Peter Self

Economics, Government and Society

This chapter takes a look at some of the implications of economic techniques for modern governments and societies. The first part deals with a now familiar theme; how far can the new budgetary techniques which seem to promise so much actually change or ‘reform’ the processes of bargaining over resource allocation? The next section offers some speculations — they are no more — about the influence of economic ideas and techniques upon the organisation of government. The final section reverts once more to the theme of rational decision-making, relates this to certain ideals of welfare economics, and asks where these ideals are pointing and why they are influential in the modern world. Again the tone is speculative, and the verdict though critical is not intended to be dogmatic.

Economics and Democracy

This chapter switches attention to political factors which are relevant to the use of economic techniques, while the next one examines the social philosophy behind these techniques. Suppose that politics is viewed as a kind of market in which the voter as a consumer of public policy outputs is trying to express his preferences between them. On this basis the inferiority of political to economic markets needs little demonstration.

‘Econocracy’ and the Policy Process

This book is concerned with the methods of making public decisions or policies. It starts with a critique of the use and effects of certain economic techniques which are now widely recommended, and often used as aids for public decisions. It is the claim of their practitioners that, whatever their limitations, these techniques at least help to make public decisions more rational; that they are a contribution towards, or even the model for, the ideal of ‘rational decision-making’. I shall consider this claim critically, and suggest that in many cases the use of these techniques is productive not of greater rationality, but of irrationality and confusion.

The Dilemmas of Welfare Economics

The foundations of modern economic techniques reside in theories of welfare economics, and some examination of these foundations is necessary for the rest of the book. The discussion here is in no way technical, my main purpose being to demonstrate and consider the logical and political assumptions which are implicitly, and sometimes explicitly, present in these economic theories.

The Quest for Quantification

Numeracy is increasingly esteemed in modern societies, and (some cynics might add) literacy is increasingly devalued. The first of these developments can, in principle, only be welcomed. Social, economic and scientific statistics play a vital part in the processes of decision-making, and the work of modern government would be impossible without the collection and use of vast amounts of quantitative data. Problems about the use and misuse of statistics need to be widely studied and understood.

The Puzzles of ‘Externalities’

Much of modern cost—benefit analysis can be seen as an attempt to deal with the problem of ‘externalities’. Public decisions, it is said, have indirect social consequences which are not adequately incorporated in the decision premises or assumptions. The role of logical analysis is to expose these consequences, and that of economists is to measure them where possible.

Techniques and Values

Economists normally hold that the only relevant costs and benefits are those that accrue to individuals, and which are a function of the preferences of individuals, which leads to the problem of reckoning these preferences. Preferences are logical constructs and must conform with certain logical rules (including transitivity and a number of others) if they are to be consistently stated.1 They imply a reasoning mind, but what if an individual is capricious or unreasoning and lacks consistent preferences? The short answer of course is that one can only give a man his preferences to the extent that he has any, and the analyst must do his best with the data available.

Planning and Cost-Benefit

A rational decision implies, at a minimum, a model or form of analysis for structuring the problem. It is plainly insufficient just to open an accounts book and enter ‘costs’ on one side and ‘benefits’ on the other, save perhaps for simple financial transactions. Policy problems can be and are structured in a great variety of ways which I do not intend to discuss fully. It will prove helpful, however, to start this chapter by setting out two very general models of decision-making. These are no more than loose logical frameworks, but they help to illustrate some basic problems about the choice of different methodologies for reaching decisions.*

THE HERBERT REPORT AND THE VALUES OF LOCAL GOVERNMENT

THE Report of the Royal Commission on Local Government in Greater London1 has made a considerable impression upon public and political opinion. The Government has accepted the main principles of the report, and proposes to introduce legislation in time to establish a new system of local government in London by 1965. Thus the Herbert Commission has achieved the improbable success of having drastic proposals for the reorganization of local government quickly acted upon, even though it is still possible for political cross-currents to sink the craft. This achievement apart, the Herbert Report digs deep into the complex problems of the organization of modern public services in a vast metropolis, and of the part which representative local bodies should play in their administration. My purpose in this article is to consider the Herbert Report within a framework of these wider questions, and to examine in particular the beliefs about the character and potentialities of local government which the report embodies. Reference will also be made to the Government’s proposals for London government, although these are not yet in final form and are being discussed with existing local authorities. For the most part the rationale of the Government proposals has to be sought in the Herbert Report.2 The Royal Commission’s Report is a synthesis of two guiding ideas. One idea is the need for a local authority which could attend to the common problems and needs of the entire metropolis. This would be the Greater London Council, gv erning a population of over eight million. The other idea is the desirability of revitalizing local government at a lower level through increasing the responsibilities of a lower tier of local councils. These would be the 52 ‘Greater London Boroughs’, whose formation would entail the amalgamation of many existing local authorities, but whose powers would be far greater than these authorities (with three exceptions3) now possess. The main changes proposed by the Government