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 July 15, 2024


How to Reconcile Economics and Politics

May 16, 2007 — From Nigeria to Argentina, the success or failure of economic and development policies are intrinsically related to politics. How adept are economists who know what to do at bringing about change? Do they know how to do it? Should economists become politicians, or is there a risk that the politics of economics might blind them?

These were some of the questions discussed at ”Economists in Politics: Politicians or Technocrats?” held on the first day of the two-week long Poverty Reduction and Economic Management (PREM) Knowledge and Learning Forum 2007.

A Clear Connection

"Economics and politics are very clearly connected and a lot of the issues we deal with in development are either successful or not successful depending on the political context,” said PREM Vice-President Danny Leipziger , who moderated the debate. “This is true when you look at privatization, tax reform, issues of competition policy, and labor market reform, to highlight just a few."

The speakers on the panel included Ricardo Lopez-Murphy, former defense and finance minister of Argentina, and presidential candidate; Moises Naim, editor of Foreign Policy magazine and former trade and industry minister of Venezuela; and Ngozi N. Okonjo-Iweala, a distinguished fellow at the Brookings Institution and former finance minister of Nigeria.

"Is there a conflict between a good economy and good politics? I don't think so,” said Lopez-Murphy. “The good politician understands very well that macroeconomic consistency is vital to survive. If you make mistakes in macroeconomic policy, you will be dead before the long run.”

Nevertheless, there are differences in timing and priorities between economists and politicians, according to the panel, and they need to be well understood. Successful economists-turned-politicians understand this.

From Technocrats to Techno-Politicians

Politicians are often driven by the will to retain power, acting on a short-term basis, while economists must take into account the trade-offs in the long run. But sometimes, economists suffer from “tunnel vision,” tending to ignore the greater national debate when designing their policies.

“I'm not sure we’ve quite succeeded in the complete evolution from technocrat to techno-politician, but I think we need a way to bring the two together,” said Okonjo-Iweala. “Train the politicians to better appreciate what the technocrats have to say and train the technocrats to better appreciate what it takes to bring the politicians along to support your programs.”

Politics vs. Policy

The issue is far from being “clear-cut,” as the Naim, the Foreign Policy magazine editor, suggested by referring to the case of Venezuela.

“President (Hugo) Chavez epitomizes very bad policies and very bad economics, but excellent politics,” Naim said. “He is easily dismissed among the elites, but why is it that he’s so successful, while none of his predecessors enjoyed a similar situation?”

The key then, for both technocrats and politicians, is to learn from each other, and also to educate the public about the consequences of their policies. In order to have a better understanding and communication with the public, a system of checks and balances is needed, as well as the right institutions to support this process, according to the panelists.

Getting the Right Advice What is the role of the international institutions in helping the countries ensure that the economic policies are both well-designed and viable? For Okonjo-Iweala, the best contribution that the international financial institutions (IFIs) can make is to provide advice based on country-ownership, sharing of best practices, and inclusion, to prevent reforms from being imposed. For that, IFI staff should first understand the issues at hand in the country by doing extensive analysis. This task generally takes time, but when people are able to properly diagnose the issues, the solutions are more likely to be well received by the population and their implementation more likely to succeed.

When Reforms Work

"Reforms work if you have a good sense of who the winners and the losers are, and if you have a good platform for dealing with the negative impacts of policy changes,” Leipziger concluded. “Economists like to look at the net welfare gain in societies, whereas politics is about winners and losers.”

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