The Regulatory Policy Institute Research Group

The Insolence of Office

“The greatest improvements in the productive powers of labour, and the greater part of the skill, dexterity, and judgment, with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.”

So says the opening sentence of the main text of the Wealth of Nations.  Smith focused on the division of labour in economic production, but his general points also apply to (i) the division of labour between government and the almost countless, economic activities of the general public, whether in production or consumption and (ii) the organisation of tasks and responsibilities within government.

Economic governance is concerned chiefly with rule-making and rule-enforcement, where the word ‘rule’ is to be interpreted broadly, encompassing anything from statute to very specific pieces of regulation.  These are a government’s chief core activities and they are what, properly, can be designated as its deliverables, in the sense of the things it supplies.

Unfortunately, in a debased political language the word delivery has come to refer to end outcomes when, in reality, these things are determined by a great range of factors about which rule-makers and enforcers have very little information and over which they have very little direct control.  The outcomes depend on the conduct of many millions of people making individual choices in evolving (sometimes at a fast pace) economic contexts.

Loosely we can think of a mapping from three, mutually interacting sets of factors, (a) rules and their enforcement, (b) individual conduct (which is affected, but not fully determined, by rules), and (c) relevant features of a specific economic context to (d) end outcomes. Elements of each of the sets (a)-(c) have both direct and indirect effects on end outcomes (d) in ways that are constantly in a state of flux.

Consequently, the mapping is highly uncertain; but public policy very frequently ignores this fact and implicitly works with a misguided notion of a direct and stable relationship between rules (and their enforcement) and end performance, i.e. a direct and stable linkage between (a) and (d) . ‘Delivery’ in government then comes to be associated with end outcomes: “we will do this specific thing in relation to the rules to ‘deliver’ these specific end outcomes”.

Thus do governments take responsibility (which is later often disclaimed when things go wrong) for end outcomes over which they have an uncertain control and which tend to become distractions from addressing their core functions (Leviathan’s appropriate tasks in a well ordered division of labour). The approach to rule-making becomes non-strategic and prone to instability: for example, when it becomes clear than targets will be missed, rules/enforcement are often adjusted to get closer to them, without much thought of the wider effects of making the adjustment, an example of Hamlet’s ‘insolence of office’).

Strategy does, of course, place a large emphasis on desired end outcomes, but starts by asking what it can best do, with limited resources, to facilitate their achievement, recognising that achievement/delivery will necessarily depend on myriad actions of others in their own, myriad contexts. The approach is indirect. Strategic governance seeks out its own domain of comparative advantage and focuses what it can best do within that domain, and only within that domain.   

In contrast, when government and its agencies ‘target’ end outcomes relatively precisely they hubristically/insolently, and usually dishonestly, take on tasks that are either infeasible or, where they are feasible, are not best done by rule-making and enforcement institutions. The division of labour, and hence of responsibility, becomes dysfunctional.

This basic point does not, however, come with an automatic endorsement of across-the-board ‘deregulation’:  it is more subtle than that.  A disposition to ‘target’ tends to distract attention and resources from core rule-making and enforcement tasks that would be more effectively/efficiently done otherwise, and that merit the allocation of more, not fewer, resources. The division of labour is rendered both shallower and less stable.  It’s a quality/effectiveness/productivity of governance issue.

There is one last point to be made.  Strategy development often tends to be neglected in the face of a belief that, compared with direct ‘targeting’ of end outcomes, there will be little observable to the public eye concerning its effects in the short run, before, say, the day of the next general election. 

However, that belief ignores the central role played by perceptions and expectations in decisions. Economic conduct today depends on expectations about the future and expectations can be changed more or less immediately, if a credible strategic shift is made. The shift itself is immediately observable and people can also observe the conduct of others in response to it.  Keynes’s animal spirits can be lifted in short time periods: the future can suddenly look clearer and brighter.

The new strategy does have to be credible though and “ay, there’s the rub”.

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