National Journal | September 5, 1992

ON APRIL 10, a group of kamikaze Senators marched to the chamber floor with an alternative budget. What they got back was a stark demonstration of the forces that are petrifying postwar democracy.

"We do not seek to end entitlements, or even to reduce them," Sen. Charles S. Robb, D-Va., told the Senate that day. "We do, however, believe that it is necessary to restrain their growth. That is, first and foremost, what this amendment does."

Entitlement programs are check-writing machines whose subsidies are mandatory under law: social security, medicare, farm supports, welfare, countless more. Today they account for a staggering three-fourths of all federal domestic spending. And so Sen. Peter V. Domenici, R-N.M., was doing nothing more than acknowledging reality when he told the Senate, "If we do not do anything to control the mandatory expenditures, the deficit will continue skyrocketing."

The bipartisan group -- Domenici and Robb, Sam Nunn, D-Ga., and Warren Rudman, R-N.H. -- proposed phasing in a cap on over-all entitlement growth. To avoid bringing the roof down on their heads, they exempted social security. The other entitlement programs would collectively grow to account for inflation and demographic changes, but no more.

Within two hours of the four Senators' first detailed discussion of their proposal, they were receiving telegrams, Domenici told the Senate, "from all over the country, saying that this is going to hurt a veterans' group, this is going to hurt people on welfare, this is going to hurt seniors on medicare."

"We were inundated," G. William Hoagland, the Senate Budget Committee's Republican staff director, recalled during a recent interview. "Just about every interest group you can think of was strongly opposed. It was very dramatic how quickly they all came to the defense."

The American Association of Retired Persons (AARP) called the proposal a "direct attack"; the National Council of Senior Citizens "outrageous"; the Children's Defense Fund, "unacceptable"; the Committee for Education Funding, "unconscionable"; the Food Research and Action Center, "devastating"; the American Federation of Government Employees, AFL-CIO, "unfair and unconscionable"; the Veterans of Foreign Wars of the United States, "totally unjust"; the Disabled American Veterans, "unconscionable"; the American Legion, "incredible"; the Paralyzed Veterans of America, "inherently unfair"; the National Cotton Council of America, the U.S. Rice Producers' Group and the National Farmers Organization, "unfair"; the American Postal Workers Union, AFL-CIO, "irresponsible, simple-minded," and so on.

On the floor of the Senate, the amendment's opponents moved to exempt disabled veterans from the entitlement cap. The exemption passed, 66-28. "We were going to exclude every Tom, Dick and Harry organization out there before we were finished," Hoagland said. Rather than face death by amendment, Domenici and the others withdrew their plan. That ended it.

The Domenici group's effort fell victim to demosclerosis -- postwar democratic government's progressive loss of the ability to adapt. Demosclerosis is the most important governmental phenomenon of our time. No surprise, then, that it is also the most explained.

Liberals blame conservatives. "Government has stopped addressing accumulated public problems," wrote the liberal journalist Robert Kuttner in The New Republic recently: "a deliberate strategy of laissez-faire Republicans, who don't believe in government."

Conservatives blame liberals, alleging that left-wing ideology drives liberals to cling brainlessly to every program ever adopted. "Reactionary liberalism," the conservatives call it.

Populists and business-bashers, such as the liberal journalist William Greider, blame moneyed elites and corporate lobbying. Political analysts blame the current state of the political system: divided control of the government, the early-1970s reforms that dispersed power in Congress, the breakdown of strong political parties, the rise of a professional political class and so forth.

The public blames, above all, "leadership," of the lack of it. A strong leader (runs the theory), uncorrupted by politics as usual, could shake the barnacles from the system. Thus the wave of support for Ross Perot.

Many of the explainers' standard explanations are partly right. Yet there are grounds to believe that none of the above fully comprehends what is going on.

People used to fear that democracy would dither fatally while dictators and totalitarians swept the field. That fear turned out to be mistaken. Now it appears that the vulnerabilities of democracy -- at any rate, of the postwar style of democracy, with its professional activists and its large and fairly powerful government -- are mundane and close to home.

One such vulnerability is the tendency to rob the future to pay for consumption today -- but that's another story. The other vulnerability is creeping special-interest gridlock: that is, progressive sclerosis.

Here in Washington, people like to think that sclerosis is temporary, or at least is treatable with political reforms. Maybe not. If postwar government is petrifying, the causes may be deep rather than superficial and fundamental rather than merely partisan. In other words, demosclerosis may be inherent and irreversible.



GETTING ORGANIZED

IN 1982, a University of Maryland economist published a scholarly book called The Rise and Decline of Nations (Yale University Press). Mancur Olson set out to explain, or partially explain, why societies tend to ossify and stagnate as they age. Few people outside of academia took much note of Olson and his ideas. To return to his book today, however, is an eerie experience, for the theory of 1982 foreshadows 1992's politics of frustration.

In every society, Olson said, there are two ways for people to improve their lot and grow rich. One is to produce more; the other is to capture more of what others produce. Doing the latter is possible, but requires political pull or marketplace power; attaining either of those requires that people band together to form either interest groups or cartels.

Interest groups can make their members better off by seeking subsidies, tax breaks, monopolies, favorable regulations and so on. Postal workers seek a monopoly on first-class mail; dairy farmers seek production controls to jack up prices; and so on. Private cartels can make their members better off by raising prices and barring newcomers from the market. Olson called such beggar-thy-neighbor groups "distributional coalitions."

So far, so obvious. Then Olson went on to the less obvious. Despite what you might think, to organize an interest group or cartel is difficult. The organizer will bear most of the start-up costs, and yet can expect only a fraction of the benefits, which must be shared among the members. Members, in turn, will be reluctant to join until they see that the group is successful. Even then, they may stay out and let others do the work.

As a result, Olson wrote, "organization for collective action takes a good deal of time to emerge." Trade unions did not appear, for instance, until almost a century after the Industrial Revolution. Farmers' groups didn't appear in America until after World War I. Social security dates back to 1935, but the AARP didn't appear until 1958.

Once groups organize, however, they almost never disappear. Instead, Olson wrote, "they usually survive until there is a social upheaval or other form of violence or instability." Furthermore, over time the interest groups of professionalize. This makes them still less likely to go away: Amateur activists can always drop the cause and go home, but for professionals, the cause pays the mortgage.

The result, Olson concluded, is this rule: "Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time." Look at the AARP's membership curve (see chart, p. 2001), multiply it by countless interest groups, and you get the idea.

Cartels have not proved to be the problem that Americans once expected, thanks mainly to foreign completion. If cartels organize the domestic market, as some say the Big Three automakers did informally through the 1970s, fat profits lure in imports to bust the trust.

But political pressure groups have the added power of the law, and are not so easily undermined. These groups' effects are of two kinds, economic and governmental.

Economically speaking, entrenched interest groups slow the adoption of new technology and ideas by clinging to the status quo. They distort the economy, and so reduce its efficiency, by locking out competition and locking in subsidies. As they grow, they suck more of society's top talent into the redistribution industry. All in all, the economic costs can be very large. (For a report on the "parasite economy" and its costs, see NJ, 4/25/92, p. 980.)

The other kind of effect is on government. The accretion of interest groups, and the rise of bickering over scarce resources, Olson feared, can "make societies ungovernable."

Now the theory's darker implications come into view. "The logic of the argument implies that countries that have had democratic freedom of organization without upheaval or invasion the longest will suffer the most from growth-repressing organizations and combinations," Olson wrote. If he is right, then the piling up of entrenched interest groups, each clinging to some favorable deal or subsidy, is an inevitable process as democracies age.

However, occasionally some cataclysmic event -- war, perhaps, or revolution -- may sweep away an existing government and, with it, the countless cozy arrangements that are protected by interest groups.

If his theory is right, Olson concludes, "it follows that countries whose distributional coalitions have been emasculated or abolished by totalitarian government or foreign occupation should grow relatively quickly after a free and stable legal order is established."

Look at Japan and West Germany, where authoritarian regimes and then foreign occupations swept away entrenched interest groups and anticompetitive deals. "Economic miracles" followed in both countries as resources were freed from groups that had captured and monopolized them. (Catch-up growth, Olson says, can explain only a part of Japan's and Germany's success.) By contrast, "Great Britain, the major nation with the longest immunity from dictatorship, invasion and revolution, has had in this century a lower rate of growth than other large, developed democracies."

Even in the United States, Olson said, the pattern applies. Statistical tests comparing the 50 states showed that "the longer a state has been settled and the longer the time it has had toaccumulate special-interest groups, the slower its rate of growth."

His hypothesis suggested a social cycle:

A country emerges from a period of political repression or upheaval into a period of stability and freedom. If other conditions are favorable, rapid growth ensues. (South Korea and Taiwan, both emerging from dictatorship and both showing rapid growth, would be in this stage today; China might be next.) Gradually, interest groups organize and secure anticompetitive deals. These deals accumulate, each being jealously defended. Over time, growth slows and paralysis sets in.

Although Olson was concerned mainly with the sapping of economic vigor, his theory also has profound implications for the sapping of governmental vigor. To see why, look at Washington in 1992.



PARALYSIS

LOOK, for instance, at what happened to the entitlement-cap proposal. Anyone who doubts that today's professional interest groups can mobilize almost instantly to defend their favorable deals need only consider the fate of the move by Robb, Domenici and the others.

Another case in point, one of many, is banking reform. The law that regulates the U.S. banking system goes back 50 years or more and is largely archaic. Banks are barred from a variety of money-making activities (underwriting securities or mutual funds, selling insurance, branching across state lines) that their modern competitors perform with impunity. Thus hobbled, banks have difficulty finding profits. Weak banks, in turn, weaken the whole financial system.

In 1991, the Bush Administration sent Congress a banking reform package. It was shot to pieces in what the New York Times called "a frenzied attack by lobbyists. . . . Small bankers, fearing comptition, tore away interstate banking. Insurance firms, fearing competition, tore away insurance underwriting. Securities firms, fearing competition, tore away the proposal to let banks sell stocks and bonds."

In the end, National Journal reported, "every Administration proposal for permitting banks to widen their business horizons -- every single one -- was picked off in the carnage." (See NJ, 12/14/91, p. 3008.) The result is surely one of the most bizarre policies of our time: As the 21st century approaches, the country limps along with New Deal banking laws.

What happens when you try to attack an anticompetitive arrangement? A classic example of such an arrangement protects public school employees, who enjoy a monopoly claim on tax dollars for education. Recently, two provisions of the Bush Administration's water education reform package attempted to nibble at this monopoly.

Bush wanted to finance 535 new "break-the-mold" schools, both public and private, to be chosen competitively in Washington; he also proposed incentives for localities to try voucher plans, which let parents spend public money at private schools. The idea in both cases was to stimulate innovation by bypassing the entrenched establishment of public school employees.

On Capitol Hill, the voucher measure was demolished under ferocious opposition from groups representing public school teachers and administrators. Under pressure from the National School Boards Association and others, the "break-the-mold" schools turned mostly into block grants for state education agencies and local school districts: in other words, more money for the existing system and its officials.

Whichever way you feel about the Bush proposals, their fate is indicative. "In the politics of education, what you have to recognize right from the start is that the [public school] educational establishment has tremendously more resources than anybody else," said Stanford University political scientists Terry M. Moe, who advocates vouchers and other reforms. "And that's not unique to education. You can't get anything past these groups."

If there is a single sad symptom of demosclerosis, however, it is bogus national poverty.

People often talk as though the country has become too poor to afford federal initiatives. In fact, the United States is now wealthier than any other country in human history, including its prior self. In 1990, real per capita disposable income was twice as high as in 1960, when the federal government could "afford" almost anything; real wealth per capita was 62 per cent higher than in 1960 and real output was 80 per cent higher. "Poor" is the one thing America is not.

Is the government poor? It collects and spends more, in inflation-adjusted dollars, than at any time in history, far more even than at the peak of World War II. Its tax base, measured as a share of the economy, is at the high end of the post-war norm, and above the level of the "wealthy" 1950s and 1960s.

If government is "poor," it is only because of its inability to reallocate resources for new needs. In other words, government is not poor, it is paralyzed.



TRIAL AND ERROR

WHAT is going on here? Why has government become so ossified and immobile?

In large, complex systems, the key to successful adaptation is the method of trial and error. In the large, complex system of biological evolution, species undergo mutations, the vast majority of which fail. A few, however, succeed brilliantly, and those proliferate by out-competing the others. That is how life adapts to changing environments.

Similarly with a capitalist economy: The key to its adaptability is that it makes many mistakes but corrects them quickly. Entrepreneurs open businesses; many fail, but every so often someone hits on a brilliant innovation. The more-successful strategies will proliferate by out-competing the others. Capitalism adapts through trial and error.

Similarly with science: It tries out countless hypotheses every day and abandons most of them. The knowledge base adapts through trial and error.

Government is another big, complex social system. The way for governments to learn what works in a changing world is to try various approaches and quickly abandon or adjust the failures: trial and error. However, something has gone badly wrong.

For fiscal 1993 alone, the Bush Administration proposed ending 246 federal programs and 4,192 federal projects. How many of those will die? Approximately none. The Reagan Administration made a fetish of trying to eliminate federal programs. Despite President Reagan's high popularity and his effective control of Congress in 1981-82, during his eight years in office a grand total of two major programs -- general revenue sharing and urban development action grants -- actually got killed. (See NJ, 3/28/92, p. 755.)

One reason is that people disagree about which programs failed, and even about what "failing" means. Another reason is that as soon as a program is set up, the people who depend on it -- both the direct beneficiaries and the program's employees and administrators -- organize to defend it ferociously. These groups are, of course, none other than Olson's "distributional coalitions" -- what others have for years described as part of an "iron triangle." They have money, votes and passion. They can be defied, but only at serious political risk.

In the period beginning with the New Deal and peaking with President Johnson's Great Society, Washington seemed one of society's most adaptive and progressive forces -- which, at the time, it was. What Franklin D. Roosevelt's and LBJ's visionary policy makers did not foresee was that every program generates an entrenched lobby that never goes away. The result is that virtually every program last forever.

And so, although no one disputes that the Rural Electrification Administration has largely fulfilled its New Deal mission of bringing power and telephones to rural America, the program keeps right on going. The rural electric cooperatives' 65,000 employees and 10,000 local directors vigorously defend it, with the help of their interest group, the National Rural Electric Cooperative Association, whose budget for programs and administration runs to $ 11 million a year.

In 1955, Congress set up a program to subsidize the production of wool, which in those days was a vital military commodity. Along came synthetics, which by 1960 knocked wool off the Pentagon's strategic commodities list. But in 1992, more than three decades later, the wool program will spend $ 180 million. It is ably defended by the small but devoted group of people who benefit from it, in some cases richly (in 1989, more than 60 farmers got subsidy checks for more than $ 100,000). (See NJ, 5/18/91, p. 1168.)

Not only are policies hard to kill, they are also hard to change. Every wrinkle in the law produces a winner who will resist reform. that is why the United States operates under an anachronistic banking law from the early 20th century. Years ago, scholars understood that some provisions of the program of aid to families with dependent children, a mainstay of the welfare system, encourage fathers to leave home. Yet key corrections have still not been made. (See NJ, 6/20/92, p. 1454.)

And so programs are impossible to kill and very difficult to correct. The implications of this are profound.

Imagine an economy in which every important business enterprise is kept alive by an interest group with political clout. Over time, the world would change, but the businesses wouldn't. Obsolescent companies would gobble up resources, crowding out new companies. The economy would cease to adapt.

That is what happened to the Soviet economy. Which imploded.

In principle, the U.S. government's situation is like the Soviet economy's. In both, the method of trial and error has collapsed.

In Washington, every program is quasi-permanent, every mistake is written into a law that some vested interest will defend furiously. The result is that as the old clutter accumulates, government cannot adapt.

First, old programs and policies cannot be gotten rid of, and yet continue to suck up money and energy. And so there is little money or energy for new programs and policies. The old crowds out the new.

Second, and at least as important: When every program is permanent, the price of failure becomes extravagant. The key to experimenting successfully is knowing that you can correct your mistakes and try again. But what if you are stuck with your mistakes forever, or at least for decades? Then experimentation becomes extremely risky.

Everyone agrees that the nation's current health care system makes no sense. Yet any reform will produce vested winners (hospitals? doctors? drug companies? left-handed dentists?) who will fight further change. A Canadian-style system or a voucher system, once adopted, would be hard to adjust and almost impossible to get rid of. Policy makers, fearful of making a mess they cannot clean up, become rightly reluctant to innovate.

Underlying the breakdown of the method of trial and error is an ironic cycle, based on the fact that every new program creates a permanent interest group. The same programs that made government a progressive force from the 1930s through the 1960s also created swarms of dependent special interests whose defensive lobbying made government rigid and brittle in the 1990s. In effect, the rise of government activism immobilized activist government. Yesterday's innovations became today's prisons.

No one starting anew today would think to subsidize wool farmers, banish banks from the mutual fund business, forbid United Parcel Service to deliver letters, grant massive tax breaks for borrowing. Countless policies are on the books not because they make sense in 1992, but merely because they cannot be gotten rid of. They are dinosaurs that will not die. In a Darwinian sense, the universe of federal policies is ceasing to evolve.



HAPPY ENDING?

"MAYBE the message is: Cheer up, things are getting worse," Olson said.

In person, Olson is more optimistic than his theory. Ten years ago, he ended his book with a sentence carefully crafted to leave room for optimism. Is it reasonable to expect, he wondered, that awareness of the damage done by special interests "will spread to larger and larger proportions of the population? And that this wider awareness will greatly limit the losses from special interests? That is what I expect, at least when I am searching for a happy ending."

He is still searching for that happy ending, and he reports being optimistic three days out of five. If the public becomes angry enough, politicians may risk the wrath of the special interests. Thus, if things get worse, action might be taken.

"We do see growing recognition of the problem," he said, "and history does show examples of thoroughgoing reform." Mexico, for instance, which has long been hogtied by cozy deals between special interests and the ruling party, is opening its economy. Even the obstinate government of India is opening up. In America, the 1986 Tax Reform Act demonstrated that an anti-special-interest package can succeed if the political leadership pushes hard enough and the payoff is big enough.

However, hope can be matched stride for stride by doubt. Tax reform was remarkable precisely because it was so rare and so difficult, and the steady accumulation of interest groups implies that such reform will become harder, not easier. Moreover, India, Mexico and, for that matter, the old Soviet Union turned to reform only after approaching, or actually crossing, the brink of calamity, a fact that gives little comfort.

Short of calamity, suppose American voters do get angry. So what? Generalized voter anger against "the system" does not translate into votes against particular programs or groups; no one gets reelected to Congress for voting against maritime subsidies or wool farmers. "In Congress, we don't get to vote on the Minn., told Time magazine in June. "We have to vote for or against actual programs."

What about reforms of the political process? Limits on politicans' terms and on campaign contributions, for example? Process reforms might make some difference, but probably not much. In a free society, groups will always find ways to defend their interests, as is their right.

At intervals, windows may open for reform. If the 1992 elections shake up both Congress and the White House, 1993 might provide such a window. However, the processes that Olson described are fundamental. They are in the system, not the people; new politicians will face the same pressures that their predecessors faced. Weber implied as much when he told Time, "I don't know what comes next after we have this tremendous cleaning-out election and then the Congress gets together next year and people find we still are not going to reduce the deficit, we still are not going to reform health care."

Weber added: "I'm not by nature a pessimist. I like to think that our system works and is going to right itself. But I see it decaying."

In any case, reforms' effects are likely to be temporary. Special-interest groups will always tend to accumulate over time; if shaken off, they will re-accumulate. "The termites are always there," Olson said, "The clock keeps ticking."

If government tends to calcify, this does not necessarily mean the country will also calcify. It depends on how other institutions compensate. Corporations, for instance, are delivering education that the public schools are not.

Nor does calcification mean that the federal government is, or will be, wholly unable to pass laws, adopt policies and expand programs. It means, rather, that new reforms and policies and programs will tend to be piled on top of old ones, so that the whole accumulated mass becomes steadily less rational and less flexible -- as though you had to build every new house on top of its predecessor.

What demosclerosis means for conservatives is that there is no significant hope of scraping away outmoded or unneeded or counterproductive liberal policies, because nothing old can be jettisoned. What it means for liberals is that there is no significant hope of using government as a progressive tool, because the method of trial and error has broken down.

For Washington and for the broad public, demosclerosis quite possibly means that the federal government is rusting solid and, in the medium and long term, nothing can be done about it. The disease of democratic government is not heart failure but hardening of the arteries.