Canada, Failure, International development, Measurement, Risk, Theory

What counts as policy failure — and why it matters

When things go wrong in politics, the word ‘failure’ gets bandied around a lot. In recent weeks, we’ve heard about the failure of Canadian drug policy (as admitted by Stephen Harper), the failure of Canadian diplomatic efforts to get Barack Obama on board for the Keystone XL Pipeline (as declared by his critics), and the failure of European leaders and the ‘troika’ to find a long term solution to the problems posed by the Greek economy (as acknowledged by most sensible commentators).

These declarations of failure, of course, are not uncontested. In each case, there are those who would challenge the label of failure altogether, and others who would lay the responsibility for failure on different shoulders. Labeling something a failure is a political act: it involves not just identifying something as a problem, but also suggesting that someone in particular has failed. These debates about failures are crucial ways in which we assess responsibility for the things that go wrong in political and economic policy.

The most interesting debates about policy failure, however, occur when what’s at stake is what counts as failure itself.

When we say that something or someone, has failed, we are using a particular metric of success and failure. Formal exams provide the clearest example of assessment according to a scale of passing and failing grades. In most cases, such metrics are taken for granted. (Even if some students might not agree that my grading scale is fair, I am generally very confident when I fail a student.) But sometimes, if a failure is serious enough, or if failures are repeated over and over, those metrics themselves come into question. (I did once bump all the exam grades up by five percent in a course because they were so out of line with the students’ overall performance.)

In politics, these contested failures force both policymakers and the wider community to re-examine not just the policy problems themselves but also the measures that they use to evaluate and interpret them. These moments of debate are very important. They are very technical, focusing on the nuts and bolts of evaluation and assessment. Yet they are also fundamental, since they force us to ask both what we want success to look like and to what extent we can really know when we’ve found it.

In my recent book, Governing Failure, I trace the central role of this kind of contested failure in one particular area: the governance of international development policy. Policy failures such as the persistence of poverty in Sub-Saharan Africa, the Asian financial crisis and the AIDS crisis raised very serious questions about the effectiveness of the ‘Washington Consensus’, and ultimately led aid organizations ranging from the International Monetary Fund and the World Bank to the (then) Canadian International Development Agency to question and reassess their policies.

The ‘aid effectiveness’ debates of 1990s and 2000s emerged out of these contested failures, as key policymakers and critics questioned past definitions of success and failure and sought to develop a new understanding of what makes aid work or fail. In the process, they shifted away from a narrowly economic conception of success and failure towards one that saw institutional and other broader political reforms as crucial to program success.

International development is not the only area in which we have seen a significant set of failures precipitate this kind of debate about the meaning of success and failure itself. The 2008 financial crisis was also seen by many as a spectacular failure. The crisis produced wide-ranging debates not just about who was to blame, but also about how it was possible for domestic and international policymakers and market actors to get things so wrong that they were predicting continued success even as the global economy was headed towards massive failure.

In the aftermath of that crisis, there was a striking amount of public interest in the basic metrics underpinning the financial system. People started asking just how risks were evaluated and managed and how credit rating agencies arrived at the ratings that had proven to be so misleading. In short, they wanted to understand how the system measured success and failure. Many of the most promising efforts to respond to the crisis—such as attempts to measure and manage systemic risk—are also aimed at developing better ways of evaluating what’s is and isn’t working in the global economy, defining success in more complex ways.

Of course, not every failure is a contested one. Many have argued that the reasons for the failure of Canadian drug policy are less contested than Harper has suggested. Critics note that the Conservative government’s unwillingness to take on board the lessons of innovative policies such as safe injection sites goes a long way towards explaining this policy failure.

On the other hand, some failures—such as the failure not just of Greece but also of much of Europe to restart their economies—should be more contested than they currently are. The International Monetary Fund did begin opening up this kind of deeper discussion when its internal review of its early interventions in Greece suggested that the organization had been too quick to promote austerity. Yet the narrow terms of the troika’s conversations about the future of Greece suggests that there is an awful lot of room for more creative thinking about the path towards policy success, not just in Europe but around the world.

These kinds of debates about how we define and recognize success and failure can be crucial turning points in public policy. They force us, at least for a moment, to set aside some of our easy assumptions about what works and what doesn’t, and to ask ourselves what we really mean by success.

This blog post first appeared on the CIPS blog on March 6, 2015.

Canada, Political economy

The austerity trap

As the prognosis for the global economy gets darker by the day, we are hearing one word over and over: austerity.  The British government has announced that it will extend its austerity measures past the next election in 2015. In Canada, Finance Minister Jim Flaherty has reiterated that the solution to the current economic crisis, both here and in Europe, is more “belt-tightening.”

But not everyone agrees about the virtues of austerity. Labour finance spokesperson Ed Balls called the British Government’s economic plans a “catastrophic error of judgment.” Two million British public sector workers are on strike over the effects of those austerity measures on their pensions. Closer to home, the former World Bank Chief Economist and Nobel-laureate, Joseph Stiglitz, recently told a Toronto audience, “Austerity is a suicide path.”

These critics are a diverse lot, including people affected by the cuts, Occupy activists, politicians of various stripes, and the leader of the International Monetary Fund. In different ways, they all point to some serious flaws in the current rush to austerity.  It’s worth looking at three of them:

1) The fallacy of composition (or: why Canadian debt isn’t just a bigger version of your family’s debt).

In a recent speech in Toronto, Flaherty noted that he’s applying to the federal government the same advice that he’s offering to Canadians: to tighten their belts and reduce debt. This sounds like it makes perfect sense. Except that it’s a classic error of logic that philosophers call the fallacy of composition: what is true of the parts is not necessarily also true of the whole.

Of course it makes sense for a Canadian family that has taken on too much debt to reduce it. But if all Canadian families at the same time reduce spending in order to pay off debt, then suddenly demand for goods drops, firms reduce production, and jobs are cut. As people lose jobs, it becomes much harder for households to reduce debt; in fact, they may have to take on more to pay the bills. And the risk to the economy is even greater if the federal government doesn’t step in to support demand but actually undermines it further by cutting back on vital services.

This same dilemma applies at the international level. Sure, Canada was able to get its act in order in the 1990’s through austerity measures (at great cost to our health system and infrastructure). But this was at a time when the Canadian economy and the global economy were in good shape.  And while we were cutting back, other countries were doing the opposite, taking up the slack. If everyone cuts back at the same time, there is no one left to keep the global economy going—making it likely that the outcome will be a deeper global recession and more, rather than less, debt in the long run.

2) The costs of austerity (or: why even the IMF thinks it’s a bad idea just now)

In a recent paper, IMF staff concluded that austerity measures do considerable damage in the short and longer term: “This conclusion reverses earlier suggestions in the literature that cutting the budget deficit can spur growth in the short term.” In other words, when someone tells you that austerity will stimulate short-term growth, they’re lying (or as Mark Blyth puts it in a brilliant short video on austerity, this is just about as believable as “a unicorn with a magic bag of salt.”)

What are the costs of austerity?  The IMF paper suggests that they include lower incomes in the short term and higher unemployment in the longer term. As more people become unemployed for longer, there is a real danger that unemployment will become entrenched. The costs of austerity are even higher in cases where a government can’t compensate by significantly lowering interest rates—as is the case today here and in Europe. Because of these very real costs, the IMF head, Christine Lagarde, is suggesting that countries like Canada and the UK not impose any immediate austerity programs while growth is fragile; instead they should be delayed until the economy is healthier. When even the IMF tells us not to impose austerity, and still the Conservative government insists on it, you have to wonder.

3) Inequality (or: whose belt are you tightening anyway?)

Not surprisingly, the IMF study also found that the costs of austerity are not equally borne by everyone. Reductions in wage income caused by austerity are three times larger than those from other kinds of income. It also notes that austerity will “add to the pain of those who are likely to be already suffering—the long term unemployed.” This means that working class people have to tighten their belts much more than others do, through job loss, reduced income and pensions, and the loss of services they rely on. As Blyth puts it: “This ‘common sense’ of austerity—of reducing public debt all at once through slashing services—involves a question of equity—who pays and who doesn’t. Those who made this mess won’t, while those who have paid for it already through the bailouts will pay again through austerity.”

Politicians proposing unpopular and foolhardy policies like to claim that ‘there is no alternative’. But there are alternatives, at least for those in Canada, the UK and other countries not struggling under the kind of crushing debt burden facing Greece. In his recent speech, Stiglitz proposed several suggestions, including investing in infrastructure and education (which would earn returns of 20-30%). The goal is not to reduce the amount that the government spends but rather to reduce government debt, which depends on the overall health of the economy. As Stiglitz notes, “Putting more people to work today means that over the next five to ten years the debt would be lower, GDP higher, the debt to GDP ratio immeasurably improved.”

Remember the unicorn next time you hear someone talk about austerity and growth in the same sentence.

First posted on the CIPS Blog on December 4, 2011.