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27 February 2013

Why do politicians make bad decisions?

When Dani Rodrik wrote an article about “rational-choice political economy” for Project Syndicate, not even he expected it to become the most read item on the site. But in discussing this less than obviously thrilling topic, he challenged the conventional wisdom on a much more compelling issue – the truly disastrous decisions taken by our political and economic elites over the last twenty years.

The conventional wisdom is that when those in power do something that is bad for the rest of us, it is because it is good for them:

  • “Why are so many industries closed off to real competition? Because politicians are in the pockets of the incumbents who reap the rents. Why do governments erect barriers to international trade? Because the beneficiaries of trade protection are concentrated and politically influential, while consumers are diffuse and disorganized. Why do political elites block reforms that would spur economic growth and development?  Because growth and development would undermine their hold on political power. Why are there financial crises? Because banks capture the policymaking process so that they can take excessive risks at the expense of the general public.”

Rodrik believes this is an over-simplistic explanation of what has gone wrong. But rather than viewing it as the product of media cynicism or public discontent, he blames his fellow academics – economists and political scientists in particular:

  • “Frustrated by the reality that much of our advice went unheeded (so many free-market solutions still waiting to be taken up!), we turned our analytical toolkit on the behavior of politicians and bureaucrats themselves. We began to examine political behavior using the same conceptual framework that we use for consumer and producer decisions in a market economy. Politicians became income-maximizing suppliers of policy favors; citizens became rent-seeking lobbies and special interests; and political systems became marketplaces in which votes and political influence are traded for economic benefits.
  • “Thus was born the field of rational-choice political economy… we could now explain why politicians did so many things that violated economic rationality. Indeed, there was no economic malfunction that the two words ‘vested interests’ could not account for.”

However, in constructing evermore elaborate theories as to how self-interest leads drives bad policy, the academics overlooked a more profound explanation – which is that politicians, bureaucrats, bankers and the rest keep on making the same mistakes because they don’t know what else to do – or, rather, they don’t even realise that something else could be done.  In other words, they are clueless, not crooked.

This isn’t because they are stupid, but because they are constrained by the intellectual and procedural decision-making systems that they are part of:

  • “In reality, our contemporary frameworks for political economy are replete with unstated assumptions about the system of ideas underlying the operation of political systems. Make those assumptions explicit, and the decisive role of vested interests evaporates. Policy design, political leadership, and human agency come back to life.”

To think out of the box, you first have to realise that there is a box. And this, in the end, is the tragedy of David Cameron's leadership of the Conservative Party and of the nation. By surrendering the origination and development of policy to the civil service, he had retreated into the furthest corner of the darkest box and closed the lid.


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