Wednesday, 16 July 2003

Don't trust technocrats

You may not take me seriously but I beg you to take Mr Stiglitz seriously, this guy is smart and worth listening to.

Economic policies are not neutral, but ideological - and populist resistance to them is a rational response

by Joseph Stiglitz

BUY THIS BOOK TODAY Developing countries are often advised (or instructed) to undertake reforms recommended by "experts" who are called "technocrats" and are often backed by the IMF. Opposition to the reforms is usually dismissed as "populist". Countries that fail to undertake these reforms are dismissed as lacking political will, and soon suffer the consequences: higher interest rates when borrowing abroad.

But many of these "technocratic proposals" are more often based on ideology than economic science. Technocrats can, of course, make an electricity plant work better - to produce electricity at as low a price as possible. This is mostly a matter of engineering, not politics. Economic policies are usually not technocratic in this sense. They involve trade-offs: some may lead to higher inflation but lower unemployment; some help investors, others workers.

Economists call policies where no one can be made better off without making someone else worse off "Pareto efficient". If a single policy is better than all others for everyone, it is said to be Pareto dominant. If choices among policies were purely Paretian - ie if no one was made worse off by choosing one policy as against another - the choices involved would indeed be purely "technical".

But few policy choices are Paretian. Instead, some policies are better for some groups, but worse for others. In East Asia, for example, IMF bailouts helped international lenders, but hit workers and domestic firms hard. Different policies might have imposed more risk on lenders and less on workers and domestic firms. Deciding which policy to choose involves choices among values, not just technical questions about which policy is in some morally uncontroversial sense "better". These value choices are political choices, which cannot be left to technocrats.

Of course, there is scope for technical analysis even when political choices are at the crux of the decision. Technocrats can sometimes help avoid Pareto inferior policies, that is, policies that make everyone worse off. The problem is that many policies advanced by technocrats as if they were Pareto efficient are in fact flawed and make many people - sometimes entire countries - worse off.

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