Public Policy: Objectives and Principles

Roger Kerr

What is public policy?

“The framework of institutions, laws and programmes laid down by the arms of government (parliament, the executive and the judiciary) that regulate the economy and wider social interactions.”

SINGAPORESINGAPORE

IRELANDIRELAND

HONG KONGHONG KONG

If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In forming a government which is to be administered by men over men, the great difficulty lies in this: you must first enable government to control the governed; and in the next place oblige it to control itself.

James Madison, 1788

The government’s role is whatever the government defines it to be.

Helen Clark, 2003

Objective of public policy

Human flourishing

- not just about economy, monetary values, efficiency

- encompasses fairness, environmental quality, freedom

What do we mean by human flourishing?

‘Human flourishing’

People have different preferences know own interests best are rational are opportunistic never have total information have to work through agents

… more issues

Markets vs government- not that simple/accurate- markets require rules

Regulation vs common law

All arrangements are imperfectAll arrangements are imperfect

A better starting point for thinking

about

public policy

Market exchanges

Politics/collective choice

Voluntary cooperation

Voluntary cooperation

Dominant means of getting what we want

Norm in families, small groups

Also clubs, associations, charities

Involves redistribution within families and through altruism

Works best in ‘face to face’ settings

But can’t run a large society that wayBut can’t run a large society that way

Market exchanges

Essential for society at large

Gains from specialisation and trade

Prices- transmit information- coordinate plans

- markets continuously adjust

Consumers’ interests paramount

But - market failuresBut - market failures

Politics

Voting mechanism is imprecise - candidates, parties, electoral systems, accountability

Coercion - not mutual benefits, as with markets & voluntary cooperation

Tyrannies of majorities and minorities

We won, you lost, eat that!

Political market failuesPolitical market failues

Failures in private markets

Public goods eg street lights

not worth producing privately

Externalities eg pollution

ubiquitous; many private solutions

Monopoly eg air traffic control

Test to apply: will government intervention improve things?Test to apply: will government intervention improve things?

Failures in political markets

Self-interest also present

Decisions based on political benefits, not public benefits

Short-termism

Information problems

Costs of mobilising in the public interest

(farmers = farm subsidies)

Other problems with government

Policy errors

Monopoly (statutory or de facto)

Rent-seeking

Tendencies to over-spend and over-regulate

Failures in core roles (personal security, infrastructure)

….other problems with government

Safety net can create dependency

Bureaucracy and judiciary – will they do what’s intended?

Deadweight costs of taxation

Upshot?

No ideal yardstick

Political/government failures routine, not exceptional

Must compare real-world alternatives

In choosing among real world alternatives

Focus on incentives

Bias in favour of economic freedom

Implies limited governmentImplies limited government

How do we constrain government ?

Separation of powers

- Legislature

- Executive

- Judiciary

- Central/local

How do we constrain government ?

Economic constitutions

Sound processes

Regulatory Responsibility Bill

Taxpayer/Ratepayer Bills of Rights

Public policy and business management

A country is not a company

National central planning doesn’t work

Different skill requirements

Problems with DIY economics

Conclusions

Good public policy: institutions that promote human flourishing

There is a significant role for government,

but

individuals need protection from government abuse

governments don’t necessarily act in the public

interest

remedy of government intervention sometimes

makes things worse

The biggest public policy mistake:

to expect too much of government

The challenge:

how to restrain government to what it does well