Discussions on policy analysis and the justification of government intervention and policy action often assume the existence of a benign government with the main intent of maximizing social welfare. Based on this premise, the dominant positivist realm of policy analysis focuses on the principles of welfare economics through the identification of policy actions that would result in Pareto or near Pareto improvements. In this sense, government intervention through regulation or redistribution aims to correct widely accepted market failures such as public goods, natural monopolies, externalities, imperfect information and the tragedy of the commons.
Increasingly during the past three decades, this somewhat overly simplistic analytical framework has been extensively criticized by later analytical paradigms such as post-positivist approaches.[1] For the post-positivists, the welfare economics framework, although elegant through its simplicity, offers a narrow analytical viewpoint that tends to neglect the harsh realities of the policy arena and sometimes, even distort and misguide policy evaluation.
In practice, there are many concerns pertaining the decision-making process. Stiglitz, reveals some of these practical issues by asking a very simple question: “Why is it so difficult to implement even Pareto improvements?”(1998: 4). He offers four hypotheses that showcase the limitations of government intervention even when Pareto improvements seem obvious:
1. The inability of government to make commitments. This limitation stems directly from the nature of government as the prime and sole enforcer of contracts (Stiglitz, 1998). Given the fact that the government maintains the monopoly of contract enforcing, there is no possibility to control whether the government will maintain its promises.
2. Coalition Formation and Bargaining. Through the dynamic process of decision-making and the bargaining game associated with policy, the equilibrium and power of different parties can shift. In simple words, while a Pareto improvement may seem obvious at a specific time it might not appear so later on, once balance between policy stakeholders is reconfigured.
3. Destructive Competition. Here Stiglitz refers to the nature of the political game, which far from perfect implies destructive competition through its win/lose duality.
4. Uncertainty about the consequences of change. This is once again a result of the zero sum nature of the political game. Similarly, this uncertainty is accentuated through the non-transparency and secrecy during the decision making process.
Perhaps what renders Stiglitz’s argument intriguing is that, contrary to a plethora of scholars, he does not critique the limitations of the positivist approach but more so the capacity to promote welfare economic maxims in the particular environment of US policy making. In that sense, the issue is not that positivist analysis offers a narrow framework for decision-making; on the contrary, in Stiglitz’s view what appears constricted is the government policy environment that fails, through its non-transparency and adversarial nature, to truly encompass positivist arguments. Therefore, Stiglitz arrives on a similar conclusion with other post-positivist scholars, but he does so by taking a very different avenue. His analysis equally bears further repercussions in terms of how policy analysis is perceived.
For instance, if we take a classic market failure example, such as public goods, and if the assumption that government has important limitations in seeking social welfare maximization, then how can we assure that public goods and social services can be more successfully provided - especially in governance environments where the policy process is also restricted by limited capacity, corruption etc? Perhaps Ostrom’s work on collective action can provide an alternative. Ostrom (2000) argues that a key to effective governance arrangements lies in the relationships and trust among actors who have a stake in the governance of a resource (Ostrom, 2000). She notes that face-to-face communication in a public good game—as well as in other types of social dilemmas—produces substantial increases in cooperation that are sustained across all periods (Ostrom, 2000). Therefore, if we follow Ostrom’s logic, in that most contractual relationships – whether for public or private goods – have an element of assuring mutual trust, the question that becomes imminent is are there other types of institutions that can reinforce cooperation and trust better than the market or the government can?
Certainly, giving a definitive answer to the question above would be extremely difficult, as it would depend on specific circumstances. But maybe Ostrom’s proposition could eventually address some of the adversarial issues that Stiglitz reveals. Under this view, the institutional environment that policy discussions evolve in, appear as important as the actual policy debate.
[1] As Howlett et al (2009: 26) note, “drawing a blueprint of the post-positivist approach would be an anathema for its proponents.” In that sense, the post-positivist approach cannot be defined through a distinct set of characteristics but more so as reaction to the positivist approach.
Achilles
Increasingly during the past three decades, this somewhat overly simplistic analytical framework has been extensively criticized by later analytical paradigms such as post-positivist approaches.[1] For the post-positivists, the welfare economics framework, although elegant through its simplicity, offers a narrow analytical viewpoint that tends to neglect the harsh realities of the policy arena and sometimes, even distort and misguide policy evaluation.
In practice, there are many concerns pertaining the decision-making process. Stiglitz, reveals some of these practical issues by asking a very simple question: “Why is it so difficult to implement even Pareto improvements?”(1998: 4). He offers four hypotheses that showcase the limitations of government intervention even when Pareto improvements seem obvious:
1. The inability of government to make commitments. This limitation stems directly from the nature of government as the prime and sole enforcer of contracts (Stiglitz, 1998). Given the fact that the government maintains the monopoly of contract enforcing, there is no possibility to control whether the government will maintain its promises.
2. Coalition Formation and Bargaining. Through the dynamic process of decision-making and the bargaining game associated with policy, the equilibrium and power of different parties can shift. In simple words, while a Pareto improvement may seem obvious at a specific time it might not appear so later on, once balance between policy stakeholders is reconfigured.
3. Destructive Competition. Here Stiglitz refers to the nature of the political game, which far from perfect implies destructive competition through its win/lose duality.
4. Uncertainty about the consequences of change. This is once again a result of the zero sum nature of the political game. Similarly, this uncertainty is accentuated through the non-transparency and secrecy during the decision making process.
Perhaps what renders Stiglitz’s argument intriguing is that, contrary to a plethora of scholars, he does not critique the limitations of the positivist approach but more so the capacity to promote welfare economic maxims in the particular environment of US policy making. In that sense, the issue is not that positivist analysis offers a narrow framework for decision-making; on the contrary, in Stiglitz’s view what appears constricted is the government policy environment that fails, through its non-transparency and adversarial nature, to truly encompass positivist arguments. Therefore, Stiglitz arrives on a similar conclusion with other post-positivist scholars, but he does so by taking a very different avenue. His analysis equally bears further repercussions in terms of how policy analysis is perceived.
For instance, if we take a classic market failure example, such as public goods, and if the assumption that government has important limitations in seeking social welfare maximization, then how can we assure that public goods and social services can be more successfully provided - especially in governance environments where the policy process is also restricted by limited capacity, corruption etc? Perhaps Ostrom’s work on collective action can provide an alternative. Ostrom (2000) argues that a key to effective governance arrangements lies in the relationships and trust among actors who have a stake in the governance of a resource (Ostrom, 2000). She notes that face-to-face communication in a public good game—as well as in other types of social dilemmas—produces substantial increases in cooperation that are sustained across all periods (Ostrom, 2000). Therefore, if we follow Ostrom’s logic, in that most contractual relationships – whether for public or private goods – have an element of assuring mutual trust, the question that becomes imminent is are there other types of institutions that can reinforce cooperation and trust better than the market or the government can?
Certainly, giving a definitive answer to the question above would be extremely difficult, as it would depend on specific circumstances. But maybe Ostrom’s proposition could eventually address some of the adversarial issues that Stiglitz reveals. Under this view, the institutional environment that policy discussions evolve in, appear as important as the actual policy debate.
[1] As Howlett et al (2009: 26) note, “drawing a blueprint of the post-positivist approach would be an anathema for its proponents.” In that sense, the post-positivist approach cannot be defined through a distinct set of characteristics but more so as reaction to the positivist approach.
Achilles
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