Friday, February 18, 2011

Lit in Review: Political Economy of Efficiency

Wildavsky, "The Political Economy of Efficiency: Cost-Benefit Analysis, Systems Analysis, and Program Budgeting" in Political Science and Public Policy, 1968, 55-82.

Wildavsky discusses the increasing movement towards judging policies on the basis of their efficiency. He differentiates between "pure efficiency" -- meeting a given objective at the lowest cost or the greatest amount of a given objective at a given cost -- "mixed effiicency" which "alters the objective to suit available resources" and the kind of economizing that doesn't even take the political situation as given but seeks to alter the entire system as well. At each increasing level of study (cost-benefit to systems analysis to program budgeting) more and more control has to be taken of the the entire society in the name of efficiency.

His comments on cost-benefit analaysis are fairly well-known today, such as the problems of the distribution of costs and benefits, maximizing multiple objectives, and the vast assumptions that must be made to place all elements in one index.

In particular in response to the problem of maximizing multiple objectives, systems analysis steps in where the objectives are either now known or subject to change. Clearly identifying problems, resolving disputes over goals, clarifying vaguely worded directives all require additional authority beyond simple cost-benefit analysis. While cost-benefit analysis deals with uncertainty by making assumptions that attempt to find clarity, systems analysis mitigates the problems of uncertainty (e.g. min-max) and tests the importance of different assumptions.

But as soon as you start trying to govern the system you have analyzed or enact real programmatic budgeting, you find there are a wide variety of actors, each of whom only sees a piece of the whole and whose objectives may not be the objectives of the plan. Then again, adjustments need to be made to the plan as the situation evolves and old uncertainties become known and new uncertainties arise. Power would have to be highly concentrated in order for changes to made. The entire political system itself needs to be revamped...

Without ever referencing Hayek, Wildavsky paints a very similar picture of how an overzealous desire for efficiency leads to a process of putting complete power in autocratic hands. The guy named Bob theory of development wants a guy named Bob to whom analysts can give all the answers and let the results naturally be derived.

Wildavsky's final point is not this, however. His point is that what is lacking in the economics literature and others is a sense of how the policies being advocated on efficiency ground alter the political system; that by spending political capital in one arena, the President may lack it in another area; and (I add) that by giving government more control in one area, it may feel itself more free to enact policies in others.

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