Studying the Policy Process l1

8/11/2019 Studying the Policy Process l1

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GRA 5916

The State and the Market: Core Concepts inPolitical Economy

Introduction: Studying the policy process

Professor Nick Sitter

Department of Accounting, Auditing and Law

1. Democracy and markets

2. Market regulation and thepolicy process

3. Public Governance


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1. Democracy and Markets: Political

Economy and Public Policy Political Economy:

Classical PE : How do political institutions affect wealth and freedom?

Marx: How do macro-economic structures (class) shape politics?

Public Choice: How do micro-economic structures shape politics?

Gumund Hernes: What do people do when they cannot get what they want?

=> Lecture 1. Democracies and markets: support or conflict?

The development of democracy, the rule of law and markets

Why are democracies wealthier than authoritarian regimes?

=> Lecture 2. Market regulation: Why Public Policy?

The rationale for regulation and public services

Public policy for professionalspolicy analysis: defining the problem => assessment of

alternatives => choice => implementation => evaluation

=> Lecture 3. Public Governance: How improve Public Policy? What is good governance? Law, equality and efficiency

Three waves of modernisation


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What is liberal democracy?

Some historical examples The Greek city states

Norse and English assemblies

The early modern democratic constitutions: USA 1787, France 1791,Norway 1814

Democracy in plural societies: Switzerland, Austria-Hungary, the EU

Locke (1960)social contract, limited power, representation

Montesquieu (1748)the rule of law, balance of power

Rousseau (1748)process, participation, the general will

Mill (1859)Liberal dem: rule of law + representative democracy

Dahl (1956, 1961)majority rule vs minority protection; Polyarchy

Schumpeter (1950)choice between competing elites

Przeworski (2000)free elections, multiple parties, govtturnover

=> constitutionally limited government, representative democracy


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Democracies: Variations in institutions and powerINSTITUTIONS USMODEL WESTMINSTER

MODEL

WEST EUROPEAN

MODEL

EUROPEAN UNION

MODEL

Balance of Power Separation of power,

checks and balances

Parliamentary

Sovereignty

Formal and informal

separation of power

Formal separation of

power, subsidiarityTerritorial power Federal Centralised Regional government Multi-level

governance

Constitution Written, minority

veto on amendment

Unwritten, easily

amended

Written, minority

veto on amendment

Treaties, unanimous

revisions only

Executive Power Presidential govt

concentration of

power

One-party govt

concentration of

power

Coalition and

minority govt;

power-sharing

Commission +

European Council

Legislative

Structure

Balanced

bicameralism

Asymmetric

bicameralism

Balanced

bicameralism

Council of Ministers

+ EuropeanParliament

Electoral System Mainly plurality

system

Plurality system:

single seats

Manufactured

majorities

Proportional or mixed

electoral systems

PR for EP; CM

represents the states

Dimensions of

Party Competition

Limited: socio-

economic and

cultural-ethnic

Uni-dimensional:

socio-economic

Multi-dimensional:

socio-economic,

regional, cultural

Multi-national: and

multi-dimensional; +

EU vs states?Party System Two-party Two-party + liberals

+ nats.

Multi-party Nascent multi-

national system

Democratic

principles

State-level

referendums

No (very limited

use of) referendums

Referendums

common

Member State-level

referendums

Arend Lijphart,Patterns of democracy: government forms and performance in thirty-

six countries(Yale University Press, 2012)


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Democracy, Markets and the Rule of Law

The pluralist roots of democracy and markets in Europe Common historical conditions: dispersion (decentralisation) of power

Separation of political, religious and financial power in the Middle Ages

Agrarian and bourgeoisie bases of democracy, fascism and communism

Demands for rule of law and limits to executive power

The Rule of Law Common basis for advanced markets and individual rights

Markets are created by governments, ordered by institutions and sustainedby regulations (Wilks 1996: 538)

The institutionalisation of distributional conflicts (Przeworski, 1991)

Manchur Olsons Russian question: are no-nonsense dictatorshipsthat can impose economic change the best strategy?

NO because democratic regimes have the incentives to extract less wealth. Theyprovide the long term stability required for prosperity: Tthe conditions that are neededto have the individual rights needed for economic development are exactly the samethat are needed to have a lastingdemocracy (1993:572)

S. Wilks, Regulatory Compliance and Capitalist Diversity in Europe,Journal of European Public Policy, 3:4 (1996)

A. Przeworski,Democracy and the Market (1991)

M. Olson, Dictatorship, Democracy, and Development, American Political Science Review, 87:3 (1993)


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Polyarchy (democracy) endures in market capitalist economies Historical record

The basic feature of the capitalist market are favourable fordemocracy

Market => growth => property-owning middle class => democracy

But Democracy & Market locked in persistent conflict UK ca 1840: market could not work with democratisation

Market raises moral and political questions b/c distributional consequences

C20 left vs right politics: political or economic redistribution of resources

But what are the consequences of economic inequality? Economic inequality => uneven distribution of resources => political inequality and

concentration of wealth => power to shape markets? Self-reinforcing trend?

Does economic inequality cause political instability and/or weaken democracy?

Does redistribution from poor to rich cause or inhibit economic growth?

What kind of institutions make markets work better?

Robert Dahl On Democracy(1998)

Joseph E. Stiglitz, The Price of Inequality(2012)

Democracy and Markets: Mutual Support or Conflict?


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2. Market Regulation and the Policy

Process

Thinking theoretically about public goods

three questions for political economists

Normative explanations of regulationwhyprov ide publ ic goods?

Positive explanations of regulationwho wants

prov is ion of publ ic goods?

Institutional explanationshow did prov is ion of

publ ic goods com e about?


8/18

Public and Private Goods

Is consumption rival?

Is it excludable?

Strategic goods? What is the difference between shoes and

molecules?

Excludable Non-excludable

Rival Private Common pool

Non-rival Toll Public


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Normative Explanations of Regulation

Regulation in the Public Interest

Safety and quality control Information, standards, product

safety, responsibility and liability

Social goals and redistribution Equitable distribution of costs,

cross-subsidies

Guaranteed service provision Security of supply, obligation to

supply

Regulation to Correct Market

Failures

Negative externalities Costs to third parties

Inadequate provision ofpublic goods

free rider (collective action)problems

Natural monopolies Distortion of allocation of

resources

Abuse of dominant position Anti-competitive practices


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Positive Explanations of Regulation

The Supplyof Regulation

Electoral politics log rolling, pork-barrel politics,

camping finance

Bureaucratic politics over-supply, budget maximisation,

bureau shaping

Agency capture identification of regulator with

industry interest

The Demandfor Regulation

Industry demand Incumbents demand protection

New entrants demand access

Interest group demand Industrial consumers

Consumer protection agencies

Political demand Party politics, interests, ideology

Voters


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Institutional Explanations of Regulation

The Design of Regulation

Negotiated solutions, rule of the game balance of power between actors?

the role of policy entrepreneurs?

Appropriateness or historical fit compatibility with existing institutions?

or ideas (learning) and legitimacy?

Principals delegate power to agents The advantages of arms-length administration?

How credible are the agents?

How do the principals retain control ?

Lock-ins (QWERTY)and de-politicisation

is change irreversible, are rules fixed?

The Evolution of Regulation

Pre-capitalist roots - regulation infeudal Europe

Private: guilds, self-regulation

State: monopolies, licensed corporations

The rise of the regulatory (industrial)state

Regulation as part of state building in C19

Anti-trust policy in the USA, New Deal

The European welfare state, WW I + II

The challenges to the interventionist

state The crises of the welfare state Liberalisation, deregulation and re-regulation

Globalisation


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The Messy Reality: The Policy Cycle and Process

What is policy? (Hill, The public Policy Process, p.14-17) A course of action, or non-action A series of decisions

It changes over time

It evolves from existing policy

It includes termination and succession

It includes action without decisions


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3. Public Governance

I. Max Weber and the rational state

II. New Public Management and market basedsolutions

III. New Governance and government beyondformal institutions

Are all public goods and services equal?

What concern to prioritise?

Equity?

Quality?

Flexibility and adaptation?

How to justify public goods

provision?

Choice Cost/benefit

Individualchoice paternalism

Societymajority rule common good


14/18

Weber and rational governance

The Weberian model of bureaucracy

Rational, goal-oriented bureaucracy (1922) Politically neutral

Predictable and equal treatment

Written procedures

Hierarchically organised Specialised and functional division of labour

Fixed pay, recruitment and promotion procedures

Authority linked to positions

Motivation and control (Anthony Downs, 1956)

Motivation linked to life long career, independence,professionalism, civil service ethos or mixed, several types?

Control problems: size, resistance and counter-control

Max Weber

1864 - 1920

M. Weber, Rationallegal authority and bureaucracy, from Wirtschaft und Gesellschaft
http://images.google.no/imgres?imgurl=http://www.weltchronik.de/bio/cethegus/w/weberm.jpg&imgrefurl=http://www.weltchronik.de/bio/cethegus/w/weberm.html&h=364&w=220&sz=24&hl=en&start=4&tbnid=OkcrzbQGamXM6M:&tbnh=121&tbnw=73&prev=/images?q=max+weber&gbv=2&svnum=10&hl=en


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Critiques of Weber

Supply problems Do bureaucrats lobby for bigger budgets? If so, do budgets

always grow?

Information asymmetry: do the principals know as much as the

agents?

Control problems: can principals control the agents?

Demand problems The logic of collective action: all interest groups demand private

goods => budgets grow

The welfare coalition => a majority for more redistribution? Concentrated benefits and dispersed costs => budget growth?


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The turn toward markets

William Niskanen and public choice

analysis Bureaucrats self-interest

Incentives to maximise budgets

Asymmetric information

Margaret Thatcher and the new right Interest groups demand, bureaucrats supply

Information and control problems

New solutions: efficiency and markets Economy, Efficiency and Effectiveness

P. Dunleavy,Democracy, Bureaucracy and Public Choice, Harvester Wheatsheaf 1991, chapter 6
http://images.google.no/imgres?imgurl=http://www.poster.net/thatcher-margaret/thatcher-margaret-photo-margaret-thatcher-6230207.jpg&imgrefurl=http://www.postershop.com/Thatcher-Margaret/Thatcher-Margaret-Photo-Margaret-Thatcher-6230207.html&h=500&w=400&sz=49&hl=en&start=20&tbnid=w4eGpcke6Mdn-M:&tbnh=130&tbnw=104&prev=/images?q=thatcher&start=18&gbv=2&ndsp=18&svnum=10&hl=en&sa=N


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A question of state capacity

How increase statecapacity?

A smaller state?

A more effective state?

International cooperation?

Efficiency

Scope

F. Fukuyama, State Building, Cornell University Press, 2004, chapter 1


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Modernising public services

New Public Management disaggregation, competition, incentives

=> economy, efficiency, effectiveness

Governance steering beyond government institutions

problem-oriented, joined-up thinking

blurring of public and private

power dependence, coordination, bargaining

multi-level, non-hierarchical, networks flexibility, innovation

K. A. Eliassen & N. Sitter, Understanding Public Management, Sage 2008, chapter 5

Studying the Policy Process l1

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