The Role of Economics in Policy Making

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Australia has a salinity problem - scientists there predict that one third of agricultural land in Western Australia will be affected by dry land salinity over the next century; currently the figure is about 10 percent. Australia has spent billions of dollars on their salinity problem over the last 20 years, yet progress remains slow (for a brief analysis of salinity programs, see Pannell and Ridley 2008). One reason (among many) for the lack of success was that the funds were spread thinly and non-strategically among farmers. Although the allocations were socially and politically attractive, they were not technically and economically efficient. In addition, there was a presumption that farmers would adopt land management options that could address salinity regardless of how those practices might affect their bottom line.

Salinity policy, however, is changing in Australia. This shift has been prompted by some rather simple economic analysis. And replacing the old policy is a new investment framework that is based on basic economic decision rules.The economic analysis that, in part, prompted the policy change drew heavily on concepts learned in Economics 100 - that society has limited resources to spend on a problem such as salinity and spreading these resources across all farmers without any analysis of where the best results can be achieved is wasteful. The new policy framework under development is firmly rooted in cost-benefit analysis; investments are to be made strategically where they have the biggest impact. In addition, attention will be paid to whether the required technologies exist and whether farmers have any incentive to adopt them.


The salinity example illustrates very clearly the role that economics plays in public policy making - the overarching goal of economics is to ensure that funds spent by governments are used wisely and provide the greatest benefit possible. Indeed, as speakers at the recent symposium The Role of Economics in Public Policy indicated, the economic paradigm underpins most of the policy making process in government today. The Knowledge Impact in Society project (www.kis.usask.ca) and the Johnson-Shoyama Graduate School of Public Policy (www.schoolofpublicpolicy.sk.ca) jointly organized the symposium (click here for the program and presentations). While economics is sometimes not used or is ignored (as was the case in salinity policy), it nevertheless remains vital to good public policy.


As the symposium panelists indicated, there are many reasons that economic analysis is not considered. Oftentimes the models and results that economists generate are not communicated properly - economists tend to speak in their own language, one that others do not understand. Many economists rely on analysis that is much too complex - what is needed for good policy work is simple concepts that are applied in a straightforward and well-understood way. The need to publish in leading economics journals means that academic economists often have little incentive to work with the basics; students are likewise trained to use overly sophisticated models. Economists may not have the technical knowledge required to interact with others in the policy process, and they often do not understand the pressures - legal mandates, equity considerations, and time constraints - that policy makers face. Academic economists often do not take the time to build personal relationships with policy makers, relationships that are critical if the academics and their recommendations are to be trusted enough to be incorporated into policy.


The problems identified above mean that from time to time the balance is lost between political pressures and economic realities, resulting in good public policy being pushed aside. Short-term political costs, spread over many people, can swamp long-term economic benefits. Vested interests, with access to key political players, can sustain policies that have limited benefit to society. And policies that do not fit with the existing mindset of citizens may never see the light of day.


Symposium participants had a number of suggestions for how to address the need for better and more appropriate economic analysis, and thus redress the crucial balance that is required. Chief among the suggestions was the need to ensure that applied economics was an integral part of university training for those working in the policy-making area (this includes people in the public service, as well as people in the businesses and organizations that deal with government). Indeed, the point was made that a new program in applied economics is required in Saskatchewan. Economist training needs to provide students with a strong foundation in the basic economic concepts and how these can be applied to public policy problems. Students need to be provided with the proper communication skills (both oral and written), and they need to be able to converse with people from other areas (e.g., scientists, social scientists, administrators). And they need to know that the real world is not textbook perfect - that compromises have to be made, all the while ensuring that economic factors are considered.


There are a number of public policy schools springing up across the country - the latestones are at the University of Ottawa, the University of Toronto, the University of Calgary, and here in Saskatchewan where the University of Regina and University of Saskatchewan have joined together to create the Johnson-Shoyama Graduate School of Public Policy. Discussion at the symposium examined the role these schools might play in better positioning economists and economics in the policy process. The view was expressed that the foundation of public policy schools must include a solid and significant economic component. It was felt that policy schools could provide incentives to faculty to undertake policy research. Policy schools offer the opportunity through their outreach and engagement activities to package research results for non-academic and non-economist audiences. Policy schools also represent an opportunity for academics to build relationships and trust with government officials, and to provide graduate students with the appropriate analytical and communication skills.


One of the panelists nicely captured what is required for a better working relationship between economists and policy makers. Policy-makers would benefit from being as willing to accept criticism as they are willing to accept praise, while economists would benefit from being as willing to give praise as they are willing to give criticism. Policy makers would benefit from an appreciation of the ability of economists to identify unintended consequences, while economists would benefit from an appreciation of the myriad of constraints under which policy makers must work.


This blog entry was authored by Murray Fulton. To read additional Illative Blog entries or to leave comments on this entry, please visit www.illativeblog.ca. The Illative Blog is an initiative by the Knowledge Impact in Society (KIS) Project based out of the University of Saskatchewan. Email correspondence can be sent to kis.project@usask.ca

1 Comments

Lampros Lamprinakis said:

Great post!

Translating scientific analysis to the language of policy makers implies a very different mental frame that many scientific teams either ignore or believe that is not important learning. Using interdisciplinary teams to identify and address the issues may help to achieve the balance you talk about. That means that economists need to step forward and reach out to the other parties - especially businessmen and government organizations.

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This page contains a single entry by Murray Fulton published on October 30, 2008 11:12 AM.

Coordination and Co-operation in International Agricultural Markets was the previous entry in this blog.

Agriculture Offset Credits: Where Do They Fit? is the next entry in this blog.

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