Experimental economic management

The world is going through an economic transformation that requires effective government interventions on multiple fronts if we want to stop climate change, protect public health, develop innovative technologies and rebuild the middle class by creating good jobs. Are our countries capable of it?

Skeptical attitude towards the ability of states to initiate and achieve positive changes is widespread. Such doubts are not unfounded. Polarization and authoritarian populism - mutually reinforcing - have occupied the public sphere and weakened society's capacity to initiate joint actions to solve common problems, domestically or multilaterally.

An even older belief is that states, by definition, cannot dispose of sufficient information and capacities needed to achieve positive structural changes in the economy. If you give it too much power, critics say, the state will misdirect resources and ultimately fall under the control of special interests. This is the main argument of neoliberalism, a doctrine that we must overcome if we want to successfully replace it with a new economic paradigm - for example, productivism.

A more detailed examination of state administration capacities shows that they are neither inherited nor static. In fact, once the appropriate priorities are set, the state's capacities develop over time by gaining new experiences, learning and gaining the trust of private entities. For civil servants, the real question should not be "Can we do it?", but "Have we defined our priorities well and chosen the right management method?"

Skeptics will say that it sounds good in theory, but it cannot be applied in practice. Look around you. We are surrounded by examples of the failure of state administrations at the local, national and global levels. However, Charles Sabel, a law professor from Columbia University, and David Victor, from the University of California, San Diego, show in a recently published book that models of effective public administration already exist and bring good results. The practice is there; it is the theory that lags behind.

Sabel and Victor focus on climate change, the biggest challenge to government policies of our time. This is an area where management is doubly difficult: it is not enough for the adopted regulations to be effective only at the national level; they must also be harmonized globally between countries whose economic situations and interests are often very different.

Sabel and Victor develop their argument using the example of the Montreal Protocol of 1987, an agreement that successfully stopped the emission of substances that damage the ozone layer, so successfully that the ozone layer is now on the road to full recovery. In the beginning, it seemed that the disappearance of the ozone layer and climate change are challenges of a similar kind, because in both cases the processes involved include many scientific and technological unknowns and are burdened by the different positions of developed and developing countries. That is why the Montreal Protocol was adopted as a model in the UN Framework Convention on Climate Change - the first global climate agreement.

Both the Montreal Protocol and the UNFCCC were initiated as "thin" regimes that introduce an acceptance in principle of an obligation to cease emissions of ozone-depleting substances and greenhouse gases by a certain date in the future, without much operational detail. But they then evolve in quite different ways. While the Montreal Protocol has made steady progress by successfully bringing companies and states together to solve specific technological problems, climate change agreements often remain stuck in deadlocks in global negotiations.

Sabel and Victor draw attention to a key difference between the two regimes: the Montreal Protocol established sectoral committees in which companies producing harmful gases collaborated with legislators and scientists to search for technological alternatives. Such groups were formed with small ambitions, but over time gained weight with the increase of knowledge, development of capacities and strengthening of trust between participants. This approach has produced results because solving the problem has been left to local actors - namely, firms with the necessary technological know-how. If the innovations did not bring solutions, the goals were adjusted. The result was a positive feedback loop between the innovations achieved on the ground and the goals defined at the highest level.

In solving the problem of climate change, on the other hand, companies do not have access to legislators for fear that they could take control of the process. Such an approach only reinforces the conflict of interests and slows down innovation.

The Montreal Protocol is not the only example of successful "experimental management", as described by Victor and Sabel. Examples can be found in a range of national and regional programs, from the US agency ARPA-E to Ireland's Agricultural Pollution Control Program. In each successful case, experiments in the field were paired with the definition of goals at a higher level, and the resulting solutions were routinely put into practice by setting new standards.

Successes are not limited to environmental protection. ARPA-E is modeled after a project by DARPA (Defense Advanced Technologies Agency), the US agency behind some of the greatest innovations of our time, including the Internet and GPS. The most successful initiatives for revitalizing communities and creating jobs at the local level take the form of private-public cooperation that brings together training programs, businesses, non-profit groups and government services in order to create new economic opportunities. Effective national industrial policies use a similar collaborative and multisectoral approach.

Sabel and Victor explain that the general strategy of such projects is to start the process with ambitious, though not entirely clearly defined, goals. Program leaders must accept uncertainty and the possibility of error. The most important thing is to provide incentives to the participants with the most detailed and accurate information - usually companies - to join the search for solutions, which means that government agencies must establish a system that includes the stick (threatened regulations) and the carrot (incentives and public input).

Since success depends on frequent reviews and revisions, defining milestones and tracking progress are essential. Developed solutions can be massively applied in practice through new standards and regulations. Since a higher standard of living (including a cleaner environment and better jobs) is possible only with increased productivity, innovation is at the heart of the whole process.

Such a way of policy development is significantly different from today's dominant approaches. From the perspective of experimental development of state policies, the dichotomy of "state and market" is irrelevant. States and markets are not in conflict, but complement each other. The standard hierarchical economic model of the principal-agent relationship is useless here.

A new paradigm must transcend the outdated ideologies of the past to be successful. Fortunately, the governance models we need already exist.

(Project Syndicate; Peščanik.net; translation: Đ. Tomić)