisions and some good luck from Middle Eastern oil production — a broad macrohistorical view of interest group politics wasn’t actually necessary to explain the stagflation of the 1970s. Or at a minimum, solving the profound problems Olson pointed out wasn’t necessary to end stagflation.

Rauch’s book heavily channels Olson and observed that all those problems were still with us in the mid-90s. And Tabarrok and Klein are talking about Olson because, again, these problems are all still with us today. Call it gridlock, call it demosclerosis, call it what you want; our government institutions seem paralyzed and unable to actually do things at a reasonable pace or to adapt to changing circumstances.

But the point I appreciate about Olson’s framing is that this is a curse that stems from our blessings. We are living through the problems experienced by “stable societies with unchanged boundaries.”

Ukraine got its shit together, Afghanistan didn’t

Thinking about a society that has not enjoyed unchanged boundaries in recent years, I wrote on February 9 that invading Ukraine would be a disaster for Russia. At the time, I felt like my take was moderately contrarian, but in retrospect I was actually much too optimistic about Russia’s prospects, more or less blindly following the consensus that the “lightning strike on Kyiv” at the center of Russia’s operational plan would work. I thought the problems would start after Putin decapitated the Ukrainian regime and tried to install a new government. Nobody seemed to have much optimism that the Russian offensive could actually be halted. Recall that western governments offered to evacuate Zelenskyy from Kyiv, either so as to continue the fight from the western part of the country or to lead a government-in-exile.

The people who know things about military tactics and logistics have written plenty of columns and Twitter threads about why the Russians failed, but a big obvious piece of it is that the Ukrainian military stood and fought even at a time when most people thought they would lose. This is exactly what did not happen in Afghanistan. In Afghanistan, it seems that many commanders, reasoning that the Taliban would win the war once American troops departed, pre-arranged terms of surrender or defection. President Ashraf Ghani fled the country with bags full of cash.

These situations are hard to predict in part because of this kind of tipping point. Because the Ukrainians fought harder and better than expected, they ended up calling down harsher-than-expected sanctions on Russia and are now getting levels of foreign materiel support that were unthinkable before the war. Ukraine in some broad sense “got its shit together” to an extent that the Afghan National Army did not. Western assistance has been critical to the Ukrainian war effort, but the ANA got tons of assistance and that didn’t help, even though they were fighting a much more ragtag group than the Russian military.

Olson’s work does not help us understand why Ukraine succeeded where Afghanistan did not. But it starts with the observation that there is an aspect of natural selection to this kind of thing. Under conditions of stress, dysfunctional polities collapse whereas ones that are better at getting their shit together manage to survive.

As of 2015, Ukraine and Afghanistan were both countries with weak states, weak rule of law, lots of corruption, plenty of American military assistance, and facing serious security threats.

The outlook for both of them seemed (and in fact was) pretty bad.

A TV personality like Volodymyr Zelenskyy being able to sweep to victory on a populist anti-corruption platform was, realistically, a sign of how bad things had gotten. And we know from the Berlusconi experience in Italy and the Trump experience in the United States that this “bring in the outsider to drain the swamp and fix the broken system” plan has a very high failure rate. In Ukraine, though, it seems to have worked. Not that all problems are solved. But the soldiers are fighting the enemy, and the foreign military equipment is getting into their hands. Afghanistan is a reminder that there’s nothing inevitable about that — pouring more guns and cash into a corrupt and broken government structure doesn’t make it win wars, it just creates more loot. In the modern world, conquering other countries has gone out of style. But when it’s on the table, you either find a way to generate institutions that work or you get conquered.

The romance of catastrophe

I think this helps explain the appeal of catastrophism to people (and I will include myself here) who find dealing with the many veto points of the status quo annoying.

Something I said a lot when promoting “One Billion Americans” is that all too often policy books have nine great chapters outlining a problem and then one unconvincing chapter offering solutions. What I tried to do was take a problem that I thought was so obvious I hardly needed to discuss it at length — America might be eclipsed by China and that’s bad — and then write a book that’s all solutions.

And I had a blast doing it. The whole book is full of my personal favorite “now more than ever” policies about everything from skilled immigration and land-use reform to congestion pricing and welfare state expansion. Except instead of random “here are some nice ideas that would collectively make everyone’s lives better but it’s never going to happen because of status quo bias and blocking coalitions,” I framed it as “let’s imagine everyone freaks out about China and finally gets serious about fixing things.”

Because I do think the world at least sometimes works that way.

Communism was very bad, but it was primarily bad for the people living under communism or for people caught up in U.S.-Soviet proxy wars. For Americans, it meant the elite class was more responsible and civic-minded in its behavior than it otherwise might have been because beating the Russians was broadly seen as important. So after Sputnik we got big investments in science and education, and the civil rights movement got a boost from northern white elites’ realization that their indulgence in Jim Crow was a propaganda coup for the Soviets.

I don’t think anyone consciously roots for bad things to happen because they’re so excited about the second-order political effects, but I don’t think it’s uncommon to hope that a crisis mentality will unlock some new possibilities. The crisis with Russia, for example, has clearly generated some beneficial changes in the efficacy of the Ukrainian government. And it really ought to bring dramatic new urgency to western energy policy.

Now more than ever on fossil fuels

Western sanctions on Russia are a really big deal and are hitting the living standards of everyday Russians pretty hard while impeding the ability of Russia to sustain its military capacity.

We could probably do better on the military capacity front by tightening up the system of export controls — if North America, Europe, and democratic Asia collectively refuse to export high-tech goods to Russia, that would make it very challenging over time to keep their arms industry running. But the biggest whopper in the sanctions regime is that European countries that are trying to sink the Russian war machine are also importing tons of oil and natural gas from Russia, directly financing the war.

The United States, meanwhile, has barred imports of Russian oil but continues to consume oil at a per capita level that is unprecedented around the world. And oil is a basically fungible commodity, where tankers that were previously bound for the U.S. can just go somewhere else.¹ So America’s voracious appetite for oil still props up the global price and keeps Putin’s military afloat. Gas is less fungible than oil because the pipeline infrastructure exists to send tons of Russian gas to Europe, and sending that gas to China or India instead would require massive new infrastructure.

So along with all the Ukrainian flag pins, the west ought to be taking action on energy policy:

1. Subsidizing the purchase of electric cars and e-bikes.

2. Raising gasoline taxes and using the revenue to cut payroll taxes.

3. Canceling and reversing planned shutdowns of nuclear power plants.

4. Tearing down regulatory barriers to long-distance electrical transmission lines, geothermal exploration, advanced nuclear, and to permitting new utility-scale wind and solar warms.

5. Either outright barring European imports of Russian natural gas or at least placing stiff taxes and quotas on how much can be imported.

These ideas are good policy responses to the war largely because #1 through #4 would be good ideas no matter what Russia did, but they all also make for good anti-Russia initiatives and are strongly complementary to #5, a no-brainer wartime measure. The key thing is this suite of policies would require people to actually prioritize reducing fossil fuels — including an acknowledgment that while wind and solar are great, they are largely gas complements rather than substitutes.

But despite a ton of big talk from western leaders, we are so far not really doing any of this. America remains mired in gridlock and nonsense, and while Germany really has stepped up to some extent (even tiptoeing toward a possible gas rationing regime), their actions thus far do not match the scale of the rhetoric that’s being deployed. Not for no reason — a lot of these policy changes would be costly — but because it continues to be fundamentally a time of normal politics in which normal coalitional considerations and veto points prevail.

The half-assed economic war on Russia

The European gas situation is genuinely difficult. Due to past bad decisions, Europe now relies on Russian imports for about a third of their natural gas, and most of the alternatives to Russian gas are not immediately available.

The gas itself, meanwhile, plays a variety of roles, including (crucially) industrial uses for which there is not currently any real substitute. So this is a tough problem.

That said, it’s hardly an unsolvable problem. Keeping the nuclear plants on would reduce the need for gas for electricity generation. People can keep their homes colder and wear sweaters. I would try to keep the industry running while investing in more LNG facilities and building out non-fossil electricity generation. There’d obviously be a hit here, but it’s survivable.

A big team of German economists looked at the case of totally shutting down German imports of Russian fossil fuels (i.e., coal and oil as well as gas) and concluded that the hit could optimistically be as small as 0.2 percent of GDP or as big as 3 percent of GDP. Three percent is a big hit, and I don’t want to minimize it. But in the scheme of things that countries do to address major national security crises, it’s pretty small. At a minimum, it is doable. If German politicians and German citizens are really invested in countering Russian aggression as a key plank of European security and international law, this is a cost they could absolutely pay. Obviously Ukrainians are paying a much steeper price in their own quest for independence.

Instead, European leaders are doing exactly what American leaders are doing and trying to shelter citizens from energy pain by reducing taxes on consumption. I understand why they’re doing that, but everyone should see that every consumption subsidy is in part a subsidy to Putin and the Russian war effort. But what choice does anyone have?

It’s not like there is a single Republican Party elected official who is volunteering to give the Biden administration political cover on gas prices and say “look, we can disagree on abortion rights and government spending while also acknowledging that a surge in energy prices is worth it to beat the Russians.” Nor are Biden’s supporters among environmental groups volunteering to give him a pass on supporting domestic oil and gas production or urging him to go all-in on nuclear. The economic war on Russia is half-assed not because each national leader has independently decided to half-ass it, but because all of our societies are experiencing demosclerosis and simply can’t choose to act decisively on the Russia issue. We lack the capacity.

Victory on the cheap

The thing of it is, this extremely half-assed policy just might work!

It seems completely plausible to me that as long as the West continues to be open-handed with its financial and material support for Ukraine, the Ukrainians really will be able to fight the Russians off at this point. Russia appears to be losing equipment at a dramatically faster rate than Ukraine to the extent that there’s some reason to believe the Ukrainians may actually be gaining equipment on net via capturing Russian stuff.

Even without ironclad sanctions, these equipment losses are going to be moderately difficult for Russia to make up. By contrast, because western governments have gotten more sympathetic to Ukraine, more emotionally invested in the cause, and more persuaded that they can win, Ukraine is getting better stuff now than before the war. And while Joe Biden has plenty of political problems on his hands, getting Congress to appropriate tons of money for military equipment is not one of them. Biden has asked Congress for a $30 billion increase in defense expenditures, but Republicans are asking him to go higher than that, and Democrats are likely to agree to get a bill done. The whole Russian defense budget is about $60 billion, and Ukraine has lots of other supporters.

This is just to say that while obviously it would be better for Ukraine — and, frankly, better overall policy — for the West to step up the economic measures against Russia, Russia simply isn’t strong enough to make it genuinely necessary. We’re under pressure and we ought to reform energy. But we really ought to do reforms even absent concerns about Russia just for overall economic and climate reasons. It would be nice to imagine the pressure from Russia is enough to break us out of our Olsonian doldrums, but objectively that’s probably not true. We’re still at the end of history and can afford to be poorly governed.

1. The nuance is that crude oil from different sources has different characteristics, and oil refineries are optimized to refine certain types of crude. So switching everyone around to refining differently-sourced oil entails some costs and frictions.