Psychology of Public Policy: Planning Vs. Provision

In Budget Politics, Democratic Governance, Economic Planning, Economics, History and Politics, Industrial Policy, Political Ideology, Politics, Politics of Policy, Progressivism, Public Policy, Regulation, Social Democracy on July 25, 2011 at 11:20 am

Introduction:

All political movements at their core face an internal tension between conflicting tenets of their ideology. 19th century liberalism was split between its commitment to universal suffrage and the fear that the unwashed majority might use their votes to infringe on the property rights of the propertied. Even the Republican party, famous in recent years for iron discipline, is divided between cultural conservatives who would like to abolish gay people, and business conservatives who are happy to sell to gay people.

Within the broad left in the U.S, our divided dreams have often found us torn between our hope that economic planning might restore some democratic sovereignty over the anarchy of the market, and our belief that public provision of social goods was necessary for economic security.

However, I think this was a false choice, and that the progressive movement can learn much if it avoids such a division in the future.

Planning and the Progressive Movement:

To understand the pull that economic planning has had on American progressivism, we have to begin with the historical context of American industrialization. While the years 1865-1910 were periods of extreme economic growth, increases in per-capita GDP and investment, and productivity increases, they were also years of devastating economic crashes and rising inequality. The Panic of 1873, the Panic of 1893, and shorter recessions in 1869, 1882, 1887, and 1890 convinced many observers that something had to be done to tame the capitalist business cycle. This belief was hardly confined to progressives – conservatives who blamed the recessions on over-production and “ruinous competition” looked to corporate consolidation and private planning to restrict production and imperialism to find new markets.

However, it was the progressives who developed the most elaborate explanations and solutions for recurring economic crises. Greenbackers and Populists pointed to gold standard deflation as the cause of economic crises, and proposed inflation and public central banking (cite); John R. Commons and the institutionalists looked to social insurance and regulation to counter-balance systemic flaws that lead to high unemployment, low wages, and child labor.

Of those who called for economic planning, Thorstein Veblen and Herbert Croly led the way. Thorstein Veblen, the great theorist of evolutionary and institutionalist economics, believed that economic planning was a technical matter – the necessary solution to the problems of industrial capitalism. In “The Engineers and the Price System,” Veblen argued that the rise of large corporations with heavy debts to service had resulted in producers restricting their production to maintain profitability and service their debts, rather than passing on the benefits of technology to the consumer in the form of abundance at lower prices. His proposed solution  was what became known as “technocracy” – namely, economic planning through a group of engineers and other technicians, who would redirect the efforts of corporations away from production restriction, waste, and “predation” and towards ever-increasing technological innovation and efficiency. Veblen would later be followed by a host of planners, including William Lippman, Rexford Tugwell, and Gardiner Means, who developed the idea of administered prices, sectoral imbalances, overproduction and underconsumption into a fully worked-out agenda.

Croly approached economic planning from the angle of democratic theory. In the Promise of American Life, Croly argued that the “trust question” revealed a fundamental tension between laissez faire capitalism and democracy. Unlike the Brandeisians, who argued that the primary harm of corporate monopolies was their interference with the “man on the make’s” ability to be an entrepreneur, Croly pointed out that the emergence of large monopolistic corporations meant that decisions about the economic future of the nation as a whole – the standard and cost of living, class divisions, the path of economic development – would be made by small groups of unelected men. His solution was to create a planning department to be the “general staff of a modern progressive democratic state,” a state that could think in the long-term, learn from its history and current practice, and use knowledge to counter-balance private economic power. As voters, ordinary people would regain a measure of economic independence and control over their lives.

WWII created a burst of belief in the efficacy of planning over provision. The U.S and the U.K were able to achieve full employment and record economic growth with minimal inflation due to economic planning. Many European nations, especially France, the Low Countries, and Scandinavia, turned to planning to guide post-war recovery. Especially in comparison to the fights over New Deal spending, planning was viewed as potentially less disruptive and confrontational, it had the aura of being modern and technocratic. Especially in the U.S, the hope was that Keynesian planning would allow the government to guarantee full employment and economic growth without expanding the public sector along the social democratic model.

The Problem with Planning:

The difficulty with planning is two-fold. On a practical level, planning is always complex and difficult to get right. Central planning, while less of a failure than neoclassical dogmatists insist, becomes incredibly difficult to operate when an economy moves beyond initial industrialization;  many of the most eminent socialist economists of the 20th century wound up supporting some version of market socialism in reaction. Tripartite planning requires a level of social organization on the part of business and labor that historically has never existed in the U.S (business went corporate instead of cartelized in the turn of the century, due to the impossibility of enforcing cartel agreements in American law; U.S labor was too balkanized by craft unionism). Indicative planning could be possible – it has worked in places (France being the classic case) for long periods, but as is the case with Keynesian planning, requires extensive state capacity to function effectively. At least in the United States, it has been extremely difficult to develop that capacity over the long-term.

However, the more difficult problem is that planning makes for poor politics, While planners hoped that planning would be seen as less interventionist than a larger state sector, it didn’t work out that way. Immediately after the war, planning was incessantly red-baited in the United States. As Meg Jacobs writes about in Pocketbook Politics, the Office of Price Administration which had successfully restrained inflation during the war was pilloried as a hotbed of Communist infiltration and terminated, along with the National Resources Planning Board. Calls for Keynesian full employment planning in the Full Employment Bill of 1945-6 were denounced as originating from the Soviet constitution.

Beyond the historical problem of anti-communism, the problem is that planning is too abstract to win a hold on public psychology. Attempts at planning were terminated, not because of mass opposition to planning, but because of mass apathy combined with elite opposition. If the economy is going well, as was the case in the 1960s for example, people will tolerate planning – but they’ll turn on just as quickly if the economy is doing poorly, as was the case in the 1970s. However, voters generally are apathetic about process, especially processes that are heavily intellectualized – what they care about is results.

It’s not that you can’t do economic planning, it’s a perfectly legitimate strategy if it works. However, making it the face of your economic program is a bad idea. It belongs in the background.

Psychology of Provision:

By contrast, the public provision of social goods – health care, education, health care, and the like – is something that the public understands at an instinctual, bone-deep level if it’s organized the right way. In order to be publicly accepted, public provision should be:

  1. Universal – universal programs, as political scientists have known for decades, are politically more secure than targeted programs because they include large numbers of voters, often a majority, within the radius of their benefits. In addition to the pragmatic appeal of spreading around benefits, it also prevents the formation of divisive us vs. them politics and makes people more disposed to think of themselves as belonging to a large group that includes other beneficiaries. It’s not an accident that despite their rhetoric conservatives fight hardest against the inclusion of the middle class within any social program, because it makes it harder for them to construct “taxpayer” versus “tax-spender” politics. (Note: trying to dispel the intellectual flaws in those categories is something of a lost cause and ultimately less efficient then establishing new policies that erase those lines) While economists and some advocates for the poor argue in favor of targeting spending on the neediest, this actually backfires by stimulating the kind of political thinking that’s opposed to spending on the poor. As scholars like William Julius Wilson and Theda Skocpol have noted, you can still do targeting within universalism (SSI within Social Security, for example), but not the opposite.
  2. Reciprocalas I’ve discussed before, reciprocal programs where recipients have either contributed to the program before (as in the case of Social Security and Medicare) or where they provide labor or expertise to the community (as in the case of jobs programs or IHSS) are more politically secure. As in the case of universal programs, reciprocal programs short-circuit conservative thinking – in this case, the irrational fear that someone, somewhere, is getting something for nothing. Especially in countries like the United States that never developed the idea of benefits based on citizenship (either from a nationalistic or social democratic tradition), creating a reciprocal system establishes earned rights that are widely accepted, even by those who don’t immediately benefit. Just as universal programs can still be targeted, reciprocity can be made progressive and inclusive rather than regressive or exclusionary.
  3. Visible – finally, public provision has to be visible. The public has to see programs are in action, and they have to care about them. While one can construct programs that are essentially invisible (see chart below), such as was the case with the withholding tax credit offered by the stimulus, and some argue that this can “nudge” people into useful behaviors, it’s ultimately politically counter-productive. The invisibility of the stimulus weakened political support for further stimulus; by contrast, an enormous strength of Social Security and Medicare is the fact that people carry cards with them in their wallet, they receive regular statements in the mail, and all these things create an immediate link between the program and the public. This in turn creates public support for continuing these programs, reinforcing their viability in the future.

Conclusion:

While the three part recipe outlined above isn’t a guarantee for public support for public provision, it’s as close to a guarantee as you get in public policy. By contrast, liberals in America have repeatedly bet on economic planning, with little to show for it.

In the end, to paraphrase Patton Oswalt, we don’t care why we like the things we like.

  1. […] Housing Insurance – as I’ve talked about before, one major source of insecurity that is largely unprotected against in the U.S is the sudden loss in income turning into a loss of one’s home – foreclosure insurance is rare and rather expensive, and renter’s insurance usually only protects against the loss of personal property not against the loss of one’s home. The Federal government could easily establish an affordable social insurance program through the existing UI system to provide assistance to keep people who’ve lost their jobs in their homes. And as with the benefits above, one of the advantages to constructing policies that treat ownership and renting equally is that not only do you further de-commodify housing, but you also create a community of interest between renters and owners. […]

  2. […] Housing Insurance – as I’ve talked about before, one major source of insecurity that is largely unprotected against in the U.S is the sudden loss in income turning into a loss of one’s home – foreclosure insurance is rare and rather expensive, and renter’s insurance usually only protects against the loss of personal property not against the loss of one’s home. The Federal government could easily establish an affordable social insurance program through the existing UI system to provide assistance to keep people who’ve lost their jobs in their homes. And as with the benefits above, one of the advantages to constructing policies that treat ownership and renting equally is that not only do you further de-commodify housing, but you also create a community of interest between renters and owners. […]

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