Economy? It’s the politics, stupid
Policy reports are useful, but does anyone in power ever follow them?
POST-apartheid governments have not been short of policy advice for the many socioeconomic ailments that afflict South Africa. Some of this advice has found its way into government policy books.
Politicians and government officials have found a use for other reports, too, but perhaps not the kind of use their authors had intended. I am referring, of course, to the use of these documents as support for short-legged desks, or, if their authors are lucky, to pad bookshelves in government offices.
Most of these reports make a lot of economic sense. But where they mostly fall short is that they ignore politics. Yet the biggest stumbling block to faster economic growth is politics, particularly politics relating to the dynamics of the ANC and its alliance partners.
Economic policy advice that ignores this political reality is bound to fail, largely because no savvy politician will accept and implement it. Even the politically suicidal or naive ones will be sabotaged by vested interests in their own party when they try to implement technically sound but politically bad policies. They might even be shuffled out of the cabinet.
Alan Blinder, a Princeton University professor who served on president Bill Clinton’s council of economic advisers, has highlighted this failing by economists to take politics into account when peddling advice to politicians.
In a 2005 lecture to the Israel Economic Association, Blinder argued that “several critical ingredients are missing from what economists typically offer as good advice — ingredients which, if provided, would make the recipe more palatable politically without impairing the economic nourishment”.
Part of the problem, according to Blinder, is the dispassionate economic reasoning favoured by academics, “that is so useful when it comes to prescribing appropriate, long-run, ahistorical remedies”.
He cited economists’ explanation of the benefits of free trade, which results in job losses for some workers. “In economics, we refer to painful adjustments like that as ‘transition costs’, which makes them sound like small potatoes. And then we proceed to ignore them. But to an older worker who loses his job to foreign competition, the transition might constitute the rest of his working life,” Blinder said.
Daron Acemoglu, a professor of economics at the Massachusetts Institute of Technology, and James Robinson, a professor of government at Harvard University, have added their voice to the chorus.
They argue that economic advice ignores politics at its peril, but also that there are systemic forces that can turn good economics into bad politics and that bad politics often trumps good economics.
“Of course, we are not claiming that economic advice should shy away from identifying market failures and creative solutions to them, nor are we suggesting a blanket bias away from good economic policy,” they write in Economics Versus Politics: Pitfalls of Policy Advice, published in the Journal of Economic Perspectives.
“Rather, our argument is that economic analysts need to identify, theoretically and empirically, conditions under which politics and economics run into conflict, and then evaluate policy proposals taking into account this conflict and the potential backlashes it creates.”
Acemoglu and Robinson conclude, for example, that implementing eco- nomic reforms without understanding their political impact can result in those reforms reducing rather than promoting economic efficiency.
Some might argue that embedding politics into economic advice is not the responsibility of private sector economists but of those who are employed by governments, either full time or as advisers to ministers.
This is partly true. Government economists can and often do add to policymaking what Diane Coyle, professor of economics at Manchester University, calls “a toughness of thought”. This includes thinking about opportunity costs, balance of costs and benefits, and whether citizens will respond to the proposed incentives.
But often private sector economists meet politicians and government officials to discuss a variety of economic policy issues. Most often, private sector economists do so as part of the lobbying of governments to implement certain policies viewed by the private sector as good for business. In such cases, it makes sense for private sector economists to know what constraints the politicians face.
None of this is meant to absolve politicians of the need to display what has been referred to as political entrepreneurship.
As British historian Peter Clarke has argued, political leadership is about a vision of the future direction of policy as much as it is about successfully selling that vision to the electorate.
“It is a problem which can be tackled in very different ways, with the stress falling, for example, on rational persuasion, on executive efficiency, on charismatic oratory, on party organisation, on institutional power-broking or high-political scheming,” Clarke wrote in A Question of Leadership: Gladstone to Thatcher.
And, armed with politically palatable but sound economic policies, a skilful politician should have no trouble rallying his party faithful and the electorate behind him.
❛ In economics, we refer to painful adjustments as ‘transition costs’, which sounds like small potatoes