Business Associations: Good for Development or Not?

07.19.2006

A fascinating new article is available through CIPE’s Economic Reform Feature Service.  William Pyle, takes a critical look at Mancur Olson’s argument that strong business associations threaten economic growth, and provides a study of Russian associations which proves otherwise.  Abstract follows:

A quarter century ago, Mancur Olson published The Rise and Decline of Nations, one of the modern era’s most influential studies on the institutional determinants of economic growth. In it, he linked development patterns in industrial democracies to the entrenchment of organized interests, including those in the business community. Strong business associations, he theorized, actually harm national economies through their efforts to undermine competitive markets.

However, Mancur Olson’s vision of associations as organizations that assist firms primarily through services that redistribute wealth, rather than generate new wealth, does not fare well in the face of the evidence from Russia. Judged on the basis members’ behaviors, the associations that have emerged in Russia do not closely resemble the organizations that Olson described.

According to my study of Russian associations, they actively promote market-adapting restructuring or, at the very least, attract firms that are so inclined. Since liberalized markets have posed a survival threat to many Russian enterprises, it would not necessarily have been surprising to find that business organizations had grown to stifle their development or modify their outcomes. Instead, at least in part, post-communist business associations have assumed a role in promoting flows of information and knowledge that allow firms to grow, and nascent markets to perform, more effectively.

Read “Russia’s Business Associations: Who Joins and Why?” here.  We are currently translating the article into Russian, so stay tuned for that version.The point that Dr. Pyle makes is an important one.  It also flows nicely into CIPE’s work.  Simply put, one can imagine a spectrum along which associations are aligned.  On the one end, you have those that threaten competitive markets and seek protection and redistribution for their members; and on the other end you have associations and chambers which work to create competitive markets and provide opportunities for wealth creation, rather than redistribution.  The real challenge lies in recognizing associations for what they are and what they seek to accomplish.  CIPE, of course, works with associations which are “market expansion” as I sometimes call them, helping them develop the capacity to implement the kinds of programs that increase wealth and contribute to the development of their members, communities in which they operate, and the whole country.

You might also want to check out a CIPE case study on the work of coalitions of business associations in Russia.  Borrowing from the abstract, to help associations advocate for a better business environment, CIPE, with support from the USAID, worked with business coalitions in eight regions. These regional coalitions identified local barriers to business faced by their members and organized local advocacy campaigns to encourage regional governments to implement reforms. They tackled major barriers such as excessive, complicated regulatory regimes, corruption, and restricted access to information.

The benefit to the country?  An improving relationship between business and government; a growing understanding of a transparent, participatory nature of a democratic policymaking process; and more efficient regulations which help to improve business performance, the result of which is more jobs, higher incomes, and better public services.