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The Limits of Public Choice Theory

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Many people believe that politics is difficult because of incentives: voters vote for their self interest; bureaucrats deliberately don’t solve problems to enlarge their departments; and elected officials maximize votes for power and sell out to lobbyists. But this cynical view is mostly wrong—politics, insofar as it has problems, has problems not because people are selfish—it has problems because people have wrong ideas. In fact, people mostly act surprisingly altruistically, motivated by trying to do good for their country.

Public Choice

When you study public policy or economics you typically look at things as if you’re in complete and absolute control of every lever of policy change and implementation, like a real-life game of Sim City. You look at a social problem—say, lead pollution—and you come up with the optimal solution—say, a body that regulates fuel—and that’s it. Job done. All you need to do is set up an environmental bureaucracy.

But there’s a clear and troubling asymmetry here. Why don’t people just switch to unleaded fuel themselves? Easy: they are self-interested and the benefit to them of individually switching is infinitesimal, while the cost is considerable. But aren’t bureaucracies also staffed with self-interested people? Can we be sure that bureaucrats will implement the optimal set of regulations?

This question is what motivated the public choice school of economics. Economists took their tools and applied them to government officials as enthusiastically as they had applied them to market actors. It’s not like no one had ever considered whether politicians just wanted to win votes before. But public choice formalized these thoughts into models, with the standard extreme simplifying assumptions that draws economics so much ire. It tries to explain why politics happens as it does with self interest; instead of assuming people always do the best thing when they stand for office, vote in elections, and work in bureaucracies, it works on the premise they do what’s best for themselves.

Public choice tells us that setting up the environmental bureaucracy might not be the best option. Those running the agency want to keep their jobs. They want more pay. They want more prestige. They want more power. Pursuing the optimal policy will make their role narrow or even obsolete. What’s more, various “special interest” groups now have a lever they can push: certain policies will cut competition, or benefit specific players in the industry, generating economic rents. Now these groups can engage in “rent seeking” by lobbying for policies that subtly benefit them over their comeptitors. These influences may make setting up the bureaucracy actually worse than not intervening at all.

Many of public choice’s predictions do come true, and dozens of academic economic papers come out every year detailing ways in which self interest, rather than the public interest, drives communal or political activity.

For example, Jonathan Brogaard and two University of Washington colleagues study $4.1 trillion of US government investment contracts between 2001 and 2010. They look at firms who contributed to politicians who won close elections and compare them to firms who donated to the losing candidate. These “connected” firms whose contribution may have tipped the balance for the winner are 2% more likely to get government contracts, and the contracts they won are $12m bigger on average. They also get more extensions on their completion dates, weaker incentive systems, and less monitoring. And when stimulus hits in, in the form of the 2009 American Recovery and Reinvestment Act, connected firms do even better. What’s more, as public choice theory predicts, it’s connections to the appropriations committee that matter most.

Findings like this abound. At this point, the idea that you have to consider personal motives and self interest in models of politics is mainstream, although most economists call it “political economics” as public choice is too closely associated with the consistently libertarian arguments of Gordon Tullock and James Buchanan.

But, really, public choice doesn’t explain much at all.

Public choice is true on the margin—that is: people’s actions in politics and government tend to be affected by self-interest—but if you predicted what people did using only or mainly public choice you’d get it wrong nearly every time, at least in the modern West.

Why do Voters Vote

Start with voting. Voting is an extremely widespread behavior in Western societies. A third or two fifths of adults will turn out even for the most trivial local elections. Eighty per cent might turn out for a major contest. But public choice cannot explain this.

Your vote has a tiny influence on the outcome of most elections. The chance of an individual voter deciding an American presidential election is about one in sixty million (ranging from one in ten million in some swing states to about one in a billion in Texas or California). If you only care about the election’s impact on your own personal prospects, then the election would need to be worth about a billion dollars to you personally. Elections often make trillions of dollars worth of difference overall, but rarely more than thousands or hundreds to individuals or their families.

So why do all these people go out and vote then? It’s possible that they overestimate the chance their vote will decide the election—YouGov once found that people thought their vote had a one in a thousand chance of influencing the election. But I think this is just voters having trouble with handling very large numbers: those who have more realistic ideas of the probability of their vote counting are typically more likely to vote.

The reason is that most Western countries have a very strong norm that voting is your civic duty. An ingenious experiment from Harvard’s Gautam Rao and collaborators tested this by surveying residents in Chicago’s suburbs in 2011. They went round knocking on doors, and asked households whether they voted in the 2010 elections. For some households they pre-announced their visit with a flyer detailing their voting participation survey; for others they left nothing; and for a third group they pre-announced a visit but with much vaguer information. They added a further layer of randomization by promising, on the flyer, to pay different amounts for participation.

The twist is that Rao and his colleagues already knew whether households had voted: they only visited homes where either everyone did or everyone didn’t turn out in 2010. This meant that they could judge—by seeing who opened the door when they went round to carry the survey out—how much voters valued not having to either lie and say they voted, or admit they in fact didn’t. From this, and further quirks in the process, they estimate that non-voters value being able to truthfully say they’ve voted at $13, while voters value it at $18. That would roughly cover the time and effort for most people.

How do Voters Vote

One of the elements of public choice theory that aligns most closely with conventional wisdom is the idea that when people do get into the polling booth, they vote for their self interest. In the words of George Bernard Shaw: “A government that robs Peter to pay Paul can always depend on the support of Paul.” It is part of the basic fabric of discussion, hard even to notice because it’s so firmly ingrained: pensioners are said to vote for the party offering the most generous pension benefits; the unemployed to go for jobs and unemployment benefits; the young to favor lower tuition fees; and the poor to support higher redistribution.

But insofar as the evidence can address this question, it doesn’t seem to hold up. Votes are driven mostly by convictions about what is good for society as a whole, not what is good for their own bank balance. This doesn’t mean voters vote well—voters have very little incentive to become knowledgeable about politics, and are thus extremely ignorant. About a third of Americans know who their representative is. They may make the wrong decisions—or, when they’re right, the right decision for the wrong reasons. But they don’t usually vote selfishly.

This finding goes back a long way, and affects even areas where the conventional wisdom holds that obviously self interest is at play. Edward Mansfield and Diana Mutz find that education affects opinions about foreign trade—but not because the higher-educated are higher skilled and thus less affected by import competition. In fact, being in a more trade-exposed industry, or one with lower tariff barriers did not itself predict opinions on trade. Instead, Americans largely supported free trade when they thought it was good for the country and opposed it when they thought it was bad for the country.

Gun control is the same. Tom Tyler and Paul Lavrakas carried out a telephone survey in Evanston and Morton Grove, both in Illinois—respondents tended to support a handgun ban when they thought it would cut crime, and oppose one when they thought it would make crime worse. Neither their general ideology nor their personal use of guns for protection mattered.

These “sociotropic” concerns for the welfare of society as a whole also dominate in many other places. Americans support counterterrorism efforts based on how they expect them to affect their countrymen, not themselves. People mostly judge the government’s economic record not based on their own circumstances, but their view of the country’s—the country’s unemployment rate is a considerably better predictor of someone’s vote than their own employment status. People’s advocacy for Medicare doesn’t change if they’re on it.

Politicians—Not So Slimy

In public choice theory politicians stand for elected office not in order to enact a program, based on their views and convictions, but in order to maximize their personal power. To do so, they maximize votes at elections. This claim is also a familiar conventional wisdom to the point of cliche: politicians are unprincipled schemers who will do anything for votes. But public choice scholars like Anthony Downs teased out various implications the theory had that were not immediately obvious.

One implication of the vote-maximization theory is that politicians will try, if possible, to manipulate economic outcomes so that they are particularly strong before elections, even if this comes with long-term costs. The evidence that they exist at all is mixed, and where it does exist, the size of the effect is small. Finding a political business cycle of some sort is not at all surprising, but if politicians only shift economic variables tenths of a percentage point in given directions it’s hardly evidence of slippery Machiavellianism at the top. It suggests politicians are mostly trying to do the right thing.

Other evidence comes to the same conclusion. Economists do a lot of experiments where they get participants to play “games” that represent real world situations and have dollar payments big enough to play properly. Say $50 if you do well. But they’re mostly on undergraduates. Daniel Butler and Thad Kousser got some American legislators to play public good games—where they had to gain each other’s trust and work together if they wanted to “win.” Their legislators, all from US state governments, played the games significantly more cooperatively than undergrads.

Public choice also predicts that officials are easily lobbied: they can be bought by rent-seeking special interests. But the literature is almost unequivocal: the source of campaign funds makes little difference to campaigns or policies. The fact that the decisions politicians make affect how trillions of dollars are spent, and yet firms spend figures in the low billions on elections caused a famous economics paper to ask “Why is there so little money in US politics“?

Politicians are often accused of cynically lying to get into power. A review from François Pétry and Benoît Collette found that, for the most part, Western politicians keep their promises. And several studies of elected US judges find that they are consistently motivated intrinsically to make quality decisions, and constrained by electoral conditions and monetary incentives. Politicians are not perfect, and there are, of course, bad apples, but for the most part they are motivated by enacting a program they believe in—bad or good.

Around the World

Thus far I’ve presented this as widely and generally applicable, but it’s not. In fact, it’s applicable nearly nowhere. The public choice model is pretty accurate as a description of most less developed countries, and indeed Western countries themselves if you go back a couple hundred years. It took hundreds and hundreds of years of nation- and institution-building to get Westerners to trust that others in society, including government officials, were basically legitimate and acting in their interest. As former British Labour Prime Minister Gordon Brown quipped “In establishing the rule of law, the first five centuries are always the hardest.” In the rest of the world most people believe that bureaucrats are on the take—and they’re right.

This pattern appears in practically every measure you look at: perceptions of corruption, prevalence of bribery, security of property rights, social trust, tax evasion, and crime. At the top you find Switzerland, Denmark, Norway, New Zealand and maybe Japan, in the middle (and rising) you might find Hungary, Thailand, Vietnam, China, and other developing countries, and at the bottom you find highly unequal countries with kleptocratic, unstable, or warlord leaders, and highly divided societies. Civil war riven African countries, only recently founded, with highly arbitrary borders and no history of modern states, do the absolute worst. There, public choice theory is entirely accurate.

I got into politics and ideas as a libertarian. I was attracted by the idea of public choice as a universal theory of politics. It’s intuitively appealing, methodologically individualist, and it supported all of the things I already believed. And it’s definitely true to some extent—there is a huge amount of evidence that it affects things somewhat. But it’s terrible as a general theory of politics in the developed world. Our policies are bad because voters are ignorant and politicians believe in things too much, not because everyone is irredeemably cynical and atavistic.

Ben is Head of Research at the Adam Smith Institute. Follow him on Twitter.