The political economist Mancur Olson, in his 1984 book, "The Rise and Decline of Nations," first offered institutional sclerosis as a partial explanation for the divergent growth rates experienced between the winners (with relatively low post-war growth rates) and losers (with relatively high post-war growth rates) of World War II. In liberal democracies experiencing continuity and stability, interest groups form over time and grow to exact rents, becoming vested. The accumulation of vested interests and rent-seekers ultimately slows the ability of a government to reform, adapt, and secure perfectly competitive markets thanks to a related phenomenon studied by Olson: the collective action problem. This sclerosis saps an economy's dynamism and lowers growth rates. In liberal democracies with young institutions, by contrast, competition remains perfect and natural economic dynamism and creative destruction ensue, generating high growth.
Additional uses: Institutional sclerosis is the phenomenon in which an institution is effective in changing in some areas but unable to adjust to changes in other areas. Institutions can evolve efficiently by expanding original goals to meet changing environment or including more members. At the same time, however, institutions or organizations face difficulties adjusting to new structures or internal policies.