The challenge of doing what’s obvious

Naturally I was very interested when the LSE’s Growth Commission report on the UK economy was published back in September. I’ve just looked through the book of the report, [amazon_link id=”1909890022″ target=”_blank” ]Investing for Prosperity: A Manifesto for Growth[/amazon_link], edited by Tim Besley and John Van Reenen. It’s a very impressive publication, summing up concisely a vast amount of evidence on the long-term weaknesses of the UK economy.

[amazon_image id=”1909890022″ link=”true” target=”_blank” size=”medium” ]Investing for Prosperity: A Manifesto for Growth[/amazon_image]

As the preface underlines, the report is not about the demand side issues and short-term growth, but rather about the supply side and the UK’s long term potential. The problems are hardly unknown. The individual chapters cover three main areas: infrastructure, skills, and private investment and innovation. The policy recommendations correspond to these, including a shopping list of proposals to improve primary and secondary schooling; an independent infrastructure infrastructure – a strategy board, a planning commission to deliver the strategy and a bank to finance it; and measures to support investment in innovation by the private sector centred on increasing competition in the banking sector.The chapters give a very useful summary of the state of the evidence in each of these areas, very handy for students – there are terrific lists of references too.

The recommendations are all deeply sensible. However, I think the book serves to underline two problems with the task the Growth Commission set itself. One is that any policy measures to address an area of concern are either rather motherhood and apple pie – ‘improve standards of primary education’ – or extremely detailed, because once you get down to thinking about actual measures to implement, they have to be. The report is surely right on the big picture, but patchier on the detail – inevitably in a 300 page book. The infrastructure sections are the strongest, the education ones the least persuasive – but maybe that’s because I’ve been closely involved in primary education as a governor helping turn around a school.

The other problem is that the book does not, for me, meet the challenge it describes in the preface: ‘If your ideas are so good, why haven’t they already been done?’ It is excellent on the economic analysts but doesn’t really tackle the difficulties of political implementation of “structural reforms”.

Take transport infrastructure. We surely know the London area needs more airport capacity; but a political decision on location is needed. However, early on the current government kicked this can down the road beyond the next election to wait for a later government. Yet any decision taken now would be much better than further delay – so argues Bridget Rosewell persuasively in her book [amazon_link id=”1907994149″ target=”_blank” ]Reinventing London[/amazon_link], and she writes as a firm supporter of a new airport to the east of London.

[amazon_image id=”1907994149″ link=”true” target=”_blank” size=”medium” ]Reinventing London (Perspectives)[/amazon_image]

Or take HS2. [amazon_link id=”1909890022″ target=”_blank” ]Investing for Prosperity[/amazon_link] does not have a view on this, perhaps because economists are divided on this issue as they are not on airport capacity. It’s not at all clear how an Infrastructure Strategy Board would navigate the politics of this project, although it’s plain as daylight that the amount of investment in infrastructure in general has been too low over a long period.

Still, it’s not the job of economists to deliver the politics, but rather to point out the uncomfortable realities. I ended the report feeling rather optimistic because, as it argues, the UK has a lot of assets that will support a stronger potential growth rate and future prosperity. The Commission argues for measuring progress in terms of median income rather than GDP per capita, to take account of the distribution of the gains, which seems entirely sensible. The economy’s problems may be long-standing but the counterpart of that is that we know what to concentrate our reform energies on.

Shambles, from mini to omni

[amazon_link id=”1780742665″ target=”_blank” ]The Blunders of our Governments[/amazon_link] by the distinguished academics Anthony King and Ivor Crewe is a deeply fascinating, compelling book, one that deserves to be widely read by politicians, officials, policy wonks, journalists, students and for that matter citizens).

[amazon_image id=”1780742665″ link=”true” target=”_blank” size=”medium” ]The Blunders of Our Governments[/amazon_image]

Its claim is that the system of government in the UK (by which they explicitly mean that centred in Whitehall and Westminster) is so flawed that successive administrations preside over policy blunder after policy blunder, to an extent far beyond the experience either of pre-1980 UK governments or many overseas governments. By ‘blunder’ they mean cock-ups that fall far short of the objectives, and greatly over-run the intended cost or fail to deliver expected savings, but they exclude both judgement calls that went wrong and scandals. Examples in the book range from the huge and prominent (the poll tax, Britain’s ERM entry and exit, the Millennium Dome, the infamous NHS IT project) to the smaller and/or less well-known (Individual Learning Accounts, the Asset Recovery Agency, the London Underground ‘public-private partnership’).

The longest section of the book is a series of case studies covering a a dozen blunders from 1979 on. These occurred in both the Thatcher and Blair/Brown governments. The accounts are based on extensive reading and also personal interviews with participants conducted by the authors. It is both highly authoritative and absolutely jaw-dropping. “How could they have been so stupid?” you think.

The final two parts of the book try to answer that question, dividing the explanation into ‘human errors’ and ‘system failures’.

The former include the fact that people in the world of policy making – as any other world – bring their prejudices to their decisions. They are as prone as anybody to group think. Importantly, there is a ‘cultural disconnect’ between people in policy and politics and many other citizens, especially in the field of welfare policy. The clever middle class folk who go to university, read books, take foreign holidays, manage their money, and lead reasonably orderly and law-abiding lives, have no conception of other ways of life in their own land. This is certainly true: I have come across this innocence fairly frequently in my brushes with the policy world, and it is extraordinary that it is possible for people to spend a career in politics or the civil service with no other experience at all. This also helps explain another of the book’s list of  typical errors, namely the absence of any experience relevant to implementing policies, which are developed in an abstract, analytical way with no thought given to how they might be put into practice, in an ‘operational disconnect.’ Implementation is, it seems, scarcely thought of in policy debate. In addition, for various reasons, symbolism and spin have come to play a big part in modern politics.

Among the ‘system failures’ are: the lack of common purpose between Whitehall departments and excessive influence of the Treasury in distorting policies from elsewhere; the massively under-resourced role of the Prime Minister (I hadn’t realised how much of an outlier the UK is in not having a prime minister’s department); the extreme frequency with which ministers change jobs (the Federal Republic of Germany has had 15 ministers of economics since 1949; the UK has had 35); the related absence ways to hold specific invividuals accountable for what happens when policies go wrong; the lack of relevant expertise in Whitehall on project management; no genuine scrutiny role for parliament, and undue speed without proper deliberation of major policy initiatives.

The overall diagnosis is of a government system populated by people who lack relevant expertise, have dysfunctional relationships (especially between civil servants and ministers), where there are no proper checks and balances, and where an extreme fear of being seen to do a u-turn paralyses sensible changes. “The truth is that, looked at close up, British government turns out to be more chaotic than dictatorial,” the authors conclude. The burdens on ministers’ time are intense; they are doing constantly. This makes the loss of trust between ministers and civil servants, on whom they used to lean, all the more damaging.

The book has some suggestions. On the ‘human errors’, there are some obvious steps. People who fancy going into politics could do another job first, in between student politics and their first think tank job or between their think tank and their first constituency. Civil servants could be required to work in local government or the health service or the private sector for several years if they want to get to the top jobs. Ministers could chair their meetings using known techniques for overcoming group think and bias – for example, creating a formal ‘devil’s advocate’ moment when the group is asked to critique a decision. Profs King and Crewe suggest greatly expanding the role for parliamentary scrutiny, especially at the pre-legislative stage. The Project Manager should become a key figure in Whitehall (and many other organisations, public and private, for that matter).

The postscript indicates that the systemic failures continue with the present government. Although the Olympics and Paralympics avoided the errors of the Millennium Dome, we have had the pasty tax and ‘omnishambles’ budget of 2012, and the Universal Credit is showing every sign of shaping up to be a blunder, the authors write.

The thing about system failures is that nobody has a strong incentive to do anything about them. The risks are high, the potential rewards minimal. They are hard to sort out because it takes a long time and involves getting a lot of people to agree to change things in ways that make their lives a bit more difficult. There is no personal risk in continuing with things they way they are now.

British political culture is not conducive to reasoned reform: Punch and Judy are the role models for debate, any sensible change of mind is pilloried as a ‘u-turn’, policy pilots and experiments have to get past the hurdle of accusations of ‘postcode lottery’ and the demand for instant results.  For all that every policy looks like a shambles, whether mini or omni, it is also hard for diligent ministers to get anything done at all – see Chris Mullin’s superb account in the first volume of his diary ([amazon_link id=”1846682304″ target=”_blank” ]A View from the Foothills[/amazon_link]) of his repeated failure as a junior minister to introduce a modest measure tackling the suburban blight of overgrown leylandii.

So it would be easy to read [amazon_link id=”1780742665″ target=”_blank” ]The Blunders of Our Governments[/amazon_link] and despair. And yet the latest survey evidence suggests that Britons are divided between anger and boredom (47% fury, 25% boredom, 16% respect, 2% inspiration) when they think about politics. Surely Something Must Be Done? I take some hope from the fact that most of the politicians and officials I’ve met over many years have been sincere in their sense of public service, no matter how clueless or ambitious or plain unpleasant they’ve been. That means there is potential for a coalition for system reform.

Another ray of hope comes from the universal lip service paid to the idea of “what works” or “evidence-based policy.” (This does of course make you wonder what previous policies were based on.) I predict some tumult ahead when politicians discover that the evidence does not in fact support their prejudices, but meanwhile, the system has created some machinery for pointing out when policy proposals are blunders in the making.

I would hope that devolution in the UK could offer another perspective on the system failures. The book notes that officials in Scotland challenged the poll tax, on the basis of how impractical it would be to implement, as their counterparts in England did not – and were ignored. In the devolved arrangements we now have a variety of experience and some natural experiments. Of course, the devolved powers vary in different areas of policy, and the social, cultural and political context of each nation is different; but if comparable officials from each of the four nations could meet to discuss policy problems, what a great forum that could be for testing proposals and sharing experience.

It also seems to me worth thinking about the training we give our politicians and officials. I don’t know how many degree courses in government or economics or public policy contain modules on policy assessment and implementation, or project management skills, but suspect the answer is not enough.

A modest start would be to put this book on all relevant reading lists.

Hirsch on Galbraith

More on Fred Hirsch’s[amazon_link id=”0415119588″ target=”_blank” ] Social Limits to Growth[/amazon_link].

[amazon_image id=”0415119588″ link=”true” target=”_blank” size=”medium” ]Social Limits to Growth[/amazon_image]

Hirsch has a chapter on J K Galbraith’s book [amazon_link id=”014013610X” target=”_blank” ]The Affluent Society[/amazon_link], with its famous description of ‘private affluence and public squalor’. Hirsch comments that Galbraith’s critique is apt but misses a key point in arguing that the problem is one of incorrect priorities, of insufficient attention and money directed to the public domain. [amazon_link id=”0415119588″ target=”_blank” ]Social Limits to Growth [/amazon_link]argues that there is a fundamental adding up problem in capitalist societies: the market excels at satisfying individual wants, but not all individuals can get what they want – by definition whenever you accept positional goods to be significant. Whether resources are allocated through the market or by the government is irrelevant. Moreover, attempting to satisfy all individuals’ wants through public spending sets taxation and expenditure on an ever-upward trajectory.

[amazon_image id=”014013610X” link=”true” target=”_blank” size=”medium” ]The Affluent Society (Penguin economics)[/amazon_image]

Democracy, the El Farol bar and Captain Kirk

The El Farol problem, named by Brian Arthur (pdf), concerns a popular bar in Santa Fe. It’s so popular it gets very crowded, to such a degree that people then start to stay away. Then, when the crowds thin out, people start going back. The bar oscillates between being over-crowded and being too empty.

David Runciman’s superb book [amazon_link id=”0691148686″ target=”_blank” ]The Confidence Trap: A History of Democracy in Crisis from World War I to the Present[/amazon_link] reminded me of the El Farol model. He uses the examples of several turning points in democracy – World War I, the Depression, post-war reconstruction, the Cold War, the mid-70s economic crisis, the collapse of communism in 1989 and the global financial crisis – to argue that democracies exist in a (so far) stable instability. Democracies are inherently flexible, adaptable (echoes of Tim Harford’s [amazon_link id=”0349121516″ target=”_blank” ]Adapt[/amazon_link]), and so are better than autocracies at coping with crisis; but having coped with so many crises, don’t bother to adapt because of a high degree of confidence that everything will turn out ok in the end.

The book is full of wonderful variations on this central paradox. “Democracy is more durable than other systems of government not because it succeeds when it has to, but because it can afford to fail when it has to. It is better at failure than its rivals.” “Autocrats are often highly sensitive to public opinion, which is why they go to such lengths to control it.” Echoes in this next one of Dominic Sandbrook’s entertaining TV history of the Cold War, Strange Days: “To take their minds of nuclear Armageddon they [Western citizens] watcheyd TV and went shopping. And that’s how the Cold War was won: by people whose attention was elsewhere.” “Democracy is only doomed if people come to believe it is doomed; otherwise, it can survive anything.” On President Obama: “He symbolized change, which meant he did not need to specify it.”

The continuing ability to cope is messy and unattractive, if so far effective. There is a pervasive and constant disappointment with actually existing democracies. Still, muddling through is a better outcome than the alternatives.

[amazon_image id=”0691148686″ link=”true” target=”_blank” size=”medium” ]The Confidence Trap: A History of Democracy in Crisis from World War I to the Present[/amazon_image]

In the end, democracy involves a kind of collective game of chicken. If things get really bad, we’ll do something about it. Until then, no need to change because it will turn out ok in the end. As Runciman points out, this kind of game is fine – until it isn’t, when it turns out to be catastrophic.

Is this “typical democratic recklessness: short term gain at the expense of long-term stability” sustainable? The book doesn’t answer the question definitively. Yet the historic, existential challenges of war, political rivalry, environmental collapse, and financial over-extension remain. Runciman is not optimistic:

“We should not assume that democracies will always be able to improvise a solution to whatever challenges they face. …. The assumption that it is bound to happen increases the likelihood it will stop happening. It breeds the sort of complacency that allows dangerous crises to build up, invites decisive action to be deferred and encourages brinksmanship. This is tempting fate.”

There is no ultimate crisis, but the crises keep on coming, and there is no reason to expect democratic adaptability to remain successful indefinitely, he writes. He even suggests that the current crisis may be decisive, marking as it does the unwinding of an extended political/economic experiment – call it ‘neoliberalism’ – since the mid-1970s. The world’s democracies are bound together by complicated financial, technological, and institutional arrangements. Failure in one place can have large repercussions elsewhere. (This systemic nature of modern risks is something Ian Goldin is writing about.) The short-term restlessness of democracy is both its biggest strength and greatest weakness. “I do not know what will happen,” Runciman concludes.

I don’t know either. Watching Strange Days has reminded me of the nightmares I used to have as a child about nuclear winter and being the only person left alive. The late 70s, one of the crisis episodes in [amazon_link id=”0691148686″ target=”_blank” ]The Confidence Trap[/amazon_link], was a terrible period. The emotional impact of the current economic/political/environmental challenges is not as intense for me – I wonder what it has done to today’s teenagers? – but I don’t have great optimism about what our world will look like in another 10 or 20 years. That’s why it’s so important to build the optimism, to create new institutions and insist on our societies living their stated values, and in fact being the adaptability Runciman writes about.

That’s hard to do in an El Farol world. But another story the book reminded me about was the Kobayashi Maru scenario in Star Trek. Star Fleet cadets are placed in a war game with no possibility of victory – it is a test of character, not a test of ability. Captain Kirk is the only cadet ever to triumph; he re-codes the scenario (for which Spock later criticises him). That’s what we have to do.

I’ve not yet read other reviews of David Runciman’s book, but there have been plenty. Here are: The Guardian; The Economist; the FT;  and an extract in Foreign Policy.

Economics and public policy

I was mulling over the exchange at the Festival of Economics described in yesterday’s post, between those saying economics had little to contribute to the debate about public services because it is simplistic and reductionist, and the economists pointing out that economics as applied to this area actually addresses the critics’ claims. Needless to say, I’m on the side of the economists, and indeed wrote a whole book ([amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]) pointing out all the richness and sophistication of modern applied economics.

To check my views, I looked through Lee Friedman’s [amazon_link id=”0691089345″ target=”_blank” ]The Microeconomics of Public Policy Analysis[/amazon_link], a recent textbook in this field. The issue of equity is brought in by Chapter 3 (after an introductory/overview chapter and one on cost-benefit principles). Distributional issues feature strongly throughout. Profit versus non-profit behaviour is discussed at length. The interaction of markets and policy is thoroughly covered and a whole section discusses the pervasive problems of asymmetric information and externalities. The book is full of examples (all American) illustrating the unavoidable trade-offs in policy decisions.

[amazon_image id=”0691089345″ link=”true” target=”_blank” size=”medium” ]The Microeconomics of Public Policy Analysis[/amazon_image]

Yet of course the critics have a point. Because although economists are doing all this subtle work, the policy debate still draws on the caricature version of the economic debate, the ‘markets good, government bad’ or vice versa. This is partly the usual problem of the people in charge having learned their economics a long time ago. It’s also clear that economists should redouble their efforts to communicate their work. But I wonder if there are other barriers to the policy world embracing the subtler and evidence-based work that is taking place now in economic research into public services?