Friday, September 4, 2009

What practical measures can be taken to improve policy outcomes in democracies?

There seems to be increasing scepticism these days about the worth of democracy. The following quote from a post by John Humphreys on the “Thoughts on Freedom” blog provides a good example of what I mean:

“Democracy has become a new faith. Simply saying the word supposedly makes an argument stronger, as though there is some inherent morality in two wolves and a sheep voting on what to have for dinner. Democracy has it’s uses — it allows you to change government without any killing and it puts downward pressure on corruption. But I doubt that it leads to better policy, and indeed I think it has a built-in bias towards ever more totalitarian policy controlled by special interest groups ...”

In my view Humphreys is wrong. There is an inherent morality in democracy when it is perceived appropriately as a system in which all members of the polity have equal potential to influence the construction and operation of the political order. The problem is that it is often seen to be legitimate for some groups to use democratic politics as a means to obtain benefits at the expense of others. Such attitudes should be denounced as immoral for the same reason that the attitude that the market economy exists to enable some people to benefit through opportunistic exploitation of others is widely denounced as immoral. As James Buchanan has emphasised, the viability of a market economy and a democratic political system both depend on norms of mutual respect and reciprocity.

The political system in most democratic countries does not have huge problems in dealing with blatant attempts by some people to benefit at the expense of others. Democratic politics can be effective in dealing with corruption (as John Humphreys acknowledges). It is worth noting, however, that corruption often goes undetected for long periods where dedicated institutional arrangements do not exist to detect it.

I think that democratic politics are also reasonably effective in dealing with unsubtle attempts at vote buying, for example where a governing party promises additional benefits to residents of marginal seats in a desperate attempt to hold onto or win office. Parties initiating such tactics risk being perceived by voters as acting unfairly - and hence unworthy of being elected to government.

It is much more difficult for voters to deal appropriately with complex issues such as those involved in trade protectionism. A recent policy brief prepared for the Lowy Institute by Bill Carmichael, Saul Eslake and Mark Thirlwell describes the nature of the problem as follows:

“Most of us have a limited understanding of what is at issue in decisions about protection. Our response to the prospect of opening domestic markets is influenced by the information available to us about the domestic consequences. In the absence of public information about the economy-wide gains at issue for the community as a whole, and in view of the more visible costs to prospective losers, the latter have naturally found support at home. As a result, governments have had difficulty mobilising a domestic commitment to open domestic markets to international competition” (“Message to the G20: defeating protectionism begins at home” p 7-8).

The solution advocated by the authors is “a domestic discipline on national decision-making that promotes wide domestic awareness of its economy-wide costs.” Rather than attempt to summarise the proposals here I recommend that people should read them in the context in which they are presented in the paper.

The thought that I would like to leave you with here is that there is scope for policy outcomes in democracies to be improved if more intellectual effort is put into constructive efforts of the kind presented in the Lowy paper.

Addendum by Bill Carmichael:

It should not surprise us that those responsible for articulating the theoretical basis for market economics and democracy--people like John Stuart Mill, David Hume and Adam Smith--placed a condition on the relevance of each in enhancing the quality of governance and community welfare. The condition was, and remains, the existence of a well informed community in the case of democracy and well informed consumers as the basis for market economics. The message from these theoretical founders is that the value (in each case) is not in the theory, but its practise. That is the rationale for the domestic transparency arrangements established in Australia in the early 1970's, structured to operate outside government and independent of private interest groups. Those arrangements were put in place for a specific purpose--to make our democratic system and market economics relevant in decision-making on protection issues, by providing the information governments, communities and consumers need to promote decisions that enhance community welfare. I believe such arrangements have a wider application than decision-making on protection In their absence, our expectations about what the community gains from market economics and democratic governance are likely to lack substance.

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