Mancur Olson’s The Rise and Decline of Nations presents a rather bleak perspective: as nations bask in stability and perhaps even prosperity, they become increasingly susceptible to what he terms “institutional sclerosis.” This phenomenon arises because small, organized groups are more adept at overcoming free-riding challenges, thus enabling them to manipulate the system to favor their specific interests. As these groups proliferate, thrive, and extract their rents—safeguarded from the competitive forces that typically spur progress—the entire system begins to deteriorate.
If one were to follow Olson’s insights to their logical end, it might lead to the rather chilling conclusion that a catastrophic war could serve as an effective remedy for economic stagnation. Clearly, this is not a desirable or ethical approach. Nevertheless, Olson effectively identifies a genuine problem: the longer a society enjoys stability, the more it becomes ensnared by special interest groups. These “distributional coalitions” are not focused on expanding the economic pie; their sole interest lies in leveraging government mechanisms to secure and enhance their own slices. Over time, their incessant rent-seeking leads to systemic sclerosis, an observation Olson made by referencing historical instances where massive upheavals—like the near-total destruction of Germany and Japan post-WWII—were necessary to obliterate entrenched interests, allowing those nations to unleash significant economic growth.
However, depending on systemic collapse or warfare to eradicate rent-seekers is hardly a viable policy option. What we require is a peaceful method to achieve Olson’s envisioned “institutional clean slate,” and this is where artificial intelligence could emerge as a potential disruptive force.
To grasp how this mechanism might operate, let’s apply systems thinking to a specific case: the notoriously convoluted German tax system. Presently, the overwhelming complexity of German tax laws functions as an artificial barrier, creating substantial rents for a particular distributional coalition—the tax consultants, tax administrators, and politicians who can bestow favors. Navigating through this bureaucratic labyrinth necessitates highly specialized expertise, enabling these groups to secure lucrative positions. Consequently, they possess a robust incentive to lobby vigorously against any genuine tax simplification, as such an outcome would threaten their very business model.
Artificial intelligence represents an external technological shock capable of dismantling this stagnant framework. If AI can analyze and implement intricate tax codes at a fraction of the cost, the economic foundation supporting the tax consulting sector could be fundamentally undermined. As the revenues of this sector dwindle, so too would their financial clout to sustain lobbying efforts. In this scenario, the absence of a well-resourced rent-seeking coalition clamoring for the preservation of tax complexity would diminish the political barriers obstructing reform. Technology, in this sense, clears the deck, significantly curtailing the coalition’s lobbying power and paving the way for meaningful legislative changes.
Yet, this scenario may seem overly simplistic, and it fails to account for the durability of entrenched coalitions. Olson explicitly noted that distributional coalitions tend to slow a society’s capacity to adopt new technologies to safeguard their status quo. Prior to AI fully eroding their lobbying influence, it is reasonable to expect that incumbent industries will engage in inventive rent-seeking tactics. For instance, the tax coalition will likely lobby the government to mandate that AI-generated tax submissions remain legally invalid unless they are reviewed and approved by a certified human professional, invoking familiar justifications like “data privacy” or “liability.” In this way, those benefiting from rent-seeking will shroud their self-interest in the guise of “tax justice” or highlight the risks of “algorithmic bias.” Instead of fading into obscurity, the incumbent coalition is poised to unleash a final, desperate lobbying campaign to regulate AI out of existence before it can gain traction. This anticipated backlash will undoubtedly create a challenging political landscape in the years ahead.
To emerge victorious in this struggle, we must appreciate the larger political economy at play. If we aspire to escape the quagmire of institutional sclerosis, we must recognize that AI is not a panacea. Rather, it represents a critical window of opportunity to weaken and surpass entrenched distributional coalitions. To seize this opportunity and unleash the creative destruction championed by Schumpeter, we must actively resist these coalitions, who will undoubtedly seek to stifle new technologies. This endeavor could involve mobilizing the notoriously difficult-to-organize larger groups, namely, the general populace. Such a task would undoubtedly fall on the shoulders of economists and those advocating for innovation, as they defend the freedom to innovate against the rent-seekers intent on preserving their privileges. What remains clear is that the battle for a clean slate will not be won effortlessly; it demands our concerted action.
