Charles A. Miller
The “sunk costs fallacy” is a popular import into political science from organizational psychology and behavioral economics. The fallacy is classically defined as a situation in which decision-makers escalate commitment to an apparently failing project in order to “recoup” the costs they have already sunk into it. The phenomenon is often framed as a good example of how real decision-making departs from the assumption of forward-looking rationality which underpins traditional approaches to understanding politics. Researchers have proposed a number of different psychological drivers for the fallacy, such as cognitive dissonance reduction, and there is experimental and observational evidence that it accurately characterizes decision-making in certain contexts. However, there is significant skepticism about the fallacy in many social sciences, with critics arguing that there are better forward-looking rational explanations for decisions apparently driven by a desire to recoup sunk costs – among them reputational concerns, option values and agency problems. Critics have also noted that in practical situations sunk costs are informative both about decision makers’ intrinsic valuation for the issue and the prospects for success, making it hard to discern a separate role for sunk costs empirically. To address these concerns, empirical researchers have employed a number of strategies, especially leveraging natural experiments in certain non-political decision making contexts such as sports or business, in order to isolate the effects of sunk costs per se from other considerations. In doing so, they have found mixed support for the fallacy. Research has also shown that the prevalence of the sunk costs fallacy may be moderated by a number of factors, including the locus of decision-making, framing, and national context. These provide the basis for suggestions for future research.
The battle over state redistribution, and the means to pay for welfare transfers, lies at the heart of contemporary political economy. This has been one of the central plinths of political science research on the advanced industrial democracies, and we now have a good understanding of the dynamics of spending and taxation in these countries, rooted in the power of the left and labor movements, together with the embedded liberal compromise. These explanations, however, struggle to explain tax and spending outcomes across Latin America. This is largely because the pressures of globalization, rather than embedded liberalism, drive efficiency concerns in Latin America; across the region, the left often behaves in unanticipated ways, and redistribution comes in many forms. These effects are compounded by the power of business interests across the region and the heterogeneity of voter preferences when it comes to spending and taxation. More research is needed on both the macro and micro level dynamics of taxation and social spending in Latin America.
Though traditionally thought of as the preserve of technical experts—lawyers, economists and accountants—the study of taxation has recently attracted growing attention, with mounting recognition that taxation is fundamentally political, and lies near the core of the relationship between states and citizens. The first, and most common, question about the politics of taxation is: what are the political barriers to more effective and equitable taxation, and how can these political barriers may be overcome? However, it is important that any discussion of the politics of taxation also consider a second question: How can the expansion of tax collection be linked to the construction of stronger fiscal contracts, thus ensuring responsiveness and accountability in the use of tax revenues? The expansion of taxation represents a transfer of wealth from private citizens to the state, but becomes publicly desirable only if it is then consistently translated in improvements in publicly provided goods and services, and broader improvements in the quality of governance. This makes it incumbent on those interested in taxation to consider not only how best to raise additional revenue, but how best to raise additional revenue in ways that increase the likelihood that new revenue will be translated into broader public benefits.
It is now widely accepted that in many cases political resistance represents the most important barrier to more effective taxation in Africa—particularly with respect to the taxation of elite groups. This, in turn, reflects two broad political challenges: the expansion of taxation frequently confronts resistance from influential political and economic elites, while it has historically been very difficult to build popular coalitions in favor of taxation in contexts of limited transparency and significant distrust of taxation and the state. That said, recent research has shed growing light on the contexts in which reform is more likely, and the reform strategies that may contribute to overcoming political resistance. This has been accompanied by the growth of parallel research that has highlighted the contexts in which the expansion of taxation is most likely to spur public mobilization and demand-making—and thus the strategies that reformers might adopt in seeking to strengthen the links between revenue-raising and improvements in public services and accountability. Ultimately, it increasingly appears that the kinds of political strategies that can support more effective and equitable taxation are also likely to contribute to encouraging encourage expanded popular engagement and stronger links between taxation and public benefits. These include efforts to stress horizontal equity in tax collection, to expand transparency and popular engagement in tax debates and to more clearly link expanded revenue to specific public uses, in order to build popular support for reform. Such strategies have the potential to contribute to virtuous circles of reform in which new taxation is translated into valued public benefits; thus building popular support for the further expansion of more equitable taxation.
The surge in the appointments of technocrats to the top economic portfolios of finance since the 2009 Great Recession, and even the formation of fully technocratic governments in Europe, raises questions regarding the role of technocrats and technocratic governments in economic policy in democracies. Who are the technocrats? Why are they appointed in the first place? What is their impact on economic policy, and finally what are their sources of policy influence?
Surprisingly, we know little about the role of technocrats in economic policy despite their prominent presence in Eastern Europe since the early 90s and in Latin America since the early 80s. Technocrats were behind major market-conforming reforms in Latin America with lasting economic and political effects in the region. Technocrats we also appointed in many former Eastern European countries to reform the system of production and the labor market. Yet, to this day, we have little systematic knowledge and even less cross-regional comparative work on the policy effects of technocratic appointments.
Moreover, the term “technocrat” itself does have a shared meaning and is not uniformly used by scholars across the European and American continents, further inhibiting the study of technocrat policymakers. This article seeks to advance the study of technocratic government by providing a clear definition of a technocrat and of technocracy more generally; by reviewing the extant literature on the role of technocrats in economic policy with a special focus on the sources of their policy influence and finally by proposing a theoretical framework for understanding the role of technocrats as policymakers.
To what extent is the “Euro-crisis” a problem for the EU’s international standing and role? A conceptual framework has been developed based on the five distinct analytical categories: (a) financial resources, (b) changes in the internal political structure and balance of the European Union, (c) shift of priorities, (d) output and effectiveness of EU foreign policy, and (d) soft power and normative dimension. These categories reveal that in Europe, the crisis led to an erosion of the financial and budgetary basis of foreign policy—even if it is more pronounced on the national than the European level. It also accelerated a trend toward the economization of political priorities resulting—among other things—in deepening conflicts among EU member states. These developments have, in turn, eroded both the effectiveness and the soft power of EU foreign policy. The crisis is therefore not only a strain on the European integration process but also a central challenge for the European Union as an international actor.
Kerry A. Chase
Government policies to protect and promote national culture are a perennial issue in the trading system. Controversy over trade and culture, in almost every instance, swirls around entertainment media—mainly movies, television, video, and music. The object of contention is that many states employ an assortment of financial, trade, and regulatory measures to subsidize locally produced entertainment, restrict imports, and favor national content over foreign content. Such measures often impede trade, pitting commercial interests in open markets and free choice against calls for state action to mitigate trade’s social repercussions.
Differing perspectives on the motives behind these policies typify disputes over trade and culture. In one view, state regulation of entertainment media is cultural policy, an essential means of preserving a nation’s identity, culture, and way of life. From another vantage point, these policies are backdoor protectionism, a handout to local business and labor under the guise of cultural preservation. The problem of trade and culture therefore raises basic questions about politics: Why do states subsidize production and restrict imports? What drives political demands for trade protection and government aid? How can variation in policy responses be understood?
In the World Trade Organization (WTO), disputes over trade and culture center on two related issues. The first is inclusion of a “cultural exception” in trade rules to green-light, on cultural grounds, state actions that interfere with trade in entertainment media. Although there is no cultural exception in the WTO, pressure to accommodate the “specificity” of entertainment media as a cultural phenomenon has complicated trade negotiations and at times required give and take to placate the opposing sides. The second issue is policy liberalization in entertainment media, which has lagged behind market opening in many other goods and services. Deadlock over trade and culture has inspired some WTO members to explore other options: the European Union (EU) and Canada spearheaded the push for a Convention on Cultural Diversity, and the United States has pursued policy liberalization in a series of free trade agreements. Important political questions again crop up: Why has culture stalemated the WTO, and why haven’t trade linkages like those for health safety standards been institutionalized for trade and culture? Why do international political alignments on this problem form as they do? What explains the design of trade rules for entertainment media, and what is the trade regime’s impact on state policy? The age-old conflict over trade and culture continues to play out and shows no signs of abating.
Traditional leaders have a significant role in the social, political, and economic lives of citizens in countries throughout Africa. They are defined as local elites who derive legitimacy from custom, tradition, and spirituality. While their claims to authority are local, traditional leaders, or “chiefs,” are also integrated into the modern state in a variety of ways. The position of traditional leaders between state and local communities allows them to function as development intermediaries. They do so by influencing the distribution of national public goods and the representation of citizen demands to the state. Further, traditional leaders can impact development by coordinating local collective action, adjudicating conflicts, and overseeing land rights. In the role of development intermediaries, traditional leaders shape who benefits from different types of development outcomes within the local and national community. Identifying the positive and negative developmental impacts of traditional leaders requires attention to the different implications of their roles as lobbyists, local governments, political patrons, and land authorities.
Cyril Alias, Bernd Kleinheyer, and Carla Fieber-Alias
In an integrated European Union, transport would be expected to be a major enabler of economic development and consumer services. This role, however, was not acknowledged, though laid down in initial treaties, until 30 years into the EU’s existence. A verdict of the European Court of Justice condemning the longstanding inactivity of the European Council and subsequent efforts toward a dedicated policymaking have changed the significance. The regular definition and monitoring of goals and objectives in European transport policy by means of White Papers and trans-European transport networks guide public attention to the policy area. From an initial stage, when transport was considered as a functional enabler for cooperation after World War II, transport has evolved toward a Community task, featuring a long phase of stagnation and a sudden change to actionism after the court verdict. From the 1990s onward, goals like liberalization, cohesion, environmental protection, modal shift, competitiveness, globalization, and resource efficiency characterize European transport policy. Despite the output failure in European transport policy over many years, the Single European Market propelled transport onto the center stage of European policies and later made it a key object of sustainability policies. This change in focus has also attracted citizens’ attention with the effect that the EU needs and manages to portray itself as an interactive and accountable legislator dialoguing with its population. This new openness is a mere necessity if the EU wants to pursue its goal of a Single European Transport Area that is both supported by its business and citizens. At the same time, European transport policy is subject to numerous external influences—both by other European and national policies and different stakeholder interest groups. The ordinary legislative procedure is preceded by the initial agenda setting over the proposal planning and issuing and ranges from the proposal to three readings before being passed by European Parliament and Council of Ministers. The stakeholders accompany the whole process and influence it at different stages. Several examples from the history of European transport policymaking are proof of this.
Africa is a place of low social trust. This fact is significant for understanding the politics and economics of the region, whether for questions of national unity or economic coordination and growth. One of the central ways in which trust and social relations have come to be examined within the social sciences is through the notion of social capital, defined as the norms and networks that enable collective action. Use of the concept of social capital has mushroomed in popularity within academia since the 1980s and has been used within African studies to interpret the developmental effects of social relations. It is important to review how researchers have been synthesizing the study of African societies with the social capital approach, and offer suggestions on how this can be better achieved. Specifically, there is contradiction between the view that social capital is useful for economic development and the view that social capital means a community can decide its own economic goals. Students of social capital in Africa must accept that the cultural and normative diversity of the continent necessitates appreciation of the diverse aims of social networks. This means a rejection both of modernist theories of development and postmodern reduction of human relations to forms of power exchange. Future research on trust and social capital in Africa must give weight to community articulations of motivations to trust, what activities count as communal, and what new economic cultures are being formed as a result of present communal varieties.
Naeem Inayatullah and David L. Blaney
Heterodox work in Global Political Economy (GPE) finds its motive force in challenging the ontological atomism of International Political Economy (IPE) orthodoxy. Various strains of heterodoxy that have grown out of dependency theory and World-Systems Theory (WST), for example, emphasize the social whole: Individual parts are given form and meaning within social relations of domination produced by a history of violence and colonial conquest. An atomistic approach, they stress, seems designed to ignore this history of violence and relations of domination by making bargaining among independent units the key to explaining the current state of international institutions. For IPE, it is precisely this atomistic approach, largely inspired by the ostensible success of neoclassical economics, which justifies its claims to scientific rigor. International relations can be modeled as a market-like space, in which individual actors, with given preferences and endowments, bargain over the character of international institutional arrangements. Heterodox scholars’ treatment of social processes as indivisible wholes places them beyond the pale of acceptable scientific practice. Heterodoxy appears, then, as the constitutive outside of IPE orthodoxy.
Heterodox GPE perhaps reached its zenith in the 1980s. Just as heterodox work was being cast out from the temple of International Relations (IR), heterodox scholars, building on earlier work, produced magisterial studies that continue to merit our attention. We focus on three texts: K. N. Chaudhuri’s Asia Before Europe (1990), Eric Wolf’s Europe and the People Without History (1982), and L. S. Stavrianos’s Global Rift (1981). We select these texts for their temporal and geographical sweep and their intellectual acuity. While Chaudhuri limits his scope to the Indian Ocean over a millennium, Wolf and Stavrianos attempt an anthropology and a history, respectively, of European expansion, colonialism, and the rise of capitalism in the modern era. Though the authors combine different elements of material, political, and social life, all three illustrate the power of seeing the “social process” as an “indivisible whole,” as Schumpeter discusses in the epigram below. “Economic facts,” the region, or time period they extract for detailed scrutiny are never disconnected from the “great stream” or process of social relations. More specifically, Chaudhuri’s work shows notably that we cannot take for granted the distinct units that comprise a social whole, as does the IPE orthodoxy. Rather, such units must be carefully assembled by the scholar from historical evidence, just as the institutions, practices, and material infrastructure that comprise the unit were and are constructed by people over the longue durée. Wolf starts with a world of interaction, but shows that European expansion and the rise and spread of capitalism intensified cultural encounters, encompassing them all within a global division of labor that conditioned the developmental prospects of each in relation to the others. Stavrianos carries out a systematic and relational history of the First and Third Worlds, in which both appear as structural positions conditioned by a capitalist political economy. By way of conclusion, we suggest that these three works collectively inspire an effort to overcome the reification and dualism of agents and structures that inform IR theory and arrive instead at “flow.”
Washington Consensus policies evolved over time, both in Washington and among Latin American policymakers. These policies, involving trade liberalization and privatization (among other measures), were widely adopted in the region by the early 1990s. A generation of scholarly work sought to explain how and why Latin American countries embarked on economic reforms that governments had strongly resisted in the past. While many researchers focused on the top-down nature of the market-liberalization process, others called attention to its pluralist character and argued that the process had considerable public support. When the original Consensus ideas proved ineffective in promoting growth and improved living standards, technocratic Washington added new policies. By the early 2000s, Washington’s goal became that of reducing poverty while ensuring the completion of the original Washington Consensus reforms. In Latin America, however, there was a growing disillusionment with the original reform agenda and a strong challenge to key reforms. With the rise of social mobilization critical of neoliberal reforms and the election of left regimes challenging their main precepts, scholarship turned to a discussion of the nature of the new regimes and the extent to which their policies deviated from the Washington Consensus (both its original formulation and the later expanded version). While most scholars identify the left leaders of Ecuador, Bolivia, and particularly Venezuela, as offering the greatest challenges to neoliberalism, there is no consensus on the extent of the challenge to neoliberalism presented by Latin America’s left regimes. Research has also given attention to the rising demand of China for Latin American commodities as a key ingredient in the region’s left turn away from neoliberalism. The fall in commodity prices, however, set the stage for a resurgence of the political right, its business supporters, and the re-introduction of some key aspects of the original Washington Consensus.
Which risks are social and which are private? How much of their GDP do states spend on social welfare? Who exactly is entitled to which benefits? Is it still possible to finance an encompassing welfare state in times of deindustrialization, technological and demographic change, and globalization? And why do the answers to these questions differ so much across countries? These and similar questions—all central to social cohesion in capitalist democracies—ensure that the analysis of welfare politics is one of the theoretically as well as methodologically most dynamic and richest research areas within comparative political economy and political science more generally. Besides outlining the comparative development and the difficulty of measuring social policy, the focus of this contribution lies in a critical review of the most important past and current theoretical debates in the field of welfare state research, as a subfield of comparative political economy. These debates include party- and power-resource-centered approaches and their critiques, institutional explanations of welfare state retrenchment and restructuring, and the importance of multidimensional distributional effects for the analysis of social policy. The article concludes with a review of three more recent debates: the importance of public opinion and individual preferences for the development of the welfare state, the interaction of social policy and the changes of party systems, and the increasing relevance of social investment policies. The political and scientific need for innovative political science research will continue for the foreseeable future: Theory building and methodological possibilities are developing quickly, and the welfare states as research subject are constantly being challenged.
Michael J. Lee
Since the 1970s, financial crises have been a consistent feature of the international economy, warranting study by economists and political scientists alike. Economists have made great strides in their understanding of the dynamics of crises, with two potentially overlapping stories rising to the fore. Global crises appear to occur highly amid global imbalances—when some countries run large current account deficits and others, large surpluses. A second story emphasizes credit booms—financial institutions greatly extend access to credit, potentially leading to bubbles and subsequent crashes.
Global imbalances are, in part, the product of politically contested processes. Imbalances would be impossible if states did not choose to liberalize (or not to liberalize) their capital accounts. Global political structures—whether international institutions seeking to govern financial flows, or hierarchies reflecting an economic power structure among states—also influence the ability of the global system to resolve global imbalances. Indeed, economists themselves are increasingly finding evidence that the international economy is not a flat system, but a network where some states play larger roles than others.
Credit booms, too, and the regulatory structures that produce them, result from active choices by states. The expansion of the financial sector since the 1970s, however, took place amid a crucible of fire. Financial deregulation was the product of interest group knife-fights, states’ vying for position or adapting to technological change, and policy entrepreneurs’ seeking to enact their ideas.
The IPE (international political economy) literature, too, must pay attention to post-2008 developments in economic thought. As financial integration pushes countries to adopt the monetary policies of the money center, the much-discussed monetary trilemma increasingly resembles a dilemma. Whereas economists once thought of expanded access to credit as “financial development,” they increasingly lament the preponderance of “financialized” economies. While the experimentalist turn in political science heralded a great search for cute natural experiments, economists are increasingly turning to the distant past to understand phenomena that have not been seen for some time. Political scientists might benefit from returning to the same grand theory questions, this time armed with more rigorous empirical techniques, and extensive data collected by economic historians.