Econocracy inside the state

Johan Christensen has written a great book. The Power of Economists within the State will become a landmark for everyone interested in the rising influence of (neo-classical) economists across the globe. Christensen fills a yawning gap: since the world financial crisis large parts of the social sciences have pointed the finger at economists and their neo-liberal policy recommendations. Yet, systematic assessments of how a new generation of post-Keynesian economists asserted their influence since the 1980s on policies and states, and their role in the global financial meltdown of 2008 and the euro crisis are surprisingly scarce.

Taxation and the state

The book focuses on tax policy in four advanced capitalist democracies: Denmark, Ireland, Norway and New Zealand. Tax policy, at the heart of the agenda of neo-classical economists since Reagan and Thatcher’s economic revolutions, is a good case for asserting the influence of economists. First, because there is variation in how far market conforming reforms of the tax code have gone in countries around the globe, and second because taxation is the basis of modern statecraft. Without extracting substantial revenue no modern state can do.

Christensen does not stop short after his account on the evolution of ideas. Instead, he follows the actors that transport these ideas. Christensen wants to know under which conditions neoclassical ideas on taxation could travel from the epistemic community into politics.

The market conforming agenda that came up in the 1980s can be summarized under the label of the flat-rate tax. Different from the flat-rate that telecommunication companies use to advertise their sms and internet products, it meant to unify tax rates, create level playing fields, stuff tax loopholes, erase distorting incentives for the market participation of individuals in the tax code, decrease high income taxes and broaden the tax base. Christensen masterly reconstructs the advent of these ideas and how they crowded out older Keynesian ideas that saw taxation as a means to steer the economy. The tax reform movement started at US economics departments and spread from there into other economics departments around the globe.

The spread of neoliberal ideas on taxation is an interesting study object in itself but Christensen does not stop short after his account on the evolution of ideas. Instead, he follows the actors that transport these ideas. Christensen wants to know under which conditions neoclassical ideas on taxation could travel from the epistemic community into politics. To find out the author focuses on four cases, cleverly selected comparative pairs of two Anglo Saxon (Ireland and New Zealand) and two (formerly?) Social Democratic countries (Norway and Denmark). He uses an intelligible grid for his comparisons and draws on the unprecedented empirical power of 80 personal interviews with national tax policymakers. His findings push the existing literature on taxation and the spread of neoliberal ideas into a new dimension.

Bureaucracies matter

Taking a somewhat old school Weberian lens, revamping it through a fusion with the most recent theoretical approaches to tax policy, Christensen argues that it is not think tanks, epistemic actors in universities, the knowledge regimes or the influence on parties and politicians that has the greatest ideational impact on tax policy but that the true power of the economist stems from his access and position in the bureaucracy. As plausible as this seems after reading the book, the author reminds us rightly that bureaucracies, the main and exclusive executers of political ideas within a state, have so far escaped the attention of political scientists.

How bureaucrats are recruited and when generational change in the bureaucracy happens is of crucial importance.

Christensen extracts two crucial mechanisms: first, it matters greatly for their potential influence today how economists were historically embedded in the top level bureaucracy after WWII. Second, how bureaucrats are recruited and when generational change in the bureaucracy happens is also of crucial importance. In Ireland, top level bureaucrats are selected centrally and according to general skills assets, meaning that there are few economists in the departments which diminished the chance for neo-liberal reforms. In New Zealand, recruiting was decentralized and applicants ranked according to their economic qualification. In New Zealand a PhD from a top US economics department like Harvard or Duke is seen as the highest possible qualification. In Norway, the advocates of market conforming tax reform could build on the historically institutionalized power of economists within the state bureaucracy, a legacy from the entrenchment of Keynesian economists after WWII. Neoliberal economists used the generational replacement pattern within the ministry to their advantage. In Denmark, tax reform bore mixed results due to the uneven entrenchment of economists within the administration.

Most importantly, the author, unlike many others, does not throw out the baby with the bathwater by focusing solely on “his” explanation (economists within the administration) but shows how economists within the state bureaucracies enforce their power in interrelation with favorable opportunity structures stemming from party system change, crisis, or the strength of think tanks.

Christensen states in his introduction that his four cases, all small states in world economies, make it relatively hard to generalize beyond his empirical universe. That might be true but it is not necessarily a downside since the book and theoretical contribution immediately got me thinking about other cases. What about countries that have idiosyncratic econobureaucratic traditions like France’s dirigent engineer-economists or Germany’s ordoliberal lawyer-econocrats? Drawing on his empirics Christensen discharges cultural items like language or geographic proximity as enablers for the diffusion of new economic ideas. He might indeed be faulted by his case selection. Even within his cases selection, Nordic countries have been traditionally more open to Anglo-Saxon epistemic influences in their tertiary education. Language is not an issue, unlike in France or Germany where even higher civil servants are uneasy with English. In France it is basically impossible to be drafted into the higher administration without a degree from one of the Grande écoles and a PhD from a US university might even penalize you in the selection process. German bureaucracy is almost exclusively staffed by lawyers (and law degrees and PhDs are also predominant amongst German politicians). The measurement rod for entry into higher administration is the performance in the Bar-exam (Staatsexamen) a test that is so German that German law students often do not want to waste even a single year abroad in Erasmus or Fulbright visits to other countries.

New light on the euro crisis?

Are we all slaves of the global rise of economists? From the four cases studied in his book it seems to matter surprisingly little if you have reformed towards a market conforming tax model or not, on the other side not implementing one (like in the case of Ireland) is also not a safeguard for not sliding into disaster. The Irish case is a powerful statement for how every European country sled for different reasons into the crisis. In Ireland it was not debt but semi clientelist party politicians catering with their tax breaks to the construction sector that lay at the heart of an incredible boom with Chinese style 8% Wirtschaftswunder growth and subsequently an unpreceded meltdown.

The Troika demands structural reforms like welfare cuts and deficit reduction and is puzzled why the target countries do not meet the requirements. The reason might be that the administrative cultures in the Southern European countries are alien to such ideas.

The book opens implicitly for a brand-new research agenda on the European crisis. It suggests that states are pretty immune to policy recommendations from outside unless there are strong linkages from within the administration to epistemic communities in other countries. Even then, policy change towards other forms of economic management is a result of a long evolutionary and often contingent process, with long term slow moving mechanisms like generational change involved. I wonder if the administrators and members of the Troika are aware of this? If I look at their policy proposals for Southern Europe I have doubts. The Troika demands structural reforms like welfare cuts and deficit reduction and is puzzled why the target countries do not meet the requirements. The reason might be that the administrative cultures in the Southern European countries are alien to such ideas. I would recommend that each of the Troika members should sleep with a copy of Christensen book under their pillows before the next trip to Athens.

Photo Credits CC Nikki Buitendijk 

Also published on Medium.