2 October 2010

Public Choice

Public Choice is a field of political economy developed by, among others, 1986 Economics Nobel laureate James Buchanan, Gordon Tullock, William Riker, William Niskanen and my main man, the late Mancur Olson, better known for The Rise and Decline of Nations (1982), which should be required reading for all British politicians, officials and economic or political commentators. 

Bearing in mind that Public Choice emerged at a time when the concept of a managed economy reigned supreme, its revolutionary argument was that rational self-interest, a basic principle of economics, applies no less to people in the public than it does to those in the private sphere.

Public Choice does not deny the existence of altruism; it regards it as a generally non-repeating statistical anomaly. Public Choice does not underestimate people's ability to convince themselves that what is in their interest also serves the common good; it simply provides an analytical framework to ignore it.  

Public Choice argues that representative democracy tends strongly to the tyranny of minorities because small groups with strong communities of interest are more effective suppliers of votes, campaign contributions and electoral support than larger groups whose interests are more diffuse.

A career civil service does not resolve this problem. Even leaving aside the “revolving door” between public sector actors and private companies, the greater effectiveness of tightly focused lobbying is the reason underlying the “capture” of regulatory agencies by those they are supposed to supervise.

Public Choice also argues that while some civil service departments may not be “fit for purpose” in terms of policy implementation, all use their cumulative expertise to dominate their inexpert political “masters” and to extract the largest budget possible from an ignorant legislature, because greater funding benefits the department’s members.

US congressional committees level the playing field by concentrating expertise and by the exercise of powers not available in other countries, including the confirmation of senior appointments, public hearings to grill officials on the performance of their duties, and budgetary discretion. 

The diametrically opposite philosophy of the explicitly anti-democratic European Commission, by increasing the certainty and durability of any favours it may grant to special interests, greatly increases the amount of money and effort that special interests will devote to obtaining those favours. 

Perhaps the key insight provided by the Public Choice school is that changing the individuals who hold public office will not produce major changes in policy. If it is accepted that all individuals are alike motivated more by self-interest than concern for the public good, then the importance of the institutional rules under which individuals may pursue those interests becomes manifest. 

Given that the self-interest of politicians is to transfer the cost of any programmes they may support to a future when they will have got theirs and gone, Public Choice argues that a formal constitutional limit on increases in spending, perhaps to no more than the private sector’s rate of growth, will be more effective in curbing government profligacy than any change in personnel. 

Given the tyranny of the minority problem, Public Choice also argues that the domain of collective choice should be tightly circumscribed, and collective choices should be made at the lowest possible level of political authority. This is the principle of "subsidiarity" to which the EU no longer even pays lip-service. 

Key texts
  • Buchanan, James and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962). http://www.econlib.org/library/Buchanan/buchCv3.html
  • Niskanen, William, Bureaucracy and Representative Government (1971)
  • Olson, Mancur, The Logic of Collective Action: Public Goods and the Theory of Groups (1965)
  • Riker, William, The Theory of Political Coalitions (1962)

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