March 1, 2012

A tyranny of eggheads. How technocrats are tearing up democracy

Delving into the mind of the technocrat
Robert H Frank’s The Darwin Economy tells us little useful about the economy, but it does provide a frightening glimpse into the democracy-averse mindset of our rulers.

Friday 24 February 2012

Delving into the mind of the technocrat

Robert H Frank’s The Darwin Economy tells us little useful about the economy, but it does provide a frightening glimpse into the democracy-averse mindset of our rulers.

Daniel Ben-Ami 

Everyone interested in contemporary society should read Robert H Frank’s The Darwin Economyor a book like it. It is not that it is amazingly astute or beautifully written. It is neither. But it does give readers an exceedingly important perspective: an inside view of how the current generation of politician-technocrats thinks.

Identifying some of the key themes of contemporary political debate is easy enough. A glance at the media reveals that those who pass for our leaders are largely anti-democratic, elitist and have little compunction about intruding into our private lives. Working out how they reach the conclusions they do, understanding the internal logic or their approach, is more difficult.

In many ways, economics is the discipline best suited to the technocratic mindset. This has nothing to do with its traditional subject matter. It is not about debating how to produce goods and services or how to distribute them. Instead, it relates to how economics has emerged as an approach that distances itself from democratic politics and provides little room for human agency.

Anyone who has done a high-school course in economics is likely to have learned the basics of its technocratic approach from the start. Students have long been taught that economics is a ‘positive science’ – one based on facts rather than values. Politicians are entitled to their preferences, so the argument went, but economists are supposed to give them impartial advice based on an objective examination of the facts.

More recently this approach has been taken even further. The supposedly objective role of the technocrat-economist has become supreme, while the role of politics has been sidelined.

In practical terms, this approach has reached its apogee in Greece and Italy. Both countries, under pressure from the European Union, have appointed unelected technocratic governments. Mario Monti, the Italian prime minister, has a PhD in economics from Yale, while Lucas Papedemos, his Greek counterpart, has a PhD in the same discipline from the Massachusetts Institute of Technology.

But even in countries that are not led by economists, the technocratic approach has come to the fore. Governments in America and Britain, for instance, are heavily influenced by technocratic thinking. It informs not just economic policy but debates as varied as whether smoking should be banned and the best way to respond to climate change.

Frank, a professor of economics at Cornell University in New York state, is one of the most articulate experts in the field. As the joint author of an economics textbook with Ben Bernanke, the chairman of America’s Federal Reserve central bank, he also has a direct personal connection with one of the world’s most powerful policymakers.

The starting point of The Darwin Economy is what economists call the collective action problem: the divergence between individual and collective interests. A simple example is a fishermen fishing in a lake. For each individual, it might be rational to catch as many fish as possible, but if all fishermen follow the same path the lake will eventually be empty. It is therefore deemed necessary to find ways to negotiate this tension between individual and group interests.

Those who have followed the discussion of behavioural economics will recognise that this is an alternative way of viewing humans as irrational. Behavioural economists focus on individuals behaving in supposedly irrational ways. For example, they argue that people often do not invest enough to secure themselves a reasonable pension. For Frank, in contrast, individuals may behave rationally but the net result of group behaviour can still be irrational.

Frank’s favourite example in The Darwin Economy is the elk. Males have evolved giant antlers as a way of fighting other males for mates. Those with the largest antlers have an evolutionary advantage in that respect.

But there is a catch. Having huge antlers makes male elk more vulnerable to hunters such as wolves. It is harder for them to run away and they can easily get tangled in trees.

If all male elk could decide to, say, halve the size of their antlers it would benefit the species as a whole. Those with the largest antlers would still maintain their advantage in fighting for mates, but the species as a whole would be less vulnerable to predators.

Of course, Frank realises that elk are not in a position to make such decisions, but he believes humans can learn from the paradox. For instance, Americans often feel obliged to organise expensive and lavish wedding celebrations as a result of social pressure. If everyone agreed to scale down their weddings then the whole community would benefit. In an earlier book, Frank used the same reasoning to argue there should be less emphasis on economic growth and more focus on narrowing inequality (see Towards an age of abundance).

The focus of The Darwin Economy is to work out how best to resolve such conflicts. To do so, he turns to an influential approach developed by Ronald Coase, a Nobel laureate in economics based at the University of Chicago in the late 1950s. His concern was to find a pragmatic way to resolve conflicts rather than having to rely on moral principles.

To illustrate his argument, Coase gave the example of a confectioner who had used his business premises for many years. A doctor moved in to occupy the neighbouring property and the confectioner’s machinery did him no harm till he built a consulting room at the end of the garden, next to the confectioner’s premises. The noise and vibration of the machinery began to disturb the doctor’s work.

Coase then made the following assumptions:
  • If the doctor did nothing it would cost his surgery $20,000 in damage;
  • If he moved to a different location it would cost him $10,000;
  • The factory owner could eliminate the noise by installing soundproofing at a cost of $5,000;
  • The costs for the two to negotiate were minimal.
From these premises, it is clear that the two sides should be able to negotiate an agreement with each other for the installation of soundproofing. This is the case even if the government does not make the factory owner responsible for noise damage.

Admittedly this is an arcane example with arbitrary premises but, in essence, it embodies the same approach used in numerous policy initiatives. Although at first sight it appears to be a pure free-market framework, on closer inspection it should be clear that it is not. If it is impractical for the two parties to negotiate a solution directly – that is, if transaction costs are high – it is up to the state to create laws and define property rights. From this perspective, the goal should be to encourage behaviour that would have occurred if the two sides could have negotiated directly. For Frank, the main institution for achieving this objective is through forms of taxation.

This approach is central to the current framework for mitigating climate change. Rather than forbid the emission of greenhouse gases, the most popular approach is to charge companies for permits to emit. From an economic-technocratic perspective, this will lead to the most efficient outcome. The case for imposing heavy taxes on alcohol, or on sugary drinks, is based on the same reasoning.

To those who believe that such measures can lead to the denial of individual freedom, Frank enlists an unlikely ally: John Stuart Mill. The nineteenth-century British philosopher is normally seen as the arch proponent of liberty, but Frank turns him into its opposite. Mill supported the maximum possible freedom for individuals with the important caveat that they should not be able to harm others. For instance, I should be free to criticise individuals as harshly as I like but I should not have the right to punch them in the face. Frank extends the harm principle to cover more or less any behaviour that could be deemed harmful. His argument is not that harmful behaviour should always be banned, but government should in many cases impose extra taxes to make it more expensive.

To those who object to such measures as social engineering, his riposte is that all government measures can be seen in that light. These can include laws against murder and theft, speed limits and even traffic lights. From Frank’s premises, any activity considered harmful by experts could be deemed illegitimate and subjected to punitive measures.

From this brief account of his argument, the problematic direction in which it can be lead should be clear. It can provide justification for intervention in the personal lives of individuals. It embodies an exceedingly narrow conception of how to deal with collective challenges such as climate change. It can also be used as an argument against economic growth as it leads to a wasteful widening of inequality.

But it is not enough just to dislike Frank’s conclusions. There are several substantial flaws in his premises.

At the most fundamental level, it is wrong to compare humans with other animals. People are not elks. They have the unique capacity to interact with each other and consciously change their environment. Humans are not constrained by their evolutionary heritage in the same way as mere animals. We can find creative solutions to the challenges we confront.

Frank’s conflation of human and animal behaviour leads directly to his implicit denigration of politics. The political sphere provides humans with the space to discuss and resolve conflicts over resources and priorities. It enables us to make collective decisions about how best to benefit society as a whole. Frank’s alternative is the imposition of technocratic measures from above. He frequently condemns those with any kind of political conviction as ‘ideologues’.
There are also problems with a framework that evades debates about moral principles. It is important that there are lively debates about what kinds of actions are deemed proper. Frank sidesteps such arguments with his preference for a technocratic approach. Economic equations and graphs have their place, but they are not substitutes for democratic debates about how to run society.

On a more practical level, it is also wrong to assume that there is no more scope for economic growth to be beneficial. Even in the West, there is a long way to go before scarcity is limited. This is not just a question of individuals having as many consumer goods as they desire – although that has a role. It also means having the resources to provide as many airports, art galleries, hospitals, power stations, roads, schools, universities and other facilities as are needed. There is still ample scope for absolute improvements in living standards.

Finally, the narrow vision embodied in technocratic approaches leads to a blinkered approach to problem-solving. For example, most economists discuss tackling climate change in terms of the optimum design of a market for carbon trading. There is little critical debate about the nature of the threat the world is facing or of the range of possible solutions. One alternative to tinkering with the demand for carbon might be to have a huge programme for building nuclear reactors. Such an initiative would also have the advantage of helping to tackle a vital but often forgotten problem: the need for massive amounts of additional energy to fuel economic development.

The technocratic approach to policymaking has become immensely influential and pernicious. Although it is often expressed in terms of economic arguments, it has an impact across the whole range of social life. It is anti-democratic, anti-political and anti-human. To counter the rise of technocracy, it is necessary to delve deep into how its arch-exponents think.

Daniel Ben-Ami is a journalist and author based in London. Visit his website here. His latest book, Ferraris For All: In Defence of Economic Progress, is published by Policy Press. (Buy this book from Amazon (UK).)

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