This is the second article of the series on world federalism and the efficiency of suprnational governance. In this and the two subsequent articles I will analyse the issue of decision making -as opposed to policy implementation- and to what extent supranational decision making might lead to better policies. The question is therefore under what conditions will supranational institutions make more efficient decisions than national institutions?

A first possibility -that is analysed in this post- is that supranational institutions might have superior expertise to national institutions. Supranational institutions might have better civil servants, more information, or a more efficient understanding of the national context.

In this case, the role of supranational institutions is epistemic; they help to reach the correct solution by pooling resources to process and treat information with national governments. Examples of these situations are the development programs of the World Bank or the IMF where programs are designed to increase the efficiency of national policy making.

The scope for additional efficiency typically depends on two opposite forces. Usually, supranational institutions have better technical means, more efficient bureaucracies and can formulate better recommendations. On the other hand, national bureaucracies usually have a better understanding of the national context; they have increased information about the feasibility of reform, the real problems, etc…

A variant of this argument lies in the relative autism –the relative lack of capacity to process information and to respond to the environment- of supranational and national institutions. Behavioural approaches teach us that the capacity to identify the proper answer to a problem in policy making for an organization depends on

a) The institutional architecture (degree of centralization and decentralization and the system of checks and balances that agreggates information)

b) The individuals that compose the organization (their degree of expertise, qualification, etc…)

c) The environment that they face.

Decision making will be more or less efficient depending on these three factors which determinate the capacity of the institution (in this case the bureaucracy) to generate proper response.

Firstly, the environment that supranational and national bureaucracies face is typically very different. National bureaucracies are in daily contact with the local context, the national political culture, and the local cognitive structure, while supranational bureaucracies usually are isolated in their ivory towers and exempted from such pressure. The relative advantage of national bureaucracies comes from this informational superiority; they have not only explicit information (data) but also implicit cognitive knowledge about the national context that, usually, supranational bureaucracies lack. In principle, to have more information is better as long as it increases the signals (useful information that reveals the true state of the world), however, information is typically mixed with “noise” (useless and misleading information). While it is certain that national bureaucracies enjoy a higher degree of information, what is not sure is that they have a better ratio of signals/noise which is the point that determinates the final outcome.

A sequel of this feature is linked to two others characters of national institutions with respect to national institutions. Usually, national institutions are less objective than supranational bureaucracies. Behavioural political economy teaches us that policy makers tend to identify what is advantageous for them (individually) with what -they believe- is the social optimum. When this happens in an organizational context, the sum of small mistakes in transmitting and processing information may lead to a completely different picture of the real situation.

The general conclusion is that, while on the one hand supranational bureaucracies, composed by intellectual elites and recognized technocrats usually have a technically enhanced and more objective knowledge of which is the best decision, they usually lack all the relevant information, are more vulnerable to believe in one-size-fits-all policies, to believe in naive country-saving and to ignore the particular context. On the other hand national bureaucracies usually have a more concrete knowledge of the situation and can formulate better recommendation, but lack impartiality, are vulnerable to “cognitive traps” and usually have worse technical means. We face therefore a tradeoff between adapted knowledge and impartiality.

It this feasible? In fact, it is. The stories told by William Easterly and Joseph Stiglitz of how international institutions failed to promote development in third world countries is a good example of the vulnerability of supranational bureaucracies to the lack of information and beliefs in one-size-fits-all remedies. In the European context, the way of compatibilizing these two problems is the principle of subsidiarity and framework harmonization (call it recommendations, directives, framework decisions or open method of coordination) where the principles are set at the EU level but governments are allowed to adapt their particular policies to their national contexts. In the case of the Open Method of coordination and more particularly of the Eurogroup, the object of intergovernmental bargaining is deliberative; sharing information and national experiences and identify the best way of carrying structural reform about.

A sensible institutional architecture must therefore balance both forces or, even better, try to complement them. There is, as usual, a tradeoff between centralization and decentralization.