Governance and Global Affairs Blog

The Sway of Economists in Public Policy

The Sway of Economists in Public Policy

How have economic experts come to wield so much influence in policy-making?

During the Brexit campaign, the British politician Michael Gove famously stated, “I think people in this country have had enough of experts […] saying that they know what is best and getting it consistently wrong.” The Trump administration’s indifference to the scientific consensus on climate change and promotion of “alternative facts” is only a more extreme expression of what has become a hallmark of the current wave of populist politics: a profound rejection of experts and facts. Indeed, the populist movements raging in the U.S. and Europe can be understood as a reaction against the power of experts in contemporary policy-making—whether the targets are the “technocrats in Brussels,” the scientists in the Environmental Protection Agency, or more vaguely, the élites who make policy decisions.

Some of the fiercest of these attacks have been directed at economists and their political sway. Since the 1980s, economists have had an outsize influence on the design of public policies in many Western countries, pushing neoliberal reforms that have increased the reliance on the market and often produced widening income gaps. The deregulation of financial markets and the privatization of parts of the public sector are only a few examples.

The power of economists in politics takes many forms—from the influence of international economic expert institutions, such as the International Monetary Fund or the World Bank to the role of advisory bodies, such as the Council of Economic Advisers in the U.S. But scholars also point to the symbolic power of economics: Having economic expertise is seen as a guarantee for sound and responsible policies. Every time Italy is in deep financial trouble and needs to reassure investors, who do they call on to lead the government? An economist.

Why have economists become so powerful? The most common explanation is that economists possess unique knowledge that governments need to manage the economy. With governments paying more and more attention to economic outcomes like growth, employment, and competitiveness, the need for economic expertise has increased. But this has not always been the case—not until the 1930s did economists begin to play a decisive role in advising government policy. Before then, economics had been an almost purely academic exercise, practiced by gentlemen in smoke-filled faculty clubs. Yet, the mass unemployment and social unrest of the Great Depression changed all that. For politicians, doing something about the economy became an urgent priority. And a new set of economic ideas, promoted by John Maynard Keynes and others, offered a strong case that actively managing the economy was necessary to ensure economic activity and full employment.

Keynes’s ideas brought economists into public administration for the first time; they became the technicians of the interventionist economic policies pursued in the decades after World War II. Yet, the position granted to economic experts within the state apparatus varied greatly between countries. This not only depended on the domestic supply of competent economists, it was also contingent on political factors. For instance, labor parties in power actively promoted the new political goals of active economic management and the rise of economists within the government bureaucracy. Yet, perhaps the most important factor was the character of the state itself. In Ireland, a generalist civil service system effectively kept economists out of the ministries. Elsewhere, an open civil service facilitated the influx of economically trained officials. In other words, economic expertise was strongly institutionalized in some states but weakly embedded in others.

By the 1970s and 80s, Keynesian economics was gradually replaced by neoclassical ideas. This implied a shift in attention from the demand side to the supply side of the economy, from the macro to the micro economy, and from equality to efficiency. These neoclassical economic ideas, like their Keynesian precursors, also spread to government bureaucracies around the world. But the new ideas did not catch on everywhere. The embrace of neoclassical thinking depended on the position acquired by Keynesian economists within the state in the post-war decades—though not in the way you might expect: Those bureaucracies where Keynesian economists had been central were more—not less—receptive to neoclassical economic thinking. Because these organizations had established close links to the academic discipline of economics through Keynes and his cohort, when the ideas within the discipline changed, these bureaucracies were quickly affected, for instance, through the hiring of young economists inspired by new economic beliefs.

New Zealand adopted some of the most radical more-market reforms in the world, swinging radically from interventionist economic policies of yore to a deregulatory neoclassical model, largely as a consequence of the outsize influence of economists in its Treasury. Ireland, on the other hand, pursued an entirely different set of policies—in no small part because of the absence of economic experts in the Irish state bureaucracy, an absence precipitated in part by the populist character of Irish party politics. The electoral system of Ireland has fostered a constituency-based politics, not unlike what we find in the U.S.. in which politicians often prioritize catering to the interests of their constituencies instead of implementing a coherent set of economic policies.

 So while economists in some countries have been the architects of major reforms, they have played a marginal policy role in others. In fact, the varying involvement of economists in policy-making has had a significant impact on the content of reforms, leading some countries to adopt far more market-oriented policies than others. The varying levels of power economists wield in contemporary policy-making is thus the result of an ongoing chain of intellectual, political, and administrative developments that have played out differently in different contexts. The current populist revolt against the rule of the experts, then, is simply the latest in a long series of discussions about the proper place of academic knowledge in politics and government. Whether it will make a dent in the power of economists, however, remains to be seen.

This piece originally appeared on the Stanford University Press blog

The book presentation is scheduled for July 3rd 16:00-17:00 at the Wijnhaven building of the Faculty of Governance and Global Affairs, The Hague.
 

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