Review Essay: The Limits of Neoclassical Institutionalism*

The following were some of the most striking economic developments during the postwar period: Japan and West Germany catching up with the US, the Sunbelt taking the place of the north-eastern Frostbelt as the dynamic centre of US economic development, and the experience of stagflation and austerity policies in most western nations. In The Rise and Decline of Nations, Mancur Olson tries to tackle such con-temporary problems of unequal development. His basic argument is that during periods of stability and peace, modern nations accumulate a large number of special interest groups, which increasingly block economic growth. His approach is inter-disciplinary and comparative, with a focus on institutional forces. Such institutionalism seems to be just the right cure to help contemporary mainstream economics out of its postwar blind alley of rigid abstractionism. This review, however, argues that Olson goes only half-way. His particular kind of institutionalism — which is in line with recent neo-classical ’public choice ’ traditions — retains too much of conventional economic thinking to be able to exploit fully the potentials of an inter-disciplinary and comparative approach