The role of economists in policy-making
At our 30th Anniversary Conference Stefan Dercon of University of Oxford and DfID and Stephen O’Connell of USAID participated in a session on the role of economists in policy-making. We took the opportunity to ask them to discuss what economists have achieved over the last 30 years, and to highlight some of the key challenges for the next 30.
Macroeconomic stability is key for development
Dercon suggests that over the last 30 years economists have gained a much better understanding of macroeconomics and macroeconomic stability. This knowledge has helped in the design of policies that bring inflation under control and align exchange rates. Macroeconomic stability is, Dercon argues, a basic condition for development, growth, and jobs.
The balancing act between the state and the market
For O’Connell, the last 30 years has been about identifying the right balance between the state and the market. There’s been a big movement from 1985 when the state was dominant through the Washington Consensus period of backing off and allowing the market to dominate, and then towards a rebalancing which gives the state a more proactive role in guiding the economy. Getting this balance right is critical to ensuring a well-functioning economy, and O’Connell believes we are much closer today than we were 30 years ago.
From natural resources to jobs
O’Connell suggests that one of the big challenges for economists in policy over the next 30 years will be working out how resource-rich economies can move towards a job-rich growth pattern. Natural resources are an easy source of government revenue but not a particularly big source of jobs, productivity, or demand. At UNU-WIDER we agree that this will be a key challenge for the future, and will be one of the key issues studied as part of our Macroeconomic Management project.
Predicting the economic impact of climate change
According to O’Connell, economists who wish to inform policy should aim to bring evidence-based research to existing well-defined policy questions. One example of an area where this is needed is climate change. Climate science has finally convinced the world, based on evidence that climate change is real and a threat and we have a good sense of the environmental effects climate change will have. Economists can take these effects and inputs and start to develop evidence on what the impacts on productivity will look like and what responses can be taken (see our Development Under Climate Change project for a key example of this kind of work).
No silver bullets
Dercon emphasises that as economists we can’t simply be technocrats, and we can’t assume that there is always a simple silver-bullet solution. We have to get better at understanding the economies of individual countries, and can’t always rely on technical and theoretical solutions, or assume that what works elsewhere will always be transferable. Dercon argues that economists have been good at describing what is wrong and explaining what is happening, but less good at generating the evidence base needed to change things.