Revolutionary armies, labor unions, and free-riders: organization, labor unions, and free-riders.

• Author: Rohacek, Jerry K.

Three paradoxes inspired me to write this article: (1) Activists within groups such as revolutionary armies and labor unions often make extraordinary sacrifices even when they receive the same benefits as do nonactivists. (2) Groups often seek in-kind benefits even when they could have pursued monetary benefits of greater value. (3) Groups often oppose democratic decision making even when their members have democratic values. In this article, I will resolve these paradoxes by explaining the organization and the division of power within various groups.

Purposive Groups, Public Goods, and Free-Riders

Peter B. Clark and James Q. Wilson (1961, 145-66) classify groups as purposive when the incentives that motivate group members come from the goods that the groups seek. For example, the Audubon Society is a purposive group. Members are motivated by the goal of the group, the protection of birds. In contrast, the incentives of members of nonpurposive groups come directly from the benefits given to individual members. For instance, a college study group is a nonpurposive group. The group's members are motivated by the special and various knowledge each member expects to receive.

The goals of purposive groups are often "public goods" in the economist's broadest sense of the term. For example, once the Sierra Club succeeds in its efforts to protect the environment, it is impossible to provide the benefits of environmental protection to club members without also providing those benefits to nonmembers. Moreover, it is impossible to provide the benefits to some club members without also providing them to all club members.

Occasionally the attainments of purposive groups accrue only to group members but are nevertheless public among the members. That is, once goals are attained, access to the benefits created cannot be selectively and differentially distributed among group members. For instance, when a baseball team wins a game, even though outsiders receive little benefit, all team members share in the team's success. To at least some degree, pure capitalist "unanimity without conformity" cannot be achieved.

When the benefits of large purposive groups are public goods, the groups often encounter a serious "free-rider" problem. This occurs when nonmembers of the large purposive groups can receive the same benefits as members and can do so without incurring the costs of membership. Individuals then have an incentive to avoid becoming members.

In his classic book The Logic of Collective Action (1965), Mancur Olson presented an excellent discussion of the nonmember free-rider problem and an explanation of how it can be avoided in the special case of a large purposive political group. Olson's solution is that, in addition to providing public goods, the groups provide private goods restricted to group members.

However, most large purposive groups also must avoid a second free-rider problem, which arises when the benefits of the goods that the groups create are public among the members of the group. Under such conditions, nonactivist members of the groups can obtain the same benefits as activists without making the sacrifices for the groups that the activist members make. Members then have an incentive to avoid becoming activists.

Avoiding the nonactivist free-rider problem is often as crucial to the creation and survival of purposive groups as avoiding the nonmember problem. Large purposive groups usually need activists as well as members. Without activists, most purposive groups could not survive.

My purpose in this article is to explain how large purposive groups avoid the nonactivist free-rider problem. The explanation shows how activists can be selectively rewarded even if their eventual benefits come from public goods. Note that the rewards to activists are public goods, not private goods, as in Olson's solution.

Perhaps because analysts have focused on the nonmember problem, they have not directly discussed the nonactivist problem. It appears that sometimes they have assumed that avoiding the one is tantamount to avoiding the other. Nevertheless, in dealing with how small political groups avoid the nonmember problem, the analysts have provided some hints about how groups may avoid the nonactivist problem.

Olson (1965, 35-37), for example, recognized that small political groups can solve the nonmember problem when recipients unequally value the public goods that the groups obtain. The values that accrue to some members can then be sufficient to cover membership costs. However, because of his focus on the nonmember problem, his discussion deals with cases in which the goals of the groups are given and the only problem is to motivate individuals to become members. The theory presented here shows that the very process of selecting large-group or small-group goals can create the necessary incentives for individuals to be members of purposive groups and, more importantly, activists in those groups.

Taking a different approach, Richard B. McKenzie and Gordon Tullock (1978, 222-23) imply that small political groups can solve the nonmember free-rider problem by converting public goods into purely private goods. They use truck and airline regulations as examples. In this case, lobbying associations can seek truck and airline regulations that limit truck and airline routes exclusively to association members. Nevertheless, although the regulations mentioned by McKenzie and Tullock may have arisen as they hypothesize, it is unnecessary to convert public goods to purely private goods.

My theory emphasizes a method by which individuals can be motivated to become activists even though they receive only the same access to public goods as nonactivists. This theory demonstrates that avoiding the nonactivist free-rider problem can largely determine the goals of purposive groups and how the groups are organized. In fact, avoiding the problem may have more of an effect on the objectives and structures of purposive groups than any other consideration, including avoidance of the nonmember free-rider problem.

In addition to explaining the goals and organizations of purposive groups, the theory yields some particularly important and interesting implications, including the following: (1) Activists in purposive groups may have the groups seek in-kind rather than monetary benefits so that the activists can thereby surreptitiously increase their wealth at the expense of nonactivists. (2) Corruption may be a necessary condition for the existence of many purposive groups, whereas democracy may destroy such groups. (3) The extent of rent-seeking by purposive political groups may be limited by their inability to circumvent the nonactivist free-rider problem. (4) The method for avoiding the nonactivist free-rider problem can sometimes be used to avoid the nonmember free-rider problem. (5) Avoiding the nonactivist free-rider problem may explain why unionization sometimes increases the ratio of fringe benefits to monetary compensation.

Avoiding the Nonactivist Free-Rider Problem

Purposive groups seeking public goods can sometimes solve the nonactivist free-rider problem by paying activists wages and other selective benefits to compensate them for their extraordinary sacrifices. But although some activists in purposive groups may be paid, many are not. And those who receive monetary compensation often receive far less than normal market rates for their efforts. If monetary and other selective incentives are insufficient, some or all of the benefits to activists must come via the...