There is a ongoing debate (via CH) between Richard Thaler and Glenn Whitman over the issue that Thaler&Sunstein have called “Libertarian paternalism”. To simplify, behavioural economics and more generally psychology shows that individual make mistakes and choices that are not coherent. That is, people are moderately stupid, say irrational. This does not mean that their ends are irrational, but just that their choices are not rational given their ends. The Thaler&Sunstein program is aimed at reducing the cognitives biases and improve decision making. If people make less mistake, this will bring improved welfare. Thus the name: it is libertarian since it aims at accepting the choices made by individual, but it is parternalistic since it tries to help people to perform these choices in the best way.
Since Paul Samuelson died recently there has been much talk about how he shaped modern economics and, his influence on most of the branches. As far as I have been able to read, the emphasis is usually put on mathematics and how he helped to make economics looking more like other hard sciences with its complex formal apparatus. My opinion is a bit different; I think Samuelson’s main contribution was to create a method of which mathematics was just one component and, maybe more importantly, he solved one of the most important methodological problems of our beloved dismal science: he created the theory of revealed preference. In this article I will try to sketch in a nontechnical way why it is so important and what are its consequences.
Is there an economic rationale for subsidizing girls wearing mini-skirts? By this I do not mean whether we should subsidize or not, but to what extent doing it would be welfare improving. As a dismal scientist, I suggest that there could be- and that in any case the thought experiment is challenging.
The explanation is as follows. Assume that women make their dressing decisions caring about whether they like or not the way they look like. On the other hand, men are not indifferent between different alternatives; they actually prefer mini-skirts since they are nicer to watch. Under these conditions, we have what we call “an externality”; a situation when the decision of one agent affects another agent- we might call it a “visual externality”- the the number of girls wearing mini-skirts will typically be suboptimal (insufficient) from a social point of view- in the very same way as the factory will over-pollute the river if it does not support its cost.
To see what I mean, think about it in the following terms. Imaging that we have a house which can be warmed. Girls actually would like to wear mini-skirts, but only if the house is warmed; the number of girls wearing mini-skirts increases with warming. However, warming the room is not free: someone should pay for it. Typically, girls will balance their preference for wearing miniskirts and the cost of warming the house. Now, ask youself whether the level of warming will be higher when we allow men or women to contribute: that’s the externality. The maximal amount that men would be willing to pay for warming is a good aproximation.
This problem was recognized a century ago by the economist A.C. Pigou and proposed that it could be solved via taxes and subsidies. The issue would be: extract taxes from miniskirt-enjoying-men and transfer that amount of money to women who accept to wear miniskirts. If you know the amount that men would be willing to pay, you can properly adjust it. There is, therefore, a prima facie case for subsidizing miniskirts if our assumptions are correct.
You might think that all this economic stuff is just crazy, but let me follow the economic logic a little bit further. A liberal economist would counter-argue in a rather automatic way that, if there is a problem, the market could solve it. Couldn’t it? Hypotetically, it could. The market for miniskirts has a demand (men watching miniskirts) and a supply (women wearing miniskirts) why don’t we see deals between men and women to wear miniskirts as we do, say, in the tomato market? The common sense answer would be “well, because wearing miniskirts is not a marketable activity, unless you do it professionally” The economist’s answer is a bit more sophisticated, but actually says more or less the same thing.
The liberal economist is appealing, maybe unconsciously, to what we call the “Coase theorem”. The Coase theorem says that, when transaction cost are zero and property rights are well distributed, then market exchange and bargaining will lead to a efficient outcome. What does this actually mean? The issue is, if making a deal has no cost, then you will reach a good deal. The Coase theorem is a mathematical truth which means that it holds whenever its assumptions are fulfilled. So, coming back to the miniskirts case, if the commonsense view is correct, some of its assumptions should not hold.
In fact, they don’t, and that is the main point of this post. The commonsense view says that nobody would accept, either paying or being paid for wearing miniskirts; that doesn’t mean they do not value it, it just means that none would accept to consider it an object of trade. This phenomena is called by behavioural economists “procedural utility” which means that people do not only care about about outcomes, but also about how outcomes are reached. It might happen that men or women just find abhorrent to pay or being paid for that stuff (it would be a kind of “ethical preference” where people care about what is right or wrong, not only about what is convenient) or maybe they are quite tolerant about dignity but there is some form of social sanction for accepting such a deal (there would be a “social norm” which forbids it). This is the very same issue as when people are reluctant to sell their organs for ethical reasons.
Whatever the reason- ethical preferences or social norms- this constitutes a market failure in the sense that the spontaneous order solution leads to an outcome that is not the one that everyone would have desired if deciding collectively and rationally. The point is therefore that social norms and ethical preferences can be a source of transaction costs- impeding mutually beneficial trade and the Coase theorem to hold- and therefore cause market failures.
This is, however, not all the story. There are two things I’d like to point out. The spontaneous order solution could be less inefficient than one could think and men could be willing to “pay” for it, so the number of girls wearing miniskirts will be close to the optimal level. How do men pay? Typically, not with money- due to the ethical preferences and social norms stuff- instead, with “attention”, “gifts” or other ways. Girls actually know that dressing themselves in a sexy way will increase their chances to be succesful among boys,and will balance this chances of succes againt their “dislike” of wearing a miniskirt. We see therefore that the issue “tends” to solve itself- boys reward miniskirts- but only in an indirect way. The solution is also imperfect: the amount of reward does not account for the satisfaction got by boys watching miniskirts- in economic terms “the gains from trade are not exhausted”.
There is, therefore a rather strong case for taxing boys and subsidizing miniskirts-wearing-girls. Does this sounds absurd? It does, but it is not. Actually, it is something that is actually done with some frequency in analogous situations. For example; not long ago I was invited to a club were they celebrated the “miniskirt party”. It was so called because girls wearing a miniskirt were granted free access and a drink while the rest of us had to pay. This is, in fact, a way of arranging transfers in the same way a tax scheme would. The same rationale operates for dress codes in private parties where individuals access is conditioned on proper dressing.
All this suggest that there is indeed a good case for subsidizing miniskirts. Now, I do not think, nor does economics theory suggest- just in case someone did not understand that this was a thought experiment written in a provocative way- that miniskirts should actually be subsidized. The arrangement is likely to be unfeasible. First, it would be hard to know who to tax- who does really enjoy miniskirts? how much?. Second, we are likely to have the very same problems as in the Coasian solution- people are unlikely to accept voting for paying/receiving money for wearing miniskirts for the very same ethical preferences and social norms reasons.
The point was, however, to show that institutions -such as moral and social norms- that evolve spontaneously can be a source of transaction costs causing inefficiency, and this is especially true in the case of “non economic phenomena” where what we can call “animal spirits” are strong; it does also holds in the economic realm, in, for instance, wage setting.
Os copio el ensayo que he escrito para mi clase de inglés, que es un resumen de lo que dijo ayer Robert Solow en la fundación Rafael del Pino.
Economics is said to be the study of productive activities subject to the constraint of scarce resources. In this framework, the production is mainly determined by the technology and the amount of resources available.
From this optic, the current crisis would look like a paradox. Although the data on economic activity are picture an extremelly pessimistic situation, today’s capacity is larger than it was some months ago since net investment has not turned negative yet. The fundamentals of the economy -what determines how much can be produced- remain strong, but the economic agreggates are weaker than never. The collapse of the financial side of the real estate sector , just of one branch of the economy, has plunged the whole world system into a deep crisis.
In any crisis, there is also an opportunity to learn for the future. The first lesson is that the collapse of the financial system has amplified the recession that would have taken place on the real economy. While capacity remains strong, both investment and consumer demand are weaker today. The loss of wealth has reduced spending from household- especially in durable goods- and this in turn has made banks and other financial operator more cautious about lending causing a “credit crunch” which has fed the collapse on the real side.
The second lesson that could be drawn is that about the relation between the business cycles in the financial and the real economy. The financial economy works as a pandemonium, a chaotic system with self-induced equilibria, vulnerable to cycles of collective irrationality. In a context of internationalisation of the financial system, the number of critical nodes that could launch a collective crisis are multiplied. Therefore, the financial sector has become a source of instability even when the real economy is mainly stable. The lesson that should drawn is therefore that the real economy should be somehow insulated from the instabilities of the financial system.
Which remedies are available for government in order to curb the crisis? In the orthodox policy mix, the first line of defense against recession was classically monetary policy. There are mainly three reasons for this. Firstly, it’s effect works faster than fiscal policy and the stimulus is transmitted with shorter lags, secondly, its effects are distributively more neutral- while fiscal policy usually causes income transfers among groups and finally monetary policy is usually free from political pressure since in most western countries central banks are ruled independently. Therefore, interest rate cuts combined with automatic stabilizers was were usually enough to curb recessions in conventional scenarios. The trouble is that the current context is not a conventional scenario and old rules don’t apply any more. One lesson that should be drawn from the crisis is that the real estate bubble was largely driven by the policy of low interest rates from the Fed and therefore any solution worth of that name should avoid the mistakes of the past. Moreover, monetary authorities, especially in the US -the ECB has been more cautious until now, maybe because the Eurozone is largely subject to asymmetrical shocks- have already exhausted their room of maneuverer. Finally, the context of a credit crunch makes the usual channel of transmission of monetary stimulus- the credit market- unlikely to work. Robert Solow quoted Paul Samuelson’s father who was running a bank during the Great Depression: “How would I lend money to anyone who is crazy enough to borrow”- that is, the recession has amplified the adverse selection problems that are already present in the financial market. These facts suggest that conventional monetary stimulus will be insufficient.
Therefore, one should look at fiscal stimulus, that is, either tax cut of increased spending. Returning to the conventional policy mix, tax rebates were usually preferred since they allow individual to spend their money in their preferred way, while the government is usually more likely to make wasteful spending. Here again, normal rules do not apply. In a context of uncertainty, it is likely that that temporary extra income coming from the tax cut would be saved rather than spent, partly because it is temporary and partly because there is uncertainty about the future and therefore tax cuts will do a poor job boosting aggregate spending.
The preferred option is therefore likely to be fiscal spending, which used to be the policy of last ressort. Public spending will really be spent and therefore its effect is almost granted. When private demand is absent, government should replace it. Moreover, since the other alternatives- monetary policy and tax cuts- are not likely to be effective, this is the only alternative. This does not mean, of course, that spending does not arise troubles. Firstly, it usually doesn’t work fast enough, mainly, because public spending needs to be planned and planning requires time. This is even more true in a country such as the US where government lacks both the habit and the means of high spending. On the other hand, if public spending is done fast enough, it is likely to be poorly planned and therefore spent on wastefull items. Concerning fiscal stimulus, Europe has an added problem. The degree of trade integration forces government to reach an agreement for coordinated fiscal stimulus. Despite this fact, stimulus plans in the Eurozone have remained largely national untill now.
How large should the stimulus package be? Solow considered that the German plan -less than 1,5- was for sure insufficient. On the other hand, Obama’s plan is now being discussed for something like 2% or 3% of GDP in the next two years. This magnitude seem appropriate and other countries should imitate it.
The last point concerns budget deficits. Any form of fiscal stimulus will, almost by definition, cause budget deficit and therefore increase the debt. One is allow to wonder that temporary stimulus will turn into chronic budget deficit that will not be cured in the long run. However, it should be reminded that the fiscal stimulus is aimed at sustaining prosperity and that budget surpluses are essentially breeded by economic growth.
The current crisis has made evident that some form of international coordination in economic policies is necessary. However, the bases for such coordination remain theoretically uncertain. This blog has already pointed two sources of enhanced efficiency in decision making. These sources were, firstly, that international bureaucracies are potentially more efficient than national ones and secondly that national politics, especially in open economies, can produce externalities that are suffered by other countries and supranational governance mechanisms can serve the purpose of internalizing them. These two sources are not very original-they are a common place in integration theory-; there is however, a third source of enhanced efficiency that has not been pointed to my knowledge in the litterature.
This third source is the commitment value of international agreements, and especially, international organizations. However, this commitment value is not, as in the former cae, vis a vis other countries. This commitment value has, mainly, an internal dimension.A typical problem of governments identified by most of the literature on political economic choice and time inconsistency is its incapacity to make credible commitments. However, this same litterature underlines that such commitments are necessary.
The problem of commitment
The sources of this commitment problem are two. Firstly, if governments are vulnerable to capture from specific interests (unions, producers, etc…) and those interests believe it, there is an incentive for interest groups to organize themselves and to make pressure on governments in order to manipulate their decisions. If this is true and governments are vulnerable to capture by specific interest, many measures going against those specific interests will be impossible to be taken since they will impose political costs on governments. The source of efficiency is not only coming from the impossibility of taking efficiency enhancing decisions, but also from the waste of resources of such rent seeking behaviour. This comes from the fact that, if government could commit themselves to irreversible decisions, rent seekers would not have any incentive to organize once the decision has been taken since it is irreversible. If on the contrary the decision is reversible, it will be rational for the to get organized.
A good example is the case of liberalization. Liberalization is usually an efficiency enhancing process; it introduces competition in regulated sectors and allows considerable welfare gains. However, two typical features of liberalization is that it hurts vested interests of powerful groups (usually, protected producers and their workers) and that it is a progressive and long process (divided in stages, etc…). If we assume a benevolent welfare maximizing government but still willing to be re-elected, liberalization would not be a feasible policy since interest groups would have considerable scope to make pressure on him across time. Additionally, potential entrants in the market know that the government is vulnerable to such pressure and will not enter the market fearing the loss of investment due to political risk. As a result, unless the government is able to commit himself to irreversible liberalization, liberalization will not bring its potential benefits and thus will not take place.
Secondly, even if we assume iron clad government, not vulnerable to pressure, governments have difficulties to commit themselves vis a vis firms when ex post and ex ante decisions are not equally beneficial. This is as old the Kydland Prescott paper on time inconsistency
This is the typical case of the Barro Gordon model in monetary policy, and the rationale for an independent central bank. Ex ante, governments will want to look credible; committed to low inflation and to restrictive policies. As a result, agents will make investments taking into account a low rate of inflation and the economy will boom. However, once the production decisions have been taken, governments have incentives to loose their monetary policy in order to get extra impulse fooling the agents. In the long run, agents will incorporate the reaction of the government in their expectations, and the policy will be worst. As a result, unless governments are able to commit to a low inflation conservative monetary policy, they will have problems of intertemporal choice.
The same so called “hold up” problem appears in other areas. In the case of taxation, for example, firms would not make investment decisions unless they can appropriate the benefits. However, if such investment decisions are irreversible –for example, think about the investment in oil extraction structures in Bolivia- governments will have incentive to expropriate the structure once the investment has been made. If investors know that, they will not accept to do such investments unless they are compensated for the risk taking attitude. Something similar happens in the case of loans; if lenders know that national countries are not likely to repay the loan, the interest of the loan will be higher.
What should be pointed is that the problem is one of credibility; it is indifferent whether or not the national government is willing to default –to expropriate the infrastructure, to default the loan payment- what is relevant is that economic agents –lenders and investors- regard the government as not credible and thus will increase incorporate this risk premium in the price. A collateral effect, of this is that it may become a self-fulfilling prophecy. In general, governments –for behavioural and electoral reasons- are more likely to engage in defaulting if they perceive the deal as unfair. Evo Morales expropriate the gas because he and the Bolivian people perceived the deal of multinational as unfair. However, one of the reasons for this unfairness was that firms were fearing expropriation and this risk was incorporated in the deal. We have thus the paradox; “unfairness” happens due to the lack of credibility and the lack of credibility is enhanced with unfairness.
The role of supranational Institutions
The result is thus that national governments are in need of commitment mechanisms. Which role can be played by supranational institutions?
Generally, supranational institutions have a higher commitment capacity than national institutions. The environment in decision making is, on the one hand, different. It is generally admitting that these institutions have some kind of “democratic deficit”. The idea is that the capacity of voters –and therefore of interest groups- to influence the decision making process at the supranational level is lower or at least different than at the national level. This fundamentally due to information problems; supranational decision making is more difficult to monitor by voters and thus deciders have more scope to adopt their own decisions.
Take for instance the comparison between the EU council of ministers and national parliaments. In national parliaments, debates on policy making is made in the public space, it is monitored by the press and pressure groups enjoy considerable influence. The process of deliberation in the parliament forces governments to reveal their real intention, and opposition parties have means to control governments. This does not happen, for instance, in the EU. Even under the most democratic and transparent decision making procedure (that in which the council and the parliament adopt their decisions) national government have higher scope for hiding their decisions. Even if the process of deliberation in the council is supposed to be public, there is not anything like a European press monitoring the process. Additionally, the intergovernmental structure of the council implies that the deliberation process is not about policy but about national interests. Finally, the structure of intergovernmental negotiation make for national voter mucho more difficult to attribute the responsibility to individual governments.
In principle, democratic institutions are efficient ways of taking collective decisions. However, the existence of supranational institutions allows to find a remedy on some of the flaws of this process of decision making; being isolated from electoral pressure, the capacity of national pressure groups to infringe political damages to governments is limited.
The example of liberalization is again a good one. In a national context, pressure groups could organize themselves to counter the process of liberalization. They could blame the government for implementing liberal policies, for dismantling the welfare state or the public services and any government willing to liberalize would face tuff political constraints. However, when the decision on liberalization is taken at the EU level, this capacity is considerably reduced. Trade unions are mainly national and while there is a European federation, its pressure power is low. The debate on public policy is mainly national and, as a result, the capacity of pressure groups to criticize the government is low since the government can shift the responsibility of the decision to the EU level. Since the decision is coming from Brussels, the government can avoid the political losses that would suppose to do it himself. The responsibility of the decisions is diluted in the intergovernmental body of the council and voter can not, in fact, punish their government for the problem. Unions can, of course, strike, but the strikes will not infringe damages on the government since he can just say that the decision is not taken by him.
Additionally, supranational commitments are, generally, more irreversible than national commitments. Commitment problems are generally solved by introducing constitutional rules. Constitutions usually frame what governments can do and can not do and under which procedural condition they can do it. In principle, constitutions are commitment devices. The problem is that constitutions are also designed to control the scope of what governments can do and thus can not be modified unilaterally by one government. In the above example of liberalization, it is just unimaginable to think about a government of putting writing his commitment to irreversible liberalization in the constitutions. He is already in principle reluctant to put debate it nationally, it is just not viable to engage himself in a debate over constitutional reform.
What is the merit of supranational institutions? In general, governments can commit themselves with any special empowerment in supranational institutions. This is true for WTO where trade liberalization is negotiated by ministers and not by parliaments. It is equally true for the EU where decisions in the council are taken by ministers. Additionally, once the decision is taken, even respecting national sovereignty -unanimously- it is more difficult to reverse them than it would be to just pass a new bill at the national level.
The idea is that the public opinion is more reluctant to force the retreat from the international commitment; once the obligation has been written in a treaty the unilateral will of the government is not sufficient to terminate it.. In the case of the EU this commitment mechanism is even more powerful. Due to the configuration of the EU legal order and to qualified majority voting, unilateral withdrawal from an obligation has enormous costs that make it unviable. Unilateral withdrawal implies either leaving the community –which is just impossible to imagine- or to have a new vote in the council to change it. Since voting is done under the constraint of qualified majority –or unanimity, depending on the issue- there is a “joint decision trap” that biases the system in favour of the status quo. The decision is thus less reversible than when adopted unilaterally by the government.
A good example of how it enhances this process is also the case above cited of liberalization but also more concretely, that of transition economies. Former communist countries needed mainly to achieve two reforms: political reforms (democratization) and economic reforms (I will call it liberalization). These reforms are in fact extremely tricky for various reasons. Firstly, they generate net losers and winners –usually former members of the establishment and those who were fed by them. <em>Secondly, a transitional government is usually extremely vulnerable to capture and specific interest. Finallly, liberalization supposes not only privatization but also the commitment to apply liberalization policies- competition policies, reform of the court system and the enforcement of contracts, the creation of independent regulatory authorities, the organization of a regulatory framework, etc…
The problem is that the transition process generates opportunities for rent seeking. In general, if former bureaucrats are able to collude with liberalizers, they will be able to achieve “oligarchic privatization”: privatization of large monopolistic firms without deregulation and competition policies. Additionally, corruption is likely to be strong and the business environment to be badly positioned to attract investment.
The role of international institutions is to ensure that the correct reforms are implemented and that investments are protected from expropriation. But the case to which I want to refer is that of the EU. The EU imposes strong convergence requirements before accession. The Copenhagen criteria –to have a market economy, to respect human rights, to be a democracy- are the sine qua non condition to entry. The greatest gain in efficiency terms is that the EU offers a good opportunity for governments, by obliging them to implement the “acquis communataire” –european rules- to commit themselves to liberalization. Individual countries know that entering the EU means prosperity, freedom and growth in the long run, it means being part of the rich people club. As long as accession is the final goal, they are willing to make sacrifices in the short run. The EU monitors the process with the carrot of accession and the stick of rejection. By committing themselves to applying European like competition policy, free movement of goods capitals and people, candidates to accession create the correct business environment. Check however that, whether or not accession finally takes place is indifferent for this process. What really counts are the expectations coming from the perspective of accession.
Costs and benefits compared
The source of efficiency gains from additional commitment capacity is thus clear. Under which conditions will the net gains be positive? This will be the case as long as the benefits outweigh the losses. This suggests that there are losses coming from the commitment technology.
The main source of losses is the natural consequence of the advantage; since governments are isolated from direct electoral pressure, their room of manoeuvre is stronger, however, nothing grant us that this additional capacity is used to take good decisions, or does it? We know that, generally, electoral pressure improves the quality of decisions, it avoids government just in favour of minority groups. As long as this pressure is relaxed at the supranational level, the capture by specific interest with powerful assets at the supranational level could be thought as easier.
But I do not think so. The point that should be kept in mind is that, under this mechanism, unanimity or qualified majority is usually the rule. Governments enjoy more marge de manoeuvre only as long as government have convergent interests. It enhances the collective room of manoeuvre of government, but not their individual room of manoeuvre. The mechanism ensures that serving individual interests is in principle less likely since it would imply to capture all the governments that have to agree. European institutions are, in fact, much more isolated from group pressure than national institutions. Lobbying, of course, is more suspicious at the EU level, however the Commission enjoys strong independence and the role of pressure groups is mainly positive-efficiency enhancing. In addition, it should also be kept in mind that this protodemocratic mechanism is not the only mechanism of decision, is coexist with real democratic mechanisms. We are not talking about substitutes but about complements. This ensures that international decision making is only used when a long run welfare enhancing decision can not be taken at the national level, but it does not allow governments to systematically avoid democratic control since this control is their ultimate source of legitimacy.
From my point of view the main source of inefficiency comes from the risk of inertia. The self-perpetuating feature of supranational institutions is something well known. Whether we talk about NATO the Council of Europe, their structure have perpetuated along time even when the original need that created them disappeared. This a natural consequence from the commitment capacity; stronger commitment capacity has the problem of transforming the organization in an autistic system strongly vulnerable to path dependence and difficult to reorganize.
The best example is probably the case of Common agricultural Policy (CAP) in the EU. The CAP made considerable sense in its origin; the context of reconstruction, alimentary security, semiagrarian societies etc… It does not make any sense today. However, the last 20 years have not sufficed to terminate it. The reason is that a few agro business pressure groups, by capturing a set of key governments can perpetuate it.Another example is that of the structure of the UN. The UN is in need of reform; the composition of the security council is not realistic, its capacity of peace building is strongly flawed, etc… However, reform is not likely to occur as long as a minority of government can block the reform.
This illustrates that improved commitment capacity has two risks. Firstly, once the decision is taken –and thus irreversible- the capture of a few deciders –who can block the decision-, is sufficient to grant long run rents. Secondly, it has the risk of not being able to adapt themselves to changing environment –these is a strong path dependence.
Finally, a last problem comes from the sustainability of the arrangements. One of the problems of avoiding conventional majority democratic decisions is that it undermines the legitimacy of supranational institutions. If governments shift nasty tasks to supranational institutions avoiding the political losses and appropriating the gains, the problem is that in the long run the electorate will ask to withdraw from the institution.In the inmortal words of Milton Friedman “you can fool everyone for a while, or some people all the time, but you can never fool everyone all the time”; in the long run, people readapt their expectations and the commitment mechanism does not work any more.
The example of this situation is that of many supranational institutions enjoying considerable unpopularity in national context. French politicians have shifted their failures for more than twenty years to supranational economic institutions –the EU, WTO, IMF,…- and today France is one of the most sceptic countries in Europe towards free trade.
To sum up about the commitment value, I would say that the mechanism is generally efficiency enhancing. However, the commitment value is only present in some cases i.e. when what is at stake is really important (e.g. entry or permanence in the EU …) and remain modest in all the other cases.
How does all this applies the reconstruction of the international financial system? It is rather likely that international leaders will face nasty tasks; those that generate net losers. Moreover, one of the main points is that they should transmit a sensation of security to economic agents: this is exactly what we are going to do and you can adapt your action to it. Both issues are commitment issues. A good way to reconstruct the system will be to rely on a commitment device at the international level- call it “The IMF”. This will ensure cooperation among leaders and ensure some a fair, or at least certain repartition of loses to individual countries.
The Irish “NO” to the lisbon treaty sets a new wave in the process of European integration. While the result is neither tragic nor dramatic- it has already happened in the past and the EU has not disintegrated- its symbolic signification is strong since the Irish people has rejected a text that was seen as the minimum of the many minima that member states were willing to accept. In addition, Ireland has been one of the most benefited countries from integration which is a the heart of its post war recovery [1] which suggest that as Jacques Delors put it “Les irlandais sont des ingrats”. To sum up: if a country with the characteristics of Ireland-small country, very dependent on the common market and european integration and that has strongly benefited from european integration- can afford to say no to a treaty that was seen as fundamental, then European integration is in strong trouble.
In this article I will try to sketch what are-from my point of view- the reasons that explain the rejection of the treaty, what does this phenomena means for the full process of integration and, finally, which is the way ahead
The legitimacy of the EU with perfectly rational citizens
Let’s start saying what are the reasons that do not explain, as such, the crisis of the integration process. I do not think that the problem lies in the undemocratic nature of the EU as such or in the existence of a kind of neoliberal bias as many critics from the left suppose. The EU is not very different from a federal state-in its democratic aspects- and the existence of a neoliberal bias or a democratic deficit is not that straighforward (2) Nor do I think that the driver of euroskepticism are the strong attachment to national sovereignity of national peoples, as such.
In my opinion, which is supported by some academic litterature, the reason why individuals prefer to be governed at the supranational level rather than at the nation level is that they perceive that this supranational level of governance is “better”. To be sure what is better is defined by the utility function of voters, but I presume that the ultimate determinants of utility-at least in Europe and today- are not feelings such as patriotism or nationalism but material interests such as prosperity, security or growth, and maybe some moral issues such as life linked debates (euthanasia, abortion, etc) or peace.
As Sanchez Cuenca puts it in the above cited article, indicators of good governance such as corruption or credibility explains largely why countries like Spain support integration while others like Sweden do not. Other issues such as the net benefits extracted from integration, the size of the welfare state may explain also a large part of the variance of support.
From this point of view, european citizens will support integration as long as they perceive that it brings them benefits. If voters were perfectly rational and perfectly informed this perception would coincide with reality and they would support integration as long as it brings them real benefits.
However, this does not explain the current situation with Ireland. Ireland is probably one of the countries which has extracted more benefits from integration; why then do citizens reject integration?
The legitimacy of the EU with imperfectly rational citizens
The above model is elegant and stylized, but it is definitely not all the story. In the real world, citizens do not evaluate in a perfectly rational way what politicians do because this suppose to acquire knowledge that is either rare, difficult to process or costly. For that reason, citizen usually rely on proxies or indicators.
Which proxies and indicators matter and how they are interpreted depend on something that I will call “political culture”. What I mean by political culture is not in a kind of boasian sense where cultures are deterministic and closed entities. By political culture I understand a set of political institutions (constitutional design), social norms (national myths, history and systems of meaning), civil society structures (the market for the press) and social practices (languages, civic culture, sense of participation,etc…).
I believe that these factors are the essential units of the public space; the space where public opinion is formed. Political culture, as I understand it, is not anything else than a way of monitoring and processing information. In fact, one way to measure how efficient is a democracy is to asses how well those indicators reflect the reality and the systems generate the proper response. Take the case of France; during the post war period of catch up and “trente glorieuses” their political culture based on dirigism and soft planification was likely to be adapted. With the change of situation in our post industrial societies, this is not likely to be the case.
When there is a single public space-supported by a single political culture- a public debate is possible. Public discussion and political confrontation agreggates all the interests, the information, in a kind of dialectic process. Such a process typically produces legitimate outcomes; outcomes that are seen by the citizens, if not as adequate, at least as proper and legal. Citizens believe that nation states have the right to take such decisions. When the deliberative process has not an effect on preference shaping, it does on legitimacy.
I would like to make the difference between “input legitimacy” and “output legitimacy”. Input legitimacy is that legitimacy that is attributed by voters to decisiones that are taken in conformity with a given decision process; typically that of their ideal conception of democracy. Output legitimacy is that which is attributed by voters depending on whether the outcome of the political process is their preferred one or not.
As a result, the “perfectly rational citizens” that only care by ouput legitimacy are substituted by imperfectly rational citizens that choose to control institutions depending on the procedure used to do so. This partial irrationality is not in my opinion a matter of nationhood or feelings, but a rational attitude reinforced by the long run. In words of Przeworski “Democracy is a system of organized uncertainty”: the outcomes of the political process are not known ex ante (they are uncertain) but such uncertainty is not illimited (it is framed by the constitutional rules). For citizens, it is rational as a long term attitude to think that decisions taken by the rules set by their political cultures are the good ones; they know that they were subjected to a process of public scrutiny, of confrontation of interests, etc… And when they are not the good ones, they will be, at least in the future, when their party will reach the government. That is; when the process does not conform to their idea of what is legitimate (or democratic).
What matters here is that this input legitimacy is conditioned by the structure of national political culture; the set of norms, processes, and values that are seen by citizens as legitimate.
The European paradox
How does all this apply to the case of the union? I believe that at this stage of the article I can talk about issues such as democratic deficit to what extent the institutional system of the EU is efficient since radical will have already stop reading-especially in English.
I believe that the EU has a democratic deficit to the extent that there is nothing like a common political culture. In the absence of such political culture, citizens can not carry a common debate that would control the EU as a single agent. In Europe we have 27 different political cultures and therefore 27 different public opinions. Since there is nothing like a single polity-a political body which generates unambigous incentives for politicians- but 27, the decision making process has to be carried by the mean of intergovernmental negociations where each government has different incentives, interests and political pressures.
The main problem is that such international negociations are typically difficult to monitor by citizens. When decision making happens in the national context with a two parties structure politics is a zero sum game since citizens attribute responsabilities either to the government or to the opposition; monitoring is easy. In the international context, it is very difficult for a common citizen to attribute the responsability about a given directive or treaty because there many agents intervening in it. This creates, unambigously, a problem of democratic control; governments taking decisions at the EU level usually have a larger marge the manoeuvre.
However, I do not believe that such democratic deficit is inefficient. That is, while I am a democrat (I believe that democracy, as a general system, is good way to govern and provide public goods) I am not a democratic fundamentalist (I think that democracy usually leads to sub-optimal outcomes due to problems of time consistency, coalition forming, etc…). In fact, to a some extent, one of the main sources of efficiency of decision making in the EU is this democratic deficit. Why?
The first reason for efficiency is that it is a way to shift responsability for national politicians. In every democracy, there are usually unpopular but necessary decisions. Such decisions-such as structural reform, liberalizations- are usually welfare enhancing (they are positive) but generate powerfull and well organized net losers that can block it imposing political costs on national governments. Think for instance about unions in France or about farmers in USA. In these cases, the lack of democratic control is not a problem, but usually an advantage: national governments can adopt these measures at the EU level and then to avoid the responsability for doing so.
However, these undemocratic form of governments is most of the time welfare improving since the rules of decision at the EU level are unanimity or enhanced majority. These process grants that the opinion of everyone is taken into account and that decisions are technically sound. Such rule would not be viable in a normal democracy since they would lead to paralysis, however, since they are not a substitute but a complement of national rules, the paralysis is avoided.
This explains why most of the decisions taken at the level of the EU are seen by us, pseudointellectuals and technocrats, as sound; the EU is isolated from populist pressures, it is lead from well trained bureaucrats and its rule of decisions are not common democratic ones but enhanced majority. This ensures that, invariably, EU decisions are better than national ones.
But this shows also the main European paradox; the sources of the efficiency of the European Union lie, largely, in its undemocratic nature. We, european integration supporters, we usually point to the efficiency of the EU to advocate further integration and enhanced democratic procedures. However, such virtues are likely to evaporate if enhanced democracy is carried.
Legitmacy deficit in the EU
Now we have the main elements to understand the problem of legitimacy of the EU. Firstly, legitimacy is not only a matter of output legitimacy (the outcomes generated by the system) but also of input legitimacy (the process of public opinion formation and decision making). Second, enhancing the input legitimacy of the EU has some problems.
The first way to do so would be the unification of the political culture of the EU; the creation of a common european public space for discussion that would form a common public opinion and a truly democratic process. This is, in my opinion the only long run sustainable solution. But it has some problems. Firstly, as we have seen, the process is far from easy since it implies the creation, ex nihilo, of a political culture, with its myths, procedures, etc… something which is, in the absence a common history, a common language, etc, at least difficult and has to be done step by step. Secondly, making the EU more democratic is likely to evaporate a large number of its virtudes.
The second way is that the EU should borrow legitimacy from national institutions. Legitimacy is fundamentally a question of trust; if those who own the legitimacy at the national level (national politicians, media,etc) defend the EU, this would enhance its legitimacy. This of course causes a problem of political collective action; it would suppose that national politicians should defend the EU on most of the issues.
This has not been the attitude of national politicians, at least until now. National politicians have make of bashing the EU for their own failure, a very popular sport. The recent polemic in Spain about the working time directive is a good example of this. The problem is, of course, that this attitude is a dominant strategy for national politicians. The common strategy is to shift the short run costs of reforms to the EU (e.g. strikes made by airlines unions) while taking the benefits of the long run benefits of the reforms as their own merit(e.g. low prices in airlines, sustained growth).
We can then see the fundamental problem of legitimacy in the EU. The EU takes decisions that are the responsible of a large portion of welfare enjoyed by national countries. However, the political returns of these decisions are apropriated by national politicians and the EU is only identified by the costs. This is possible because national politicians owe input legitimacy (they are trusted as the main channel of information) and this allow them to appropriate the output legitimacy of the EU. As a feedback, input legitimacy is only a function of the possibility of output legitimacy (organized uncertainty), such that ex post deceiving results are seen as the proof that the a priori judgement was right.
The main sources of Euroskepticism are unjustified and unfair. However, they are the natural result of governments that have been using the EU for more than 35 years to impose unpopular reforms apropriating the benefits. When Europe was growing, this was not a problem and we had the permissive consensus. When Europe has problem of growth, integration of inmigrants, etc,… bashing the EU becomes a popular sport-an optimal strategy- for national politicians and media and the result can only be a wave of euroskepticism. This is the problem that we, militants of european integration have to solve.
The way ahead
Let us come back to the real world. What should we do with the Lisbonn treaty? What does the Irish referendum mean?
The reasons why Irish people said no to the treaty are many. the most fundamental is that national politicians did not defend with sufficient energy; they did not invest their political capital in doing so.
Is this tragedy? Should we think that the EU is closer to its end? I do not think so. We have already lived this situation, even if we were not able to take the proper decision, with the European constitution. Blair said that time that
There are two possible explanations. One is that people studied the Constitution and disagreed with its precise articles. I doubt that was the basis of the majority ‘no’. This was not an issue of bad drafting or specific textual disagreement.
The other explanation is that the Constitution became merely the vehicle for the people to register a wider and deeper discontent with the state of affairs in Europe. I believe this to be the correct analysis.
If so, it is not a crisis of political institutions, it is a crisis of political leadership. People in Europe are posing hard questions to us. They worry about globalisation, job security, about pensions and living standards. They see not just their economy but their society changing around them. Traditional communities are broken up, ethnic patterns change, family life is under strain as families struggle to balance work and home
I also think so. We have a problem of political leadership. What people do want are political solutions to our current problems, not vain promises. Those solutions are the ultimate source of legitimacy and support for further integration.
In principle, reforming the institutional structure is a good first step; if it is easier to take decisions-the voting system is reformed- then we will generate the correct response. However, what is completely inadmissible was the attitude of European leaders that maybe Irish peoples should think again. Well, maybe political leaders should think twice about whether to make referenda after passing years bashing the EU.
From my point of view, political leaders should focus, with the current legal and political tools, how to bring about the reforms. Intergovernmental coordination can already be carried in para-EU structure (the open method of coordination or assymetric integration are an example of this), regulations and directive can continue to be approved in the current institutional structure. Of course, the rejection of the treaty is a problem for collective decision making, but it is not that dramatic, I believe.
(1) The economic succes of Ireland is largely explained by the access to the common market, its strategic position as an English speaking country and the abolition of its traditional dependence from UK; all these facts are linked to the process of european integration.
(2) I plan to treat the question of the “neoliberal bias” in a future article. What I do believe the democratic deficit is will be sketched in this article. In any case, I do not agree with views that tend to see the EU as a group of mean technocrats willing to impose the Washington consensus against the will of nation-states. This is just absurd and psychotic.
In the last article we had a look to the factors conditioning the capacity of supranational organization to reach better decisions than national institutions. We explained that due to the fact that the institutional architecture, the individuals that compose it and the environment they face are not the same as national institutions, the decisions are likely to be different. In short; we were concerned about the relative decision making efficiency. However this while this source of enhanced efficiency can explain many cases of supranational -namely, development programs in countries with weak institutional structures- it is only a very incomplete rationale for supranational governance in the developped world- I am thinking in NATO or the EU.
In this cases the source of enhanced efficiency of supranational governance has to deal with the benefits of intergovernmental coordination. This is the usual rational pointed to integration, more concretely in the European context. When issues with potential efficiency gains -such as trade liberalization, harmonization of standards, defence, exchange rates- have a scope larger than that of the nation state, it is advantageous for countries to coordinate themselves in order to reach a supranational solution.
This is the typical economic argument; when individual (in this case, national) actions have effects on third parties –externalities- it is useful to coordinate them in such a way to internalize these effects. For instance, countries will not be able to harmonized their standards unless they negotiate a common standard at the supranational level, they will not be able to coordinate their exchange rates unless they have organize it at the supranational level, etc…
In principle, the role of supranational institutions is also epistemic; they try to reach the best solution together, but since this solution will not by the best one unless there is some coordination, the identification of a “focal point” is in the advantage of most of them. Once this focal point –the common solution- is identified, the outcome will be self-enforcing since it is in the interest of all states to apply it. The epistemic role and the advantages of coordination are in this case the sources of enhanced efficiency of supranational decisions.
A clear example of this is that of the pillar of Justice and home affairs in the EU and, more concretely, Schengen. Given the fact that borders between countries generate social costs, it is advantageous to abolish them. However, once the borders have been abolished, there is a need to manage the external border, and especially, to organize migration fluxes under common criteria. This is the reason why member states coordinate their policies in this area.
However, most outcomes are not self-enforcing. On the contrary, many present the features of a prisoner dilemma: it is in the individual advantage of each state to avoid to implementing the measure –to free ride- as long as other countries collaborate, but is collectively sub-optimal that no one collaborates. For example, while economic theory teach us that unilateral market opening is in principle advantageous, political economy points that given self interested governments -usually captured by specific interests)-trade liberalization presents in fact the structure of a prisoner dilemma where it is better to have foreign markets opened for national producers but protect national market from foreign competition.
In addition, it also possible that collectively optimal outcomes generate net losers. New trade theory teaches for instance that market opening generates a process of international cross border reorganization where only better equipped producers are able to survive. It is perfectly possible for one country to see its national industrial structure permanently damaged by a insensible market opening.
In both cases, the benefits of supranational coordination come from making possible the outcome that is only feasible under some kind of coordination. In this case, the role of supranational institutions is not only or not fundamentally epistemic –identifying the correct outcome- but especially a source of credible commitments.
In the first case -with a prisonner dilemma structure but no net losers-, the role is that of organizing a commitment technology, usually under some form of delegation (like in the case of the European commission, the European court of justice) that supervises the process; monitoring compliance and punishing free riders. In the second case, -with net losers- supranational coordination will not be possible unless we organize some kind of transfer or compensation mechanism –a case in point is that of structural funds. The role of supranational institutions is to organize this transfer mechanism and to manage it in order to avoid net losers.
The factors that determinate whether or not supranational governance will be efficiency enhancing or not are the existence of benefits from coordination. When there are substantial externalities or collective action problems, supranational governance will be more efficient than decentralized unilateral action. On the other hand, when these effects are modest or secondary, the cost coming from bureaucratization will outweigh the benefits of coordination.
The point is, in fact, important when we talk about issues such as international peace and conflict. The current view on international affairs is divided between the optimists and the pessimists -both positions will be exagerated but we are trying to illustrate it. Pessimists usually have a view of the world characterized by geopolitical priority. The international environment as they understand it, is characterized by the competition between antgonic and potentially irreconciliable interests,where cooperation is impossible or extremely difficult. Those who believe in international cooperation and world federalism are labeled as “naive internationalists”. The result of the actual process of globalization will be one of regionalization as pictured by huntintong in his clash of civilization; trading blocks struggling for supremacy. Optimists, on the other hand, consider that cooperation has large gains coming from crossing interdependence and international actors will be engaged in stronger cooperation in order to capture its potential gains. The process will, in the long (very) run, lead to some form of kantian world federalism and perpetual peace.
The point that interest us here is that the relative perception of the gains coming from cooperation is different for each of these groups. Of course, there are problems concerning the reach of an agreement on cooperation and the division of the surplus that results from it -transaction costs- and there are also problems in perceiving reality -incompleteness of information- but if the gains from cooperation are sufficiently high, cooperation will be much more likely to arise in the medium run. However, this article is only concerned with the efficiency, not with the likeliness of supranational governance and thus we will not talk about these topics here.
The title of this article reveals that the opinion of the author is, in fact, closer to the second view. Am I a naive internationalist? Well, maybe, but “je ne suis pas fou tout seul” actually;
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.
Supranational institutions have played a seminal role in politics since the end of the second world war. This is true at the global level both in the economic (world bank, IMF, GATT, WTO) and the non economic field (UNO and its derivatives, NATO, etc…) but also at the regional level with its most important manifestation which is probably the EU.
During the last 50 years supranational institutions have been the mecca of many quests like peace, economic development and prosperity; that place where national leaders seek to find the holy grail that they are not able to find in their internal context. This suggests that the rationale for supranational governance –the intervention of the international sphere in national context- is that it enhances decision and policy making in a way that can not be achieved in the national context. In other words; supranational governance is legitimate if, and only if, it leads to an outcome that is superior to that which would be achieved in a strictly national context.
The objective of this article is to analyse which are the forces which make possible to enhance the efficiency of decisions and thus to induce under which conditions supranational governance would be efficient. While the conclusions and the conceptual framework might be valid for most of the manifestation of supranational governance, this article has been written wearing in mind a very specific context; that of structural reform in the EU and thus its conclusions might be somehow biased towards this context.
In addition, this blog and the community where it is hosted share some universalistic concern with “world federalism”; the kantian ideal que universal peace and prosperity will only be achieved if there is some kind of federation between all member states governed by a supranational organization. The object of this article is thus also to illuminate what are the potential benefits of this project, what are its risks, under what conditions it would be efficient and above all, when would it, realistically, take place.
While the article find its sources in many litteratures (especially, european governance and integration theory and more broadly political economy), I try to keep the friendly way of explaining in order to let it accessible. As a result, I will try to avoid quotes and academic references (however, they will be provided if asked) and to illustrate theories and concepts-which are, I believe, unavoidable when we are talking about such a large framework- with historical and practical examples.
The process of policy making can be split in two different phases and the efficiency of the process might be checked in both. The first one is that of decision making; to what extent the international context in which decisions are taken lead to more efficient decision making than national states. The second part is that of implementation; it is not sufficient that international recommendations are the correct ones, they must also be feasible from the political-economic point of view i.e. its implementation should be possible and should not outweigh the benefit of added efficiency.
The article will be thus composed of many entries of which this one is the first. The others will be subsquently published in this same blog. Finally, I will beg pardon in advance for my terrible english grammar.
One of the greatest successes of the new right has with no doubt been its ability to appear as the only coherent, feasible and consequentialist political option. From this view while leftists might be concerned with values and ideas, these are political choice which lie ultimately in wishful thinking and very theoretical constructions. New Right wingers are supposed to be the greatest representatives of “realpolitik”, and ideology which is the only one capable to make difficult choices in the real world. These are the politics of TINA, “there is no alternative”, you have to make very hard sacrifices in order to get what you actually want. Any divergence from this way of thinking is qualified as unfeasible and just theoretical.
This discourse has consequences in the real world. In the times of war against terrorism and the clash of civilizations, western societies are called by neoconservative prophets to make hard choices as an inevitable price for maintaining our way of life. Some of these dilemmas are freedom against security, Islamic democracy or secular dictatorship, hard power politics or soft power politics, rule of law or effective fight against crime,… This article will try to make a criticism on both philosophical and practical grounds on this ideology.
A pair of precisions are worth to be done first. What it is called realpolitik here is an ideology, not a political theory. Realpolitik in this article is not a coherent set of principle or values, but just a political discourse. Thus, it does not coincide with what is called “realism” in international politics (the theory whose central assumption are statocentrism, the hobbesian environment and the undifferentiated nature of states), although it is probably linked. Neither does it coincide with “neoconservatism” as a coherent set of principles (1).
What is meant here by realism is that ideology which claimed to follow the machiavelian principle that “ends are justified by means”, that view that consider that there is no possible trade off between ends and means and a hard choice has to be made between both if favour of the latter.
Choice, values and risk
The basic principle of realipolitik is its concern with practice. Practice and consequences is all that need to be taken into account, theory and values can not prevail. However, this point of view is fundamentally flawed, and the truth is that what is meant by “practice and consequences” are by-products of theory and values.
How are choices made? When choosing the way to act, people has inevitably to asses the expected relative costs of each action, and for this two elements are needed: a hierarchy between outcomes and a assessment of the probability of each of these outcomes to be achieved by each action. In other words; a factual judgement (the risk of each action) and a normative judgement (the desirability of each outcome).
This very essential nature of choices is ignored by the concern with practice of political realists. The claim that values do not matter implicitly assumes a set of values which are not made explicit and qualified as irrevocable. Values is the tool we use to asses the hierarchy between outcomes, and if there is no hierarchy between outcome it is not possible to make a choice.
Also, some realists do not deny this set of values. However, they claim that given such values, the only possible choice is the one they claim to be unavoidable. The part of the choice that is being manipulated here is the factual part; there is an implicit conception on how the world is ruled an which choices are possible.
The problem with this view is that that description of the world (the assessment of risk which is need to take an action) which is the basis for the choice is usually distorted or biased by ideology. There is no intellectual justification, no empirical evidence of this state of affairs. The possibility frontier is taken as given. A good example is about the so called “clash of civilizations”; Amartya Sen (2) has complained about the perspective according to what civilizations would be collective actors with homogeneous values that fight against each other; identity is much more than civilizational and viewing civilizations as clashing imply a very simplistic view of what identity actually is. The same can be said about the impossibility of redistribution in the era of globalization or the freedom-security dilemma: the picture that is being depicted is just not true.
No success without legitimacy
There is some paradox in the view of advocates of realipolitik. While they call for a strong defence of the values in which our society is founded, they usually advocates for hard restrictions on what those values imply. Since they are concerned with practice, they don’t care about “secondary” objectives such as values or the rule of law.
Suppose that we adhere to this practical view of the world. In war as well as in love, everything is permitted. Policy makers do not have (and actually don’t need) values, they have well defined objectives and act as machiavelian autocrats in order to achieve them.
The point is that, even if we adhere to this “realist” view, legitimacy will be needed. For some reason, policy makers need something more than just their own will (in democracies they need voters, in international relations they also need allies). They need support and it is at least rare that support can be managed without some, at least formally assumed, values. Voters do not trust politicians that declare to be only concerned with ends and not with means, countries that deny any values are not trusted. Legitimacy (eg“soft power”) in to some extent a sort of political capital which is as necessary as military means and security forces. The same applies to the rule of law.
In the real world there is a need for social capital, that is, institutions, norms, values and laws that structure society and guide people when acting. Someone which refuse to play according to this principle will just lose in the medium term. The reason is that realistic action has information externalities: they reveal something about what can and can not be done and they weaken norms institutions which are just mantained by its spontaneous respect.
A very clear example of this can be found with the actual situation in the Middle East. The Bush administration invaded Iraq violating international law, against european public opinion and with motives that have been proved to be false. This could be justified on the grounds of “realipolitik”. However, today the legitimacy of the US is extremely weakened. They are not able to enforce international law against the Iran nuclear program, since they themselves violated it. Secondly, their commitment not invade Iran is not credible, especially among Arabic public opinion which support the nuclear program a defensive device. Finally, the leadership of the US is more and more contested at the global level. In the medium run realpolitik solutions find themselves as being impossible to implement since they lack any adherence.
Asking the right questions, giving efficient answers
What is annoying in realpolitik is that it is somehow a totalitarian discourse in the sense that it does not allow any dissidence. They have the monopole of what is feasible and any intent to question that conventional wisdom is qualified as “irrealistic”, idealistic or “naive”.
To be sure, there is a good case to be done for scepticism against wishful thinking and it is true that some ideas are unfeasible and irrealistic. However, many of the political, social and economic recipes that are presented as not having any alternative and requiring intense sacrifices are based in, at best, very questionable judgements and at worst in simple myths. They are usually based in rigid preconceptions of the world which lack any rigour and which are usually more than questionable when a closer look is taken.
In reality, any coherent, rational and consequentialist view of the world should energically reject “realpolitik”. If coherence means to ask honest questions and give efficient answers, realpolitik fails in both.
(1) A heroic defence of neoconservatism as opposed to what is called here “realpolitik” can be found in the book of Francis Fukuyama “America at the crossroads”.
(2) His book “Identity and violence: The illusion of destiny”
