ECONOMICS AND POLICY – WORLDS APART?

Issues Paper No. 14

ISSN. 1174 – 412X

Published by

Centre for Public Policy Evaluation

College of Business, Massey University

Palmerston North

NEW ZEALAND

September 2003

TABLE OF CONTENTS

Page Nos

Introduction .............................................................................................................................. iii

Chapter One:       Muddling Through and Policy Analysis - David Colander ................................ 1

Chapter Two:      The Evaluation of Economic Policy - Robin Johnson ........................................ 17

Chapter Three:    Aggregation, Bias and Confusion – Distortions in Policy - Stuart Birks .............. 29

Chapter Four:      Policy Analysis and the Dermatologist’s Dilemma - David Webber ................... 41

Chapter Five:       The Role of Economics in Policy Formulation - Robin Johnson ........................ 53

Chapter Six:        Economics and Policy - Gary Hawke ............................................................... 55

Chapter Seven:    Going for Goals: Comments on the Role of Economist as Policy Advisor -

                           John Yeabsley ................................................................................................ 61

Chapter Eight:      Early Intervention in Policy Formulation - Stuart Birks ..................................... 67

About the Authors ..................................................................................................................... 73

List of Issues Papers................................................................................................................... 75

INTRODUCTION

This collection of papers arises from sessions at the New Zealand Association of Economists 2003 conference, held in Auckland on 25-27 June. The common theme was the nature of policymaking, with special emphasis on the role that economics may or may not be playing.

Similar concerns have been addressed in several of the Issues Papers listed at the end of this publication, and the 2002 NZAE conference produced papers which were adapted for IPS Policy Newsletter No. 70 (August 2002) on maintaining quality in policy advice.

Checks and balances are an important characteristic of democratic government as they prevent extreme and unrestrained action by any single branch of government. A small country with limited resources and only one house of parliament may have fewer safeguards than countries with larger populations. There is also less scope for public debate and independent advice. For example, on 28 August 2003 Attorney General Margaret Wilson, announcing additional lay appointments to the High Court to assist with matters under the Commerce Act, stated:

“There needs to be a reasonable pool of experts available because there are relatively few economists with the requisite qualifications and experience in New Zealand…For this reason they tend to be vulnerable to a conflict of interest if called upon to sit as a lay member.”

There will always be a tension between politicians and public servants. The Westminster approach is for public servants to assert political neutrality, with a duty to serve the government of the day while providing frank advice, even if it is unwelcome. The US system sees advisors as political appointments, with changes in government being accompanied by changes in personnel. New Zealand has followed the Westminster model, although possibly not entirely successfully, as several contributions in this publication indicate.

David Colander was a keynote speaker at the NZAE conference. Coming from the US, he brought an overseas perspective, while presenting a general problem. The concept of “muddling through” reflects the information gap between theory and policy. Policy issues may not match existing theory due to the latter’s simplified nature, and specific data requirements may not be met to permit consideration of theory in a particular context.

In Chapter 2, Robin Johnson looks at the historical traditions which have led to the public service taking its current form, identifying problems with current service delivery. He places particular emphasis on evaluation.

Stuart Birks focuses on the importance of perspective and structure of analysis in specifying issues and shaping views. Groupings for analysis are therefore highly significant politically. For example, given the interactions between men and women, any policies which affect one will have repercussions on the other. It is therefore not possible to properly analyse and recommend policies that ignore these interrelationships. This rules out most feminist work.

In Chapter 4, David Webber considers the increasingly important role of the ‘policy analyst”. He asks what skills are required and whether analysts can reasonably be expected to perform adequately.

Robin Johnson’s introduction to the conference panel session identifies problems of single sector departments and the need for co-ordination.

In Chapter 6, Gary Hawke considers the contribution that economics could make to policymaking, while identifying obstacles such as lack of understanding by others and the relevance of the issues that economists have chosen to consider. He also provides a useful historical perspective on economic thought.

John Yeabsley considers the distinctions between the ideal and the actual situation of economic policy advice and debate in contemporary New Zealand.

Stuart Birks closes the collection with a call for greater quality control at the early stages of policy debate.