Monday 22 December 2014

Management of policy matters now more than ever before

Published 24/06/2014 | 02:30

Minister for Finance Michael Noonan
Minister for Finance Michael Noonan

Michael Noonan has taught the normally technocratic economic community an important lesson. Economic policies must be politically managed. Where they are not well managed, disaster will strike as surely as the overly chubby hate three steep flights of stairs.

Knocking back IMF statements that Ireland would need to implement more than €2bn worth of cuts and tax increases in order to reach the troika-mandated deficit target of 3pc of national output, Noonan said: "There is a different set of skills needed if you are a politician running a government department to someone working for the IMF. It is not all cut and dried. I am a democrat and I have to bring the people with me."

It looks increasingly likely that, once it is clear the 3pc target will be met through growth and carryover effects from the year before, the €2bn in cuts will be jettisoned, and the Government will spin a €1.8bn adjustment as evidence of 'regaining sovereignty'.

The political management of policy matters, and the internal management of policy matters even more. Outside government departments and a few special interest groups, we tend to take that for granted. It is a bit sad, but we should take it as given that most commentators have no idea how difficult it is to get a policy 'over the line' internally.

The past is often a good guide for the future. The trend, most of the time, is your friend. In the execution of policy, however, it is not. Contrast the usual strum and drag in the run up to the Budget with the actual implementation of a new policy measure – like bringing on new inspectors to ensure all voluntary and private childcare facilities are inspected efficiently and transparently. With the usual Budget shenanigans, we already know what will happen, as past guide is a good indicator of future performance.

We'll have a few rather nasty policies floated – taking stuff off pensioners seems to come up annually – and the degree of push back will decide how seriously the Government should treat them for inclusion in the forthcoming Budget. It's a bit like the world's largest and most tiresome focus group. All the while the actual policy measures have been workshopped and costed by the Departments of Public Expenditure and Reform and, of course, Finance.

Now observe the rollout of what should be a simple expansion of the oversight of an important sector by the Government, childcare. The system simply was not able to hire and train new entrants, and instead became focused on re-writing and reconciling old reports to be put on the web.

Despite the obvious need for action, and despite the obvious route to implementing the solution, the policy implementation failed. Amazingly, fewer inspections of childcare facilities took place after RTE's 'Breach of Trust' programme which aired in May 2013 than before it. Only one new inspector has been appointed since the programme, although the number of complaints to the HSE about childcare facilities went from 243 in 2012 to 359 in 2013.

This is just one example of a simple policy addressing an obvious need which failed to be implemented in over-regulated but under-inspected childcare facilities.

Another recent instant classic in economics has been Charles Manski's 'Public Policy in an Uncertain World', which argues that the current practice of policy analysis hides uncertainty, and as researchers use untenable assumptions to make exact predictions of policy outcomes which end up costing more and yielding less, while increasing voter cynicism about just what can be achieved when a minister stands up and announces something is going to happen.

Another aspect of this problem of making policy in an uncertain world is the type of evidence you rely on when making your decision as a minister. Say you want to cut income taxes in the forthcoming Budget. Why do you want this? To 'give back' to hard-pressed families, and get some more spending, but also because some quite good research shows when you tax income above about 45pc, you lose a lot in productivity because people won't work more.

All of this research needs to assume the population's distribution of preferences for income and leisure. Standard theory says that people want more income and more leisure, but we don't generally know people's preferences. So we make it up and assume everyone is the same.

We live in an uncertain and messy world where decisions are taken at speed and with little information, often for reasons you don't see as an external observer.

That said, the policy process in Ireland is so far beneath optimal that really the only scandal would be a government minister standing up and actually saying 'we don't know, it's our best guess'.

Stephen Kinsella

Irish Independent

Promoted articles

Read More

Promoted articles

Don't Miss

Editor's Choice