Effective Governance and the Political Economy of Coordination 3031303822, 9783031303821

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Effective Governance and the Political Economy of Coordination Dan Greenwood

Effective Governance and the Political Economy of Coordination “This is an extremely valuable and rare contribution to debates about effective governance structures. It provides a well-balanced though critical assessment of arguments about the qualities of different governance arrangements that properly engages all sides and perspectives.” —Mark Pennington, Professor of Political Economy and Public Policy, King’s College London, UK “Dan Greenwood’s Effective Governance brings together a variety of perspectives in political science and political economy in order to develop a novel approach to thinking about problems of governance. His emphasis on openness, discovery, and learning is an important and welcome reminder of how governance systems can be improved when we don’t shy away from the challenges associated with using policy to solve complex problems.” —Jayme Lemke, Senior Research Fellow, Mercatus Centre, George Mason University, USA

Dan Greenwood

Effective Governance and the Political Economy of Coordination

Dan Greenwood University of Westminster London, UK

ISBN 978-3-031-30382-1 ISBN 978-3-031-30383-8 (eBook) https://doi.org/10.1007/978-3-031-30383-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

For Robin, Lawrence and their generation

Acknowledgements

This book has been a long time in the making. So many conversations have influenced the research and there are too many people to thank— family and friends, as well as colleagues (past and present) from the Centre for the Study of Democracy at University of Westminster, where I have been based for over 20 years. Here, I would like to thank those people who have most directly contributed to the work on this book, through involvement in research collaboration and providing advice and feedback on drafts. Firstly, I would like to thank those colleagues who have worked with me on the two case studies included in Chapter 8. The project on NHS governance was doctoral research carried out by Tom Mills, for whom I was supervisor. I am very grateful to Tom for supporting the inclusion of this case study in the book and for his feedback on an early draft of the entire manuscript, as well as detailed input into Section 8.3 presenting this case study. Thank you also to Alina Congreve and Martin King for their invaluable input into the second phase of the research on policy or low and zero carbon homes, which is presented in Section 8.2. It was thanks to Alina’s initiative that we obtained funding for this research from RICS. She worked with me on all stages of the research, from the initial design, to interviewing, analysis and writing up. Martin joined us as a researcher on the project and carried out a substantial part of the interviewing and analysis.

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ACKNOWLEDGEMENTS

In terms of advice and feedback, I am grateful to Graham Smith for his advice about this book project throughout the process, from the early proposal stage through to feedback on a final draft chapter. Towards the end of the writing process, Jayme Lemke gave invaluable feedback on a full draft of the book. At various other stages of the writing, the following colleagues also gave very helpful feedback on draft chapters for which I am grateful: Alina Congreve, Rob Cowley, Hannah Cross, Robin Douglass, Matt Fluck, Jan Gerhards, Geoff Hodgson, Jayme Lemke, Peter John, Jon Mulberg, Eva Sørensen and Paulina Tambakaki. I would also like to thank Mark Pennington and colleagues at Kings College London for the opportunity to become external examiner at Kings College London for the M.A. Political Economy (2017–2020) and to participate in the symposium on ‘The ideal of self-governance’ (October 2019) funded by the John Templeton Foundation. Finally, thank you to Stewart Beale and the team at Palgrave for their support and assistance with completion of the manuscript, as well as to an anonymous reviewer whose feedback on previous drafts was vital for the structure and focus for this book. Thank you also very much to Janet Pickering, Anna Schmidt and Martin Greenwood for their assistance with final proof reading. Any remaining errors and shortcomings remain entirely my responsibility.

Contents

1

1

Introduction

2

Governance, Markets and Institutional Analysis

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3

The Challenge of Coordination

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4

Policy Goals and Knowledge

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5

Coordination Beyond the Market

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6

Scales of Governance

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7

Evaluating Coordinative Effectiveness

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8

Case Studies

255

9

Conclusion

287

Name Index

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Subject Index

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CHAPTER 1

Introduction

1.1

The Need for Governance Evaluation

The long-standing question of the kind of institutions required to ensure the suitable scope and operation of markets is of fundamental importance to society and wide open for ongoing exploration. The question arises in relation to a range of contemporary socio-economic challenges facing policymakers. How far to attempt to shape distributive outcomes, given the tendency for markets to create inequalities that are often profound and can become entrenched over generations? How to mitigate climate change and various forms of ecological degradation, the costs of which have very often been external to our processes of market exchange? How to achieve effective public service delivery in areas such as health, education and social care? Political debates about overall policy goals in the face of these challenges are frequently highly charged, being shaped by contrasting normative, often ideologically driven, perspectives. Within these debates also lie disagreements about how to establish the most effective means for attaining goals, where the question of the role of markets is usually of integral importance. Understandings of policy effectiveness are inextricably connected with, and hence shape, the contours of normative and ideologically driven policy controversies. Within these discussions of policy problems lie questions about which of a range of policy strategies and instruments are most suitable for shaping socio-economic and ecological outcomes (Howlett & Rayner, 2007). The complexity of many © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_1

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policy challenges is also widely emphasised in contemporary literatures on politics and policy (Head & Alford, 2015; Room, 2011; Torfing & Ansell, 2017), which means that policy decisions in one sector will tend to have ramifications elsewhere. In the context of this complexity, broader questions arise about the suitability of the institutional, or ‘governance,’ arrangements through which policies for shaping markets are formulated and delivered across different scales and sectors. This brings into focus the vital importance of the question of the effectiveness of governance processes, often emphasised as taking the form of ‘networks’ (Marcussen & Torfing, 2006). This book proposes a conceptual and methodological approach for evaluating governance and policymaking in terms of shaping market outcomes. In other words, the focus is upon evaluating governance in terms of ‘coordinative effectiveness.’ This approach, it is argued, is required as the basis of a research agenda concerned with the balanced assessment of the full range of institutional possibilities for contemporary governance. This introductory chapter further sets out the need and potential for such a research agenda, within the context of extant research on governance in political science and related fields. As is then explained, the proposed approach draws from heterodox traditions in political economy. Firstly though, there is a need to define some terms and introduce key research fields. Policy is a broad term, generally understood to refer to a course of purposive decisions and actions (or inactions) taken by government in response to problems (Hill & Hupe, 2014, p. 5; Hogwood & Gunn, 1984, pp. 19–24; Hugh Heclo, 1972, pp. 84– 85). Hence, uses of the word range from general fields of governmental activity to specific decisions, from future-orientated proposals to their final legislative authorisation (Hogwood & Gunn, 1984, pp. 13–19). The field of policy analysis, which became established in academia in the postwar years (Hofferbert, 1990), has long had a ‘problem orientation,’ as it was famously put by Harold Lasswell in his founding early contributions. Openly rejecting the study of phenomena for its own sake (DeLeon, 2006, p. 40),1 Lasswell stressed the need for policy analysis to have a focus on problem solving, reflecting closely upon the value goals that motivate policy (Lerner & Lasswell, 1951, pp. 9–10). Questions of effectiveness have always been of central importance within this albeit rather

1 See, for example, Lasswell (1956).

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eclectic field, described by William Dunn (2012) as a “problem-solving discipline.” Effectiveness can be defined as ensuring that outcomes reflect the range of goals sought by policymakers, balancing considerations of costs and benefits (Meltzer & Schwartz, 2019, p. 117). Assessing effectiveness thus requires a focus on the choices of means for attaining sought ends. The term ‘governance’ became prominent in political science and related fields over three decades ago, often being used to refer to a shift having taken place from traditional, hierarchical government to more distributed processes of governance involving a plurality of actors from the public, private and third sector across multiple scales (Bellamy & Palumbo, 2016; Kooiman, 2003; Rhodes, 1997; Stoker, 1998). Various extensive literatures have since emerged, deploying the concept with reference to different institutional contexts and spheres of decision-making through which policymaking takes place. There are a range of approaches to analysing governance. Much of the literature in political science and public administration on the ‘governance turn’ is conceptual and explanatory in focus, offering varying understandings of the role of the state. This role is often suggested by governance theorists to involve ‘steering’ the plurality of different actors involved (Stoker, 1998; van Kersbergen & van Waarden, 2004). Indeed, the term governance can be understood to mean ‘to pilot or steer’ (Kjær, 2004), reflecting the Greek origins of the term which can be traced to the Greek verb kubernân. Others have emphasised the significant continued role for the hierarchical structures of central government as being of continued importance within contemporary governance. As one would expect, questions about effectiveness, given their significance, are often raised in governance literatures, even if only implicitly. Some important, even defining, early contributions emphasise how pluralistic governance networks provide a functional response to complexity and dynamic change (e.g. Kooiman, 1993; Mayntz, 1993). These contributions raise the question of effectiveness by implicitly viewing governance as a process concerned with obtaining certain goals. However, much scholarship on governance in political science has tended not to directly address and explore such questions of effectiveness, which would require consideration of outcomes. While, as Jacob Torfing and Eva Sørensen (2014) note, much early work on network governance was conceptual

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and explanatory in focus,2 a more recent ‘second wave’ of ‘network governance’ research recognises the need to further develop frameworks for evaluating governance processes (Torfing et al., 2012, pp. 167–168). However, the question of what the most suitable conceptual and methodological approaches might be for addressing evaluative questions about governance, especially with regard to outcomes, remains very much open. The concept of governance can be taken to be based upon an implicit acceptance that markets, in some form, are pivotal to achieving efficiency and innovation in complex, modern economies. Nonetheless, there is a need to address more closely the evaluative question of the most suitable role of the private sector and market exchange in society. As Jonathan Davies and Ioannis Chorianopoulos (2018) comment in relation to literatures on network governance, there is a tendency within political science, public administration and related fields to sidestep consideration of the specificity of different governance models in political economic terms. Harold Lasswell’s famous comment that politics is about “who gets what, when and how” can be extended to apply to the fundamentally important question of the role of markets in society (Robbins, 2017). There are a number of broad types of practice through which states can and do shape the scope and operation of markets, all of which can be understood in terms of ‘governance.’ States can initiate and deliver the provision of public goods and services, develop fiscal and regulatory strategies, informational campaigns, establish or reform legislative frameworks. A range of policy strategies and tools can be adopted for engaging in these contrasting practices of governance (Howlett & Rayner, 2007). The concept of governance is widely used and understood to incorporate recognition of the social significance of public goods that cannot be delivered through the market alone (Frederickson, 2012, p. 233). A small minority of authors advocate a market liberal ‘private governance’ or ‘anarchism’ where there is no state (Stringham, 2015). On this vision, the functions that states typically perform, such as establishing regulatory rules and providing public goods such as defence and transport systems, would be fulfilled entirely by private sector actors. Such ‘private governance’ can be viewed as one end of a broad spectrum of institutional possibilities, from an entirely market-driven system, to models in which the central, hierarchical state continues to occupy a 2 Torfing and Sørensen refer to this as the ‘first generation’ of network governance research (Torfing & Sørensen, 2014, p. 339).

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significant role in shaping the scope and operation of markets. Most of these models of political economy have at some stage been considered in terms of ‘governance.’ The only exception perhaps is the non-market, planned economy where the resources of society are fully allocated by the centralised decisions of political or state actors. The purpose of this book is to provide a conceptual approach for assessing policy processes for shaping market outcomes within the context of this range of possible institutional configurations.

1.2

Heterodox Political Economy

The approach proposed here to evaluating governance effectiveness in such political economic terms shares with Lasswell a commitment to interdisciplinary, qualitative research (Lasswell, 1970, p. 11). Since Lasswell’s contributions, policy analysis has become, as Fleishman suggests, “by definition, heterodox, eclectic, integrative, and inclusive” (Fleishman, 1990) and as Dunn puts it “a process of multidisciplinary inquiry” (Dunn, 2012).3 Joel Fleishman contrasts policy analysis with political science and economics, which, he says, “define boundaries around themselves” as distinct disciplines (Fleishman, 1990). In addressing the need for a qualitative, interdisciplinary approach to exploring the interrelationship between institutional arrangements, policy and markets, this book explores the significant potential to move beyond established approaches in political science and public administration. An approach is proposed that draws from the heterodox contributions of the Austrian and Bloomington Schools in political economy. Sharing conceptual underpinnings to a significant extent (Aligica et al., 2019), both traditions explore, albeit in different ways, the complexity of policy challenges in pluralistic societies and evaluative questions about institutional effectiveness in ways that can enrich established political science approaches.

3 It should be noted that, although Lasswell recognised the need for interdisciplinary analysis of policy problems, given their complexity (Fischer, 2007, pp. 97–98), his approach did have positivist leanings. He saw the role of social sciences as establishing objective grounds for policy solutions to pre-defined problems, through scientific methods (Turnbull, 2008).

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Governance research in political science and public administration has tended to overlook the potential to draw from the Austrian and Bloomington Schools. Scholarship exploring Austrian political economy has tended to be closely associated with the normative perspective of classical liberalism, especially a scepticism about attempts of centralised states at national level to shape social outcomes (Aligica et al., 2019; Pennington, 2013, 2017). Emphasis is placed on the potential offered by decentralised processes through which institutions and property rights might be formed and adapt. Two leading members of the Austrian School in particular, Ludwig von Mises and Friedrich Hayek, are a focus for this book. Both are especially well known advocates of a classical liberal model, in which the state has a relatively minimal role, understood primarily in terms of establishing private property rights as the underpinning for markets being the primary driver for allocating resources. Under such classical liberalism, the state would provide only a strictly delimited range of public goods, including relatively limited welfare support for the most in need. The two leading figures of the Bloomington School Elinor and Vincent Ostrom do not explicitly advocate any such model of state-market inter-relationships. The Ostroms do, however, emphasise the significant potential for economic actors to address resource allocation problems through decentralised institutional processes involving the establishment and adjustment of property rights. These conclusions have resonance with the classical liberal perspective (Aligica et al., 2019; Pennington, 2013). Conclusions reached by the Bloomington School and perhaps especially the normative proposals of leading Austrian economists might be considered to prejudice the conclusions reached by any deployment of their conceptual approach.4 This book strongly challenges such a presumption. There is, it is held, an important need to distinguish the rich and insightful conceptual approaches offered by these heterodox traditions from the specific conclusions they reach in their critiques of centralised, state-led decision-making. Both traditions, it is argued, can be drawn upon to provide a novel approach and agenda for the balanced assessment of a broad range of forms of governance. The approach offered by this book, while drawing from the Austrian and Bloomington traditions, thus remains open-ended concerning the conclusions that might be reached about the most effective forms of governance across a range of contexts. 4 Their work is often associated with the rise of ‘Neoliberalism,’ a term generally used by strong critics of market-orientated governance arrangements (Greenwood, 2011: 36–37).

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Hence, the purpose here is not to necessarily concur with any specific institutional proposals that emerge from authors within the Austrian and Bloomington schools. Nor even are these heterodox schools taken as providing in full the kind of analytical approach required for reaching such evaluative conclusions in the context of complex, cross-cutting challenges. There is, as the book explores, significant potential to further develop the conceptual approaches they offer. The point is that there is a need to incorporate the insights and conceptualisation of questions offered by these traditions into contemporary governance evaluation across a range of contexts. Doing so, it is argued, can complement established approaches in political science and related fields. Hence, the primary subject of attention here is less upon what specific classical liberal proposals may flow from the work of Austrian and Bloomington School authors that are discussed and more upon how and why the classical liberal proposals of these heterodox scholars were formulated. The important conceptual advances of the Austrian and Bloomington Schools, it is argued here, highlight avenues with rich potential for further empirically orientated investigation. Although the Ostroms applied their approach to an extensive range of international case studies, there remains much scope for further exploration of the evaluative questions they raise in a wide range of contemporary governance contexts. Here, an approach is proposed for more fully realising this potential. This evaluative approach is independent of the classical liberal commitments adopted by so many of the recent commentators who have deployed and further advanced these heterodox approaches. Contemporary work in these traditions, it is highlighted here, does ultimately recognise the contingencies involved in governance effectiveness in different geographical and policy areas. Rather than offering institutional blueprints, a framework for contextsensitive evaluation of various forms of governance is provided (Aligica, 2017; Aligica et al., 2019; Boettke & Leeson, 2004; Haeffele & van der Horst, 2018; Pennington, 2013, 2017). However, the implications of these contingencies for assessing the conclusions of classical liberal scholarship, it is held here, are under-explored. There is a very much open need to assess a broad range of institutional possibilities, including those incorporating a stronger role for the central state than is countenanced by classical liberals. Indeed, it is suggested, there is potential for challenging the conclusions of classical liberalism in terms of the very same heterodox conceptual approach that classical liberals have deployed.

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In exploring these heterodox contributions, the central focus of this book is upon their insights into challenges of coordination. The concept of coordination, as is further explored, is primarily concerned with the selection of means for attaining sought goals. While such a focus is of integral importance to governance evaluation, it is not suggested here that the political debates and decisions that shape governance and policy processes can be understood solely in terms of problems of coordination. As was highlighted by Charles Lindblom, whose work includes a close focus on coordination (Greenwood, 2016), processes of choosing between means are inextricably connected with contested questions about choices of ends (Lindblom, 1959). Given the inherently normative character of such political contestation, processes of coordination cannot be viewed in value-neutral instrumentalist terms. By the same token, coordinative challenges necessarily shape these political debates. A focus on the coordination problems involved in policy delivery is vital to fully appraising these debates. The exploration in this book of heterodox understandings of coordination is organised in terms of the distinction formulated by Jack Knight and James Johnson (2011) between ‘first order’ and ‘second order’ coordination. The first order task concerns the substantive shaping of social interactions (Knight & Johnson, 2011, p. 25). First order coordination might be achieved by market or non-market processes; hence, there is a need for comparison of the allocative outcomes yielded by these two types of process. Of course, such questions arise all the time in contemporary policy debates about the role of markets in a range of policy areas including education, health, social services, urban planning and environmental management. The extensive contributions of the Austrian School, Mises and Hayek in particular, it is argued, provide a vital analytical focus for exploration of this question. The Austrians are shown to offer especially rich insights into what is referred to as the fundamental ‘epistemological’ dimension of coordination challenges, attention to which is argued to be of vital significance for governance evaluation. The second order task concerns the institutional arrangements and processes through which first order questions are addressed. In other words, second order coordination refers to how the overall balance and inter-relationship between market and non-market processes in first order terms are settled upon over time. Second order coordination can thus be considered a ‘meta-level’ concept, less directly concerned with the substantive shaping of allocative outcomes but rather with the

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institutional processes through which first order coordination tasks are addressed. The contributions of the Bloomington School can be viewed as complementing those of Austrian political economy, while attending more closely to this second order question, highlighting in particular the need for close attention to questions of the geographical scale at which forms of governance are established. In addition to the Ostroms, a range of other classical liberal contributions are drawn upon to formulate questions about the relative strengths and weaknesses of different institutional forms for achieving second order coordination. The approach to evaluating governance proposed by this book is shown to be innovative in bringing together insights from these heterodox traditions in a way that remains entirely open to a full range of evaluative conclusions about institutional effectiveness that might either support or challenge classical liberal proposals. 1.2.1

Mises, Hayek and Classical Liberalism

The work of Mises and Hayek especially might seem an unlikely source for achieving a dispassionate assessment of the full spectrum of forms of governance. Their proposed market-orientated, classical liberal model of political economy contrasts markedly with contemporary understandings of governance which emphasise institutional heterogeneity. Mises and Hayek are often referred to as key figures in the emergence of ‘free market,’ or ‘neoliberal’ agendas that were established from the late 1970s onwards in which the US Reagan presidency and UK Thatcher government had a pivotal role internationally.5 The writings of the two Austrians certainly reached a wide audience. Starting with their contributions to well-known debates with socialist advocates of a non-market planned economy, Mises and Hayek’s case for markets became hugely influential during the twentieth century. Hayek was a key figure in the establishment of the internationally influential Mont Pelerin society, a group of intellectuals that became a transatlantic network, committed to promoting systems of private property and individual liberty. The Mont Pelerin Society, albeit most directly through the high profile figure of Chicago School economist Milton Friedman (Burgin, 2012), influenced the socalled Washington Consensus, in which the IMF and World Bank adopted 5 Hayek’s work was a source of inspiration for the emergence of Thatcherism in the UK from the late 1970s (Evans, 2004).

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policies widely referred to as ‘Neoliberal’.6 The stringency of the Austrian critique of socialist planning and hierarchical state interventions, as well as the force of their case for markets, was indeed reflected in later ‘neoliberal’ agendas. It should be noted though that Hayek distanced himself from the term ‘neoliberal,’ presenting his ideas as ‘classical’ liberal.7 Mises and Hayek’s starting point is a strong commitment to individual liberty and freedom to exercise individual choice through the process of market exchange. They propose that the state should establish a general legislative framework that allows individuals to exercise such liberty in pursuit of their goals and preferences. Given the pluralism of individual motives across society, governments, as Hayek puts it, should refrain from intervening in the economy to promote particular outcomes. This is evident in his account of markets as a ‘catallaxy,’ enabling individuals to pursue their own ends (Hayek, 1960, pp. 109–111). This approach of proposing fundamental guiding principles for establishing the suitable role of the state has been interpreted by some commentators as treating individual liberty as a deontological value (Gray, 1986). However, in the debates that have ensued, others have suggested that Hayek offers a consequentialist, even utilitarian, case for liberty (Gray, 1986; Kley, 1994; Kukathas, 1989; Papaioannou, 2012; Plant, 2010). It is beyond the scope here to fully resolve this interpretational question. Here, we simply note that, although in places Hayek suggests that liberty is of inherent value (Plant, 2010), his primary emphasis is upon the benefits of markets in consequentialist terms, as is that of Mises. Attempts by policymakers and politicians to substantially shape market outcomes, Hayek contends, will not only infringe individual liberty but also fail to reach the goals being 6 Early usage of the term ‘neoliberal’ in the 1950s and 1960s referred to a more social form of liberalism which differed from Hayek’s classical liberalism. During the 1970s, the term came to be used by critics of the market fundamentalism of Pinochet’s reforms in Chile which involved significant curtailment to political liberties. These two different usages both contrasted with Hayek’s classical liberalism which would seem to explain why he distanced himself from the label (Boas & Gans-Morse, 2009). 7 The practice of extending the scope of markets under contemporary neoliberalism has involved some significant state-driven, hierarchical elements (Gürcan & Peker, 2015; Harvey, 2005). These state interventions may have been of a kind that Hayek himself would have cautioned against. Such a role for the state can certainly be juxtaposed against the account in Hayek’s later work, discussed here further in Chapter 6, of the institutional framework for markets evolving in a decentralised way. However, as Harvey suggests (Harvey, 2005, p. 152) and as discussed further in Chapter 6, these elements of Neoliberalism in practice may reflect some tensions in classical liberal theory.

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sought. It is argued here that this latter consequentialist line of argument yields insights that can provide a basis for and indeed inspire research on governance effectiveness. Hayek’s perspective has pertinence whether one subscribes to his classical liberal conclusions or not. The Austrians’ consequentialist case for markets is initiated by Mises and further developed by Hayek during the socialist calculation debate (Boettke, 2000; Horwitz, 1996; Lavoie, 1985; Vaughn, 1980). Taken together, their contributions emphasise the indispensability of markets as a decentralised process for coordinating the use of resources across society. Markets, they highlight, capture dispersed, complex information concerning individual preferences and their mutual implications for ensuring efficiency. There is a fundamental, knowledge-related, or epistemological, dimension to this conceptualisation of coordination in the context of complexity, especially as articulated by Hayek (Boettke, 1993, pp. 52–53; Hodgson, 1998; Horwitz, 1996). The prices generated by real world markets, by enabling the encapsulation and discovery of knowledge, serve to guide producers and consumers in their economic decisions, fostering the coordination that is required to attain a generally acceptable standard of living across society. In the absence of markets, Mises and Hayek contend, attempts to plan the allocation of resources across a complex economy, would inevitably be plagued by inefficiency, resulting in a huge drop in living standards.8 This epistemologically orientated case for markets has vital implications for evaluating mixed models of political economy that might combine state and market decision-making in a variety of ways (Aligica et al.,

8 For Mises, attempts at socialism would result in a society in which the provision of consumption goods is “diminished” (Mises, 1920, p. 130). Hayek similarly suggests that there would be a “decline in the general wealth” (Hayek, 1935).The overall tone of Mises is especially strong. In the early 1920s, he describes attempts to establish socialism and state interventionism as having left society on “the brink of a precipice,” threatening civilisation (Mises, 1922, p. 24). As Steele puts it, the general tone of Mises’ thesis suggests that “when an attempt is made to implement world-wide socialism, the collapse will be so great that the prerequisites of large-scale society will be unsustainable and society will fragment into uncoordinated bands” (Steele, 1992). This argument, similar to that offered somewhat more explicitly by Mises in his 1920 article, is evident in the opening chapters of Hayek’s The Constitution of Liberty. He draws a connection between individual liberty and “civilisation” of the mid-twentieth century, which he suggests was based upon the generation of knowledge concerning the discovery across society of new means for achieving our ends. In Chapter 3, he discusses how the development of such knowledge has resulted in an increase in living standards in the West.

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2019; Ikeda, 1997), including those evident in contemporary forms of governance that have been subject of such extensive discussions in political science. To provide a fully convincing case for their classical liberal proposals, it was necessary for the Austrians to not only demonstrate the fundamental problems of a non-market planned economy but also challenge the effectiveness of the state-led policy interventions that are integral to such mixed models. The scope of the initially dualistic debate about markets and socialist planning in which Mises and Hayek were involved shifted after the Second World War to give greater attention to this question of ‘mixed economies.’ Social democrats at that time advocated various kinds of mixed model in which the market would still retain an allocative role, though with state planning and interventions, as well as the welfare state, having a substantive role in shaping outcomes. Hayek further developed the Austrian case for classical liberalism through a critique of such proposals. In this regard, a key juncture was the publication in 1944 of Hayek’s famous book The Road to Serfdom, where he develops a critique of the Keynesian mixed, welfare statist models advocated by the Labour Party in Britain and other European social democratic parties. The models, he stresses, involve inherent problems concerning how to acquire the knowledge that would be needed to effectively achieve their goals. In this context, for Hayek, political leaders will inevitably have to take arbitrary decisions, which can eventually undermine democracy and constitute a ‘road to serfdom.’ Numerous critics have since challenged the apparent implication of this famous argument of Hayek, that social democracy constitutes a ‘slippery slope’ towards the undermining of democracy (Alves & Meadowcroft, 2013; McInnes, 1998; Tomlinson, 1990). However, aside from this question of how we might interpret his conclusions, Hayek’s critique shows how the Austrian conception of coordination challenges and their fundamental epistemological dimension are pertinent to evaluating policymaking in mixed models of political economy. It is especially in this respect, as this book explores, that Hayek’s work has both ongoing and distinctive relevance for assessing contemporary governance. The work of these Austrian economists, situated in the early-midtwentieth century, does not fully anticipate the myriad ways in which public and private sector can be combined. Nonetheless, the concepts and insights that the Austrians offer and the questions they raise about the inter-relationship between state and market are vitally pertinent for evaluating contemporary governance and can complement and enrich

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established approaches in political science and policy studies. Since the collapse of the Soviet Union in 1991, the significant questions and challenges posed by Hayek’s work, especially in highlighting the fundamentally important epistemological dimension of coordination challenges in contemporary society, have been recognised by several leading theorists on the left (Griffiths, 2014). This concerns how decision-makers acquire the knowledge they need to effectively translate their goals into practice. While the significance of such epistemological challenges is recognised in governance and policy research, the motivational dimension of governance challenges tends to be the primary focus. This book highlights the vital insights and lines of enquiry yielded by the distinctive Austrian treatment of this epistemological dimension and its relationship to the questions of motivation in institutional analysis. The result is an interdisciplinary, outcome-orientated approach that enables more direct engagement with evaluative questions about governance and policy than we find in contemporary political science literatures. 1.2.2

The Bloomington School

Questions and insights offered by the Bloomington School can further complement such an epistemologically orientated approach. The Bloomington School of public choice was led by the pioneering work of Elinor and Vincent Ostrom, whose work is closely concerned with ‘governance,’ understood to involve institutional arrangements for shaping markets that tend to refrain from reliance upon the hierarchical state.9 Their contributions explore how institutional effectiveness varies across geographical scales and social contexts, raising vital questions about the appropriate scales of governance for addressing complex problems. Compared with the Austrians, Bloomington School political economy is not articulated with quite such an explicit focus upon the role of the market. The focus of the Ostroms is upon ‘public economies,’ thus concerning how to analyse a diverse range of institutional arrangements for the provision of public goods. Many of their case studies centred upon local or metropolitan scale governance. Their approach to exploring ‘institutional analysis and development’ through their ‘IAD model’ involved detailed micro-level analysis of individual behaviour and motivations in a range of contexts, 9 For example, Vincent Ostrom commented that “We need not think of ‘government’ or ‘governance’ as something provided by states alone” (Aligica, 2003).

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mostly concerning the governance of ecosystem ‘common pool resources’ and public services provision (Polski & Ostrom, 2017). The normative proposals that stem from their work tend to concern questions of the most suitable scales of governance. They are drawn upon within this book to engage with the ‘second order’ question of the most suitable institutional processes and scales of governance for fostering first order coordination. More strongly than the Austrians, Bloomington scholarship exhibits sensitivity to the limitations and weaknesses of markets as well as their potential strengths. Drawing from Michael Polanyi, the Ostroms use the term ‘polycentricity’ to conceptualise multi-centred systems of rules and policy-making that shape societies and markets (McGinnis, 1999; Ostrom et al., 1961). Starting from classical liberal premises that are shared with the Austrians, the Ostroms question the capacity of centralised states to shape social outcomes. As further explained in Chapter 2, the Ostroms’ contributions were part of a broader shift in institutional analysis in both political science and political economy. Hence, aside from the specific conclusions they reach about the relative effectiveness of different institutional arrangements, the Ostroms’ contributions are also of significance in terms of how they are reached and their contribution to heterodoxy.

1.3

Outline of the Book

To explore the need and potential for an approach to governance evaluation that draws from these heterodox traditions, the book is structured as follows. Chapter 2 sets the context for the exploration of heterodox economics in subsequent chapters. Firstly, the varying degrees to which established approaches in political science engage with evaluative questions about governance are considered. As is explained, positivism was an important early influence in the early years of political science and economics as academic disciplines, which led to a tendency to refrain from directly engaging with evaluative questions. Since then, significant shifts have taken place in both fields. Evaluative questions concerning governance effectiveness are raised and addressed in some political science scholarship and this is reflected in some recent lines of inquiry in governance research. In economics, heterodox traditions provide cause for questioning strictly positivist approaches. Here, the need is recognised to assess economic outcomes in terms of a plurality of values. The heterodox political economy of the Austrian and Bloomington School highlights the

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need for a balanced assessment of the key functions and apparent limitations of market processes. It is suggested that such a political economy focus is largely lacking in the political science and public administration literature on governance. In this respect, heterodox economics, rather than institutionalist analysis in political science, offers the closest engagement with the challenge of governance evaluation. Chapters 3–5 address the question of how to balance market and nonmarket, political processes in fostering coordination in first order terms, with the Austrian School, and especially Hayek, being central. Chapter 3 explores how the Austrian development of the case for markets as a process of fostering coordination can inform assessment of governance and policy effectiveness. ‘Coordination,’ when understood in Austrian terms, is a concept closely related to ‘effectiveness’ that, it is argued, can serve as the basis for an outcome-orientated evaluation of governance in the face of complex policy challenges. The Austrian approach is shown to complement the perspective of heterodox traditions that emerged later, including those which were critical of the market-orientated liberalism of Mises and Hayek. Starting from a recognition of the incommensurability of the values and goals that motivate individuals across society, the Austrians and Hayek emphasise the complexities and associated uncertainties involved in translating them into practice. This shared conceptual ground can serve as the basis for comparative assessment of a full range of market and non-market processes that might shape social outcomes. Hence, there is potential to detach the Hayekian conception of the challenge of coordination from Hayek’s own pro-market commitments. A distinctive feature of Hayek’s contribution is to highlight the fundamentally important epistemological function of markets in enabling the encapsulation and discovery of knowledge. With their recognition of the significance of complexities and uncertainty, innovation and knowledge discovery, the Austrian treatment of this challenge of coordination also anticipates some key conceptual tenets of contemporary theorisations of network governance. This understanding of coordination through markets, with its fundamental epistemological dimension, can serve as the basis for evaluating policy and the wider context of governance. Here, Hayek’s work that followed his contributions to the initial debate about the feasibility of a socialist planned economy is of key significance. Starting with The Road to Serfdom and further developed in The Constitution of Liberty, this later work extends his critique of non-market socialism to social democratic

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proposals for a mixed model of political economy, which combined a role for markets in production and consumer goods with extensive state-led planning, intervention and welfare provision.10 In the face of complexity, the kind of interventions attempted by governments in such mixed models, Hayek stresses, will inevitably have impacts that are arbitrary in terms of the plurality of values held by individuals across society. Hayek’s thesis that such interventions undermine the foundations of liberal society might seem exaggerated, as some critics have argued. However, his thesis highlights the potential for negative, unintended impacts of state interventions, which should be considered by states attempting to address problems of markets. As set out in Chapter 4, insights into the epistemological challenges involved in policy delivery resonate in philosophical discussions concerning key objectives for contemporary governance, such as equality of opportunity, social justice and environmental sustainability, even though they are not the primary focus of these debates. These debates suggest that there is potential for defining these goals as ‘pattern shaping,’ hence taking them to give a broad indication of a sought outcome, while allowing for flexibility in how they are translated into practice. This view of the normative grounds for evaluating governance is rather akin to the concept of ‘steering’ that is prominent in political science literatures on governance. As further explored in subsequent chapters, such an approach to policy evaluation is of integral importance to the wider aim of evaluating governance. In Chapter 5, it is argued that the conception of coordination offered by the Austrians can be detached from the context of the market through which it is developed and used to understand governance and policy processes beyond the market. Hence, still with a primary focus on the first order task, this chapter explores the potential for non-market, including political, processes to address challenges of coordination. As is explained, the Austrian conception of coordination, developed with reference to markets, can potentially be applied beyond the market to understand the functions of democratic politics, policy delivery and other non-market

10 While Hayek’s critique of mixed models is more prominent, Mises also expresses a

similarly critical view. He suggests that the fundamental problems for non-market socialist planning highlighted by his calculation argument also apply to governmental interventions in markets. For example, he writes “If… private property is necessary, it needs no other justification for existing, and there is no reason why, by partially abolishing it, its social effectiveness should be weakened” (Mises, 1936, p. 268).

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processes. This approach entails a focus upon the potential for patternshaping goals to be established and translated into practice. Democratic, party-political and policy processes, it is argued, drawing from a range of authors both within and beyond the Austrian tradition, can be viewed as fostering coordination. Analogously to the market process, innovation and entrepreneurship in the face of uncertainty and complexity are pivotal to fostering such non-market coordination. Forms of organisation both within the firm and beyond the private sector that are non-market in form can also have an important role in fostering coordination, including the development and use of tacit knowledge, with important implications for how we might envisage governance. In highlighting the potential for an Austrian understanding of coordination beyond the market, the chapter draws from a range of contributions in political theory and political economy. These writings are currently rather disparate. Taken together though, they suggest the need for visions of policy delivery and governance which explicitly acknowledge the possibility of coordination beyond as well as through the market. Chapter 6 turns to the second order task and the questions raised by Knight and Johnson concerning the institutional arrangements for establishing or settling upon appropriate forms and scales of governance within which markets operate. How far, it is asked, does second order coordination require a democratic political process, as Knight and Johnson argue? The potential for coordination through democratic politics discussed in Chapter 5 offers support for the Knight and Johnson thesis. However, as this chapter reviews, classical liberal contributions rooted in heterodox political economy prompt questions about the Knight and Johnson case for second order coordination through democratic politics. These classical liberal proposals emphasise the potential of decentralised, evolutionary forms of institutional adaptation and selection, even competition, as drivers of second order coordination. Following the Ostroms, this potential is sometimes articulated in terms of the concept of ‘self-governance’ (Aligica, 2018; Ostrom, 2010). Ultimately, the important insights offered by classical liberals, it is argued, serve to highlight the contingency and context dependency of the question of the second order effectiveness of any given set of institutions. Indeed, in conclusion, the need for empirical, outcome-orientated research is emphasised, exploring the contingencies involved in fostering both first and second order coordination. Building upon the conceptualisation of coordination challenges for governance and policymaking set out in Chapters 3–6, Chapters 7 and

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8 propose and apply a distinctive methodological approach for evaluating the ‘coordinative effectiveness’ of governance arrangements. This, it is explained in Chapter 7, is distinct from, though can complement, established, process-orientated approaches in political science and public administration to analysing governance and policymaking in terms of coordination and related concepts. The central line of inquiry follows from the conceptualisation of first and second order coordination challenges set out in the previous chapters. This involves exploration of how stakeholders address the ‘economic’ dimensions of choice, understood in a broad, non-instrumentalist sense, that shape complex policy challenges. The focus is on analysing the understandings, values and motivations that shape policy actors’ priorities and decision-making. As is explained, the approach considers a range of stakeholders’ perspectives towards both the choices facing policymakers and the anticipated and actual outcomes resulting from the decisions taken. The aim is explicitly one of openness to a spectrum of possible conclusions including those which might run counter to those reached by classical liberals. Application of the approach for assessing the coordinative effectiveness of governance is illustrated through presentation in Chapter 8 of two UKfocused case studies in the fields of environmental regulation and health services. Both cases are based upon extensive, detailed analysis of stakeholder framings, through both desk-based research and interviewing. The main purpose of the two cases is to illustrate the type of findings yielded by the proposed evaluative approach. The policy challenges concerned are complex and the case studies are shown to yield insights into their significant epistemological dimension and the close intertwining of knowledge and incentive problems in the practice of governance and policymaking. Indeed, the epistemological focus of the studies is shown to complement and enrich the kind of insights into the policy process that are achieved by standard, process-orientated approaches. In the cases concerned, the findings do suggest a need for governance to have a more substantive role in shaping social and market outcomes than would typically be countenanced by classical liberals. Hence, the case studies offer a counterbalance to the conclusions, generally supportive of classical liberalism, reached by previous empirically orientated evaluative analyses of policy from the Austrian and Bloomington traditions. This further highlights the vital need, set out by this book, for an evaluative research agenda that draws

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from these traditions, while maintaining conceptual and methodological balance and openness towards the various possible conclusions that such an agenda might yield.

References Aligica, P. D. (2003). Rethinking institutional analysis: Interviews with Vincent and Elinor Ostrom. Mercatus Center, George Mason University. Aligica, P. D. (2017). Public administration and the classical liberal perspective: Criticism, clarifications, and reconstruction. Administration & Society, 49(4), 530–551. Aligica, P. D. (2018). Public entrepreneurship, citizenship, and self-governance. Cambridge University Press. Aligica, P. D., Boettke, P. J., & Tarko, V. S. E.-O. (2019). Public governance and the classical-liberal perspective: Political economy foundations. Oxford University Press. Alves, A. A., & Meadowcroft, J. (2013). Hayek’s slippery slope, the stability of the mixed economy and the dynamics of rent seeking. Political Studies, 62(4), 843–861. Bellamy, R., & Palumbo, A. (2016). S. E.-T. Library of contemporary essays in political theory and public policy. From government to governance. Routledge, Taylor & Francis Group. Boas, T., & Gans-Morse, J. (2009). Neoliberalism: From new liberal philosophy to anti-liberal slogan. Studies in Comparative International Development, 44(2), 137–161. Boettke, P. J. (1993). Why perestroika failed: The politics and economics of socialist transformation. Routledge. Boettke, P. J. (2000). No title. In P. J. Boettke (Ed.), Socialism or the market: The socialist calculation debate revisited (TI)—Towards a history of the theory of socialist planning (pp. 117–124). Routledge. Boettke, P. J., & Leeson, P. T. (2004). Liberalism, socialism, and robust political economy. Journal of Markets & Morality, 7 (1), 99–111. Burgin, A. (2012). The great persuasion: Reinventing free markets since the depression. Harvard University Press. Davies, J. S., & Chorianopoulos, I. (2018). Governance: Mature paradigm or chicken soup for European public management? Critical Policy Studies, 12(3), 360–366. DeLeon, P. (2006). The historical roots of the field. In The Oxford handbook of public policy (pp. 39–57). Oxford University Press. Dunn, W. N. (2012). Public policy analysis (5th ed., I). Pearson. Evans, E. J. 1945-[Main author] (2004). Thatcher and Thatcherism (2nd ed.). Routledge.

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Fischer, F. (2007). Policy analysis in critical perspective: The epistemics of discursive practices. Critical Policy Studies, 1(1), 97–109. Fleishman, J. L. (1990). A new framework for integration: Policy analysis and public management. American Behavioral Scientist, 33(6), 733–754. Frederickson, H. G. (2012). The public administration theory primer (2nd ed.). Westview Press. Gray, J. A. (1986). Hayek on liberty (2nd ed.). Blackwell. Greenwood, D. (2011). The problem of coordination in politics: What critics of neoliberalism can draw from its advocates. Polity, 43(1), 36–57. Greenwood, D. (2016). Governance, coordination and evaluation: The case for an epistemological focus and a return to C.E. Lindblom. Political Research Quarterly, 69, 30–42. Griffiths, S. (2014). Engaging enemies: Hayek and the left. Rowman & Littlefield International. Gürcan, E. C., & Peker, E. S. E. (2015). Introduction: Neoliberal globalization, state intervention, and collective action. In E. C. Gürcan & E. S. E. Peker (Eds.), Challenging neoliberalism at Turkey’s Gezi Park: From private discontent to collective class action (1st ed., pp. 1–12). Palgrave Macmillan. Haeffele, S., & van der Horst, D. (2018). Knowledge and incentives in policy: Using public choice and market process theory to analyze public policy issues (1st ed.). Rowman & Littlefield International. Harvey, D. (2005). A brief history of neoliberalism. Oxford University Press. Hayek, F. A. (1935). The nature and history of the problem. In F. A. Hayek (Ed.), Individualism and economic order (pp. 119–147). University of Chicago Press. Hayek, F. A. (1960). The constitution of liberty. Routledge and Kegan Paul. Head, B. W., & Alford, J. (2015). Wicked problems: Implications for public policy and management. Administration & Society, 47 (6), 711–739. Heclo, H. (1972). Review article: Policy analysis. British Journal of Political Science, 2(1), 83–108. Hill, M. J., & Hupe, P. L. (2014). Implementing public policy: An introduction to the study of operational governance (3rd ed.). Sage Hodgson, G. M. (1998). Socialism against markets? A critique of two recent proposals. Economy and Society, 27 (4), 407–433. Hofferbert, R. I. (1990). The reach and grasp of policy analysis: Comparative views of the craft. Tuscaloosa; London: Institute for Social Science Research, University of Alamba Press. Hogwood, B. W. & Gunn, L. A. (1984). Policy analysis for the real world. Oxford University Press. Horwitz, S. (1996). Money, money prices, and the socialist calculation debate. In Advances in Austrian economics (pp. 59–77). Emerald.

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Howlett, M., & Rayner, J. (2007). Design principles for policy mixes: Cohesion and coherence in “new governance arrangements.” Policy and Society, 26(4), 1–18. Ikeda, S. (1997). Dynamics of the mixed economy: Toward a theory of interventionism (1st ed.). Routledge. Kjær, A. M. (2004). Governance. Polity Press. Kley, R. (1994). Hayek’s social and political thought. Oxford University Press. Knight, J., & Johnson, J. (2011). The priority of democracy: Political consequences of pragmatism. New York Princeton [N.J.]: Princeton University Press. Kooiman, J. (1993). Governance and governability: Using complexity, dynamics and diversity. In J. Kooiman (Ed.), Modern governance: New governmentsociety interactions (pp. 35–48). Sage. Kooiman, J. (2003). Governing as governance. Sage. Kukathas, C. (1989). Hayek and modern liberalism. Clarendon Press; Oxford University Press. Lasswell, H. D. (1956). The political science of science: An inquiry into the possible reconciliation of mastery and freedom. The American Political Science Review, 50(4), 961–979. Lasswell, H. D. (1970). The emerging conception of the policy sciences. Policy Sciences, 1(1), 3–14. Lavoie, D. (1985). Rivalry and central planning. Cambridge University Press. Lerner, D., & Lasswell, H. D. (1951). The policy sciences. Stanford University Press. Lindblom, C. E. (1959). The science of ‘muddling through.’ Public Administration Review, 19, 79–88. Marcussen, M., & Torfing, J. (2006). Democratic network governance in Europe. Palgrave Macmillan. Mayntz, R. (1993). Modernization and the logic of interorganizational networks. Knowledge and Policy, 6(1), 3–16. McGinnis, M. D. (1999). Polycentricity part 1. In Polycentricity and local public economies. University of Michigan Press. McInnes, N. (1998). Hayek’s slippery slope. The National Interest, 51, 56–66. Meltzer, R., & Schwartz, A. F. 1957- (2019). Policy analysis as problem solving: A flexible and evidence-based framework (1st ed.). Routledge. Ostrom, E. (2010). The challenge of self-governance in complex contemporary environments. The Journal of Speculative Philosophy, 24(4), 316–332. Ostrom, V., Tiebout, C. M., & Warren, R. (1961). The organization of government in metropolitan areas: A theoretical inquiry. The American Political Science Review, 55(4), 831–842. Papaioannou, T. (2012). Reading Hayek in the 21st century: A critical inquiry into his political thought. Palgrave Macmillan.

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Pennington, M. (2013). Elinor Ostrom and the robust political economy of common-pool resources. Journal of Institutional Economics, 9(04), 449–468. Pennington, M. (2017). Robust political economy and the priority of markets. Social Philosophy and Policy, 34, 1–24. Plant, R. (2010). The neo-liberal state. Oxford University Press. Polski, M. M., & Ostrom, E. (2017). An institutional framework for policy analysis and design. In M. D. Mcginnis & D. H. Cole (Eds.), Elinor Ostrom and the Bloomington School of Political Economy Volume 3, A framework for policy analysis (pp. 13–48). Rowman & Littlefield International. Rhodes, R. A. W. (1997). Understanding governance: Policy networks, governance, reflexivity and accountability. Open University Press. Robbins, M. (2017). Why we need political economy. Institute of Research on Public Policy. Room, G. (2011). Complexity, institutions and public policy: Agile decisionmaking in a turbulent world. Edward Elgar. Steele, D. R. (1992). From Marx to Mises: Post-capitalist society and the challenge of economic calculation. Open Court. Stoker, G. (1998). Governance as theory: Five propositions. International Social Science Journal, 50(155), 17–28. Stringham, E. (2015). Private governance: Creating order in economic and social life. Oxford University Press. Tomlinson, J. (1990). Hayek and the market. Pluto Press. Torfing, J., & Ansell, C. (2017). Strengthening political leadership and policy innovation through the expansion of collaborative forms of governance. Public Management Review, 19(1), 37–54. Torfing, J., et al. (2012). Interactive governance: Advancing the paradigm. Oxford University Press. Torfing, J., & Sørensen, E. (2014). The European debate on governance networks: Towards a new and viable paradigm? Policy and Society, 33(4), 329–344. Turnbull, N. (2008). Harold lasswell’s “problem orientation” for the policy sciences. Critical Policy Studies, 2(1), 72–91. van Kersbergen, K., & van Waarden, F. (2004). Governance as a bridge between disciplines. European Journal of Political Research, 43(2), 143–171. Vaughn, K. I. (1980). Economic calculation under socialism: The Austrian contribution. Economic Inquiry, 18(4), 535–554. von Mises, L. (1920). Economic calculation in the socialist commonwealth. In F. A. Hayek (Ed.), Collectivist economic planning: Critical studies on the possibilities of socialism (pp. 87–130). Routledge. von Mises, L. (1922). Socialism—An economic and sociological analysis. Jonathan Cape. von Mises, L. (1936). Socialism: An economic and sociological analysis. J. Cape.

CHAPTER 2

Governance, Markets and Institutional Analysis

2.1

Introduction

This chapter provides an overview of the contrasting disciplinary approaches within political science, economics and related fields that are concerned with the analysis and evaluation of governance. This serves as context for the more detailed exploration of heterodox political economy traditions that are the focus of subsequent chapters. Section 2.2 discusses the tendency in political science to focus upon conceptual and explanatory analysis, rather than normative questions about effectiveness. This focus, as Section 2.3 explains, has had significant influence upon research on governance and networks. As is highlighted though, evaluative questions have inevitably risen to the fore in some of this research. Evaluating governance networks, it is explained, requires attention to political economy questions about the inter-relationship between politics, policy and markets. Given this need and to serve as context for the discussion of heterodox economics that follows, Section 2.4 provides an overview of the mainstream ‘Neoclassical’ economics tradition that has been so prominent in economics as a discipline. Section 2.5 reviews how the Neoclassical treatment of individual economic actors as rational utility maximisers, or ‘homo economicus,’ has had significant influence in political science, as is especially reflected in predominant public choice scholarship. Section 2.6 draws a comparison between Neoclassical assumptions and the conceptual foundations of the heterodox political economy traditions that are © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_2

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the focus for this book. Hence, the chapter sets in context the distinctive features of the heterodox Austrian and Bloomington traditions, with their sensitivity to the social and cultural factors that shape human motivation, as well as their close focus on the epistemological dimension of institutional challenges. These distinctive, heterodox features are further explored by subsequent chapters, informing the evaluative approach that is proposed.

2.2

Political Science and Policy Studies

In American universities after the Second World War, political science sought to establish itself as a rigorous scientific discipline, as was considered necessary for securing the status of the field within academia (Gunnell, 2013). The influence of positivism, with its aim of establishing a ‘value-free’ methodological approach, was evident. As a reflection of this aim of establishing scientific objectivity, key analytical techniques deployed by political scientists sought to avoid direct engagement with the normative substance of political debates. This was especially apparent in the rise of the behavioural approach (Somit & Tanenhaus, 1965) which focused on testing causal hypotheses on the basis of the empirical observation of individual political behaviour (Easton, 1965). Behavioural analysis was applied in a range of political science sub-fields, with voting behaviour being the subject of particular focus (Eulau & Eulau, 1966; Lazarsfeld et al., 1944). The behavioural approach was criticised by some as inherently conservative for excluding discussion of wider debates about politics and society (McCoy et al., 1967). Ever since these early years of the discipline, calls have been made for political science to re-orientate itself towards yielding prescriptive recommendations for improved institutions and policymaking (Dror, 1971; Hanf & Scharpf, 1978; Ranney, 1968; Reagan, 1968; Ripley, 1985).1 Fleishman (1990, p. 747) comments:

1 Scharpf comments that “the construction of (such) prescriptive models of effective and feasible policy alternatives must appear problematic to political scientists reared in the intellectual traditions of value-free empirical research. Other disciplines, however, such as economics, medicine and public health, ecology or jurisprudence, have been much less hesitant in moving from applied research to policy prescription” (Scharpf, 1978, p. 349).

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Political scientists frequently do engage in prescription, but I believe that it is accurate to describe their basic orientation as principally devoted to explaining political institutions and forces, with any prescription arising by way of inferences from the explanation. Prescription is entirely incidental to the principal role of the political scientist, as well as that of scholars in most other disciplines which describe themselves as ‘social science’.

The focus of political science upon descriptive and explanatory questions is also evident amongst academic communities in policy studies. Since the days of Lasswell’s early contributions, a divide has set in between approaches concerned with evaluating policy options and the field, known as ‘policy process research,’2 introduced in some key texts on public policy (Cairney, 2012; Hill, 2009; John, 2012). Reflecting the influence of political science, this latter field focuses upon the development of explanatory concepts and theories for understanding the processes of forming and delivering policy. More recently, in the field of public administration, where governance has been a central theme for three decades, Christopher Pollitt observes a recent tendency towards a focus on developing explanatory theory. He notes how relatively few articles there are dealing with major, ‘wicked’ social challenges such as poverty, justice, ill-health, public infrastructure, demographic change and the climate emergency (Pollitt, 2014, 2016).3 An area of policy studies that has included closer attention to the outcomes of attempts to translate policy into practice is implementation research (Goggin, 1990; Hill & Hupe, 2014). Peter Hupe (2014, p. 164) defines the field as “examining what happens within governmental agencies as well as in their relationships with other actors while fulfilling public tasks; and asking how that does matter.” The genesis of implementation studies is often associated with the widely cited work of Jeffrey Pressman and Aaron Wildavsky (1973). Focusing on a programme of public works in Oakland California, their famous case study explores how the role and inter-relationships between different organisations involved in programme delivery led to a failure to achieve the key policy goals of employment 2 This is an established term in the literature. See, for example, Cairney and Weible (2017). 3 However, he adds: “This tendency for the academic ivory tower to stand further and further away from the ‘action’ should not be exaggerated. In (public management) it has not gone as far as in some other social science subjects, such as political science.” See also Pollitt (2015).

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creation and improved equality of opportunity for those people from deprived backgrounds, including a significant proportion from ethnic minorities. Pressman and Wildavsky give close consideration to outcomes, highlighting how the interests of the agencies with responsibility for recruitment within the programmes were not sufficiently aligned with overall programme objectives. Since then, the orientation of implementation studies can be viewed as having shifted towards explanatory, ‘policy process research,’ aiming to develop theories that seek to explain policy success or failure defined in terms of achieving sought outcomes.4 Having developed this focus, the field of implementation research became rather subsumed by governance research (Hupe, 2014) which shares an interest in how inter-organisational relations affect policy delivery while situating such analysis within the wider institutional arrangements through which these policies are formulated. A recent exception to this tendency for the field of policy studies to refrain from outcome-orientated evaluation is the work of Paul T’Hart and colleagues. Their large comparative study (Bovens et al., 2010) of

4 This focus on theory development is evident in what O’Toole (1986) describes as the ‘second generation’ of policy implementation research. The first generation, O’Toole explains, assumed policy making to be a linear sequence of ‘stages,’ at the end of which lies implementation. Some of this ‘first generation’ research preceded the famous Pressman and Wildavsky book. For example, Luft (1976) uses cost–benefit analysis to evaluate implementation processes. The second generation, involving the development of theories seeking to explain the effectiveness of different approaches to policy implementation, highlighted a range of significant variables. These include factors relating to the interests of actors, such as bargaining, negotiation and compromise, the significance of which has been highlighted in political science (Bardach, 1977), as well as the role of conflict (Matland, 1995) within the implementation process. Relating to knowledge, the significance of learning (Barrett, 2004; May, 1992) and the inter-relationship between communication and decision-making (Yin, 1982) have been considered. One key example of second-generation implementation research is the framework developed by Mazmanian and Sabatier (1989) incorporating key variables that might explain implementation success. These include the level of difficulty of the implementation problem, the clarity through which policy structures the implementation process and other variables outside the policy itself, such as socio-economic conditions and levels of public support. A central question within this second-generation literature concerns the relative efficacy of ‘top-down’ compared with more decentralised implementation processes (Hogwood & Gunn, 1984, pp. 44–53). Key contributions to these debates include the case from Sabatier (1986) for a ‘top-down’ approach and the critique from ‘bottom up’ theorists who emphasise especially strongly the potential effectiveness of decentralised processes (Hjern & Hull, 1982, p. 114) and the important, innovative role of locally situated actors involved in policy delivery, such as in Lipsky’s discussion of ‘street level bureaucrats’ (Lipsky, 1980).

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outcomes in four policy sectors across six European states analyses the inter-relationship between institutions and policy success, as measured in terms of selected indicators. A distinctive feature of this study is how the authors seek to draw out the wider implications from these case studies for understanding the effectiveness of different institutional arrangements, with a focus on their type of voting system and relationships between executive and legislature. A more recent study (’t Hart & Compton, 2019) brings together a set of case studies which can be considered successful in terms of their procedural features and outcomes, as well as their durability and political impacts. However, there remains need and scope for research that focuses more explicitly on questions of political economy concerning the effectiveness of the institutional arrangements and processes, which, as emphasised by Viktor Vanberg (1986),5 are integral to the functioning of markets. Governance literatures highlight the close nature of the inter-relationships between the public or ‘state’ sector and the range of other actors from the third and private sector. Assessing these inter-relationships, whether of a formal or, as widely stressed within governance literatures, informal kind (Feeny, 1993, p. 172; North, 1992), is therefore an integral part of governance evaluation. As a further reflection of the explanatory rather than normative focus of political science, the field of ‘evaluation research,’ concerned with assessing policy programmes sometime after they have been introduced (Davidson, 2004; Weiss, 1998), has become a rather separate field. As a research genre, evaluation research has its own textbooks and journals. Compared with the tendency in political science and public administration to refrain from engaging with evaluative questions,6 evaluation research is more directly orientated towards assessing policy outcomes. However, there is recognition in evaluation research that the field has tended to refrain from considering the wider governance arrangements within which policymaking takes place (Hertting & Vedung, 2012; Stame, 2006).

5 Vincent Ostrom (1987, p. 207) had earlier pointed out that rules established through institutions are constitutive of market orders. 6 An illustration of this separation between the fields is that the number of references

in political science and public administration to the seminal text on policy evaluation by Carol Weiss (Weiss, 1998) is surprisingly low when compared to citation numbers in other disciplines such as health research, social policy and education. This text was central to defining the field of evaluation research with an especially strong outcome orientation while steering away from strongly positivist assumptions (Newcomer, 2015).

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In response to the focus of mainstream political science and related fields upon descriptive and explanatory analysis, Gerry Stoker, who has himself taken a close interest in the evolving debates about governance (Stoker, 1998), identified the need for a ‘design approach’ to the study of politics that seeks to evaluate political processes, or, as he puts it, is “solution seeking.” Stoker (2013) challenges the positivist mantra that political science should avoid normative questions. The design approach that he advocates involves drawing from empirical evidence to establish how political systems can function effectively in terms of meeting established goals. Clearly, as Stoker explains, significant areas of political science scholarship do engage with such questions of design. A key case in point, he notes, is the extensive work assessing different approaches to facilitating greater public participation in political decision-making (Elstub & Escobar Rodríguez, 2019; Smith, 2009). His point is that there is still scope for a shift towards more fully addressing such evaluative questions about governance and policymaking. Political science research that does engage with evaluative questions tends to focus upon evaluating political and policy processes, rather than outcomes, reflecting the focus of the discipline. The research on public participation cited by Stoker is a case in point. Political scientists usually refrain from engaging in outcomeorientated evaluation, the need and potential for which is stressed by this book and suggested by the heterodox economics traditions that are its focus.

2.3

Governance and Networks

The voluminous academic literatures on governance which have emerged since the 1990s span a number of related fields, including political science, public administration, international relations (Rosenau, 1992), EU studies (Hooghe & Marks, 2001) and sociology (Jessop, 2003). These various literatures focus on a range of different governance scales, from local to global (Kjær, 2004; Klijn & Koppenjan, 2012; van Kersbergen & van Waarden, 2004). These distinct tranches of governance research share a number of common features (Stoker, 1998; van Kersbergen & van Waarden, 2004). These include recognition of the distributed, decentralised nature of the inter-relationships between the plurality of public, private and third sector actors involved in governance, as well as the often blurred nature of these inter-relationships (Kickert et al., 1997; Stoker, 1998). Juxtaposed against the ‘vertical’

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relationships that hierarchical governmental structures entail, these relatively decentralised or ‘horizontal’ inter-relationships are widely understood in terms of ‘networks’ (Stoker, 1998). Much of the research on governance in political science and public administration, reflecting the focus of these fields, is upon conceptualising and analysing the types of decision processes that characterise contemporary governance. As highlighted by the interpretivist approach within philosophy of social science, attempting to establish a rigid distinction between descriptive and normative types of research is problematic. Any descriptive or explanatory analysis must inevitably be based upon the selected concepts, understandings and normative assumptions of the researcher (Bevir & Blakely, 2018). Nonetheless, the distinction between descriptive-analytical research on the one hand and normatively motivated research on the other (Bauböck, 2008) is widely recognised and can be useful at least for broadly grouping and assessing academic literatures. The distinction can be used to assess literatures on governance from across disciplines (van Kersbergen & van Waarden, 2004), as is further discussed below. In public administration, the term governance has been applied to analyse and conceptualise a range of different approaches to public management and public service delivery. Emphasis is placed on how governments are closely dependent on non-state actors in order to deliver policy and services (Christensen & Lægreid, 2012). A prominent theme has been the ‘New Public Management’ (NPM) reforms in many countries from the 1980s onwards, which often involved a greater role for the private and non-governmental sectors in public service provision. The specific nature of these reforms varies between countries (Ferlie, 1996; Rhodes, 1998), though they involve establishing competitive relationships between a range of public service providers, involving some combination of contractual, market or price-based mechanism, as well as the adoption of performance management techniques influenced by private sector practice (Hood, 1991; Osborne, 2006). NPM reforms, which often include public–private partnerships, networks and elements of user participation, as well as hybrid systems, can be viewed as forms of governance as distinct from government (Christensen & Lægreid, 2012). Tensions within NPM have been highlighted (Head & Alford, 2015, pp. 719–722), with the approach being compared to partnership-based or ‘collaborative’ forms of governance that have gained prominence more recently (Agranoff & McGuire, 2003; Ansell & Gash, 2008; Huxham & Vangen, 2005). The use of policy tools that depart from traditional, ‘command and control’

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forms of regulation and intervention in markets has also been discussed under the umbrella of ‘new’ forms of governance (Salamon & Lund, 1989). In areas of literature concerned with the management and operation of private firms, the term ‘corporate governance’ is deployed (Mallin, 2018). Public administration research, which can be considered a sub-field of political science, shares with this discipline a focus on conceptualising and analysing decision-making processes rather than seeking to assess their effectiveness in terms of outcomes. In the history of public administration, key contributions that have sought to assess the effectiveness of governance and policy processes, as Michael Spicer comments, have pre-supposed an instrumentalist conception of rationality.7 Hence, it is assumed that the goals of evaluation can be defined in advance, prior to the different possible means for attaining them being delineated and assessed.8 As Spicer argues, such an instrumentalist view of evaluation overlooks the uncertainties and plurality of normative perspectives that are inherent to the process of governance (Spicer, 2010, p. 62). However, more recent scholarship has engaged with evaluative questions in ways that recognise more explicitly the complexities involved in policy delivery. For example, an extensive literature now highlights the difficulties of defining performance targets, a prominent feature of NPM. The primary focus of the early political science and public administration scholarship on NPM was upon descriptive mapping of this internationally influential approach (Hood & Peters, 2004). More critically orientated empirical analyses were then developed. A prominent theme in such studies was to highlight the unanticipated consequences of the introduction of performance targets and measurement that may not actually be conducive to achieving the innovation and quality of output expected by the advocates of NPM (Bevan & Hood, 2006; Gregory, 1995; Hood & Peters, 2004; Pollitt, 1999). These critiques of NPM reflect, and have perhaps 7 A case in point cited by Spicer is the work of Lynn et al. (2000). Their focus is upon evaluating performance, understood as the effective attainment of given objectives. Spicer (2010, pp. 54–55) argues that they provide insufficient acknowledgement of the potential for such objectives to be open to contestation and contrasting interpretations. 8 Spicer highlights the influence of Herbert Simon upon this significant tendency in public administration to treat rationality in such instrumentalist terms. For Simon, “the central concern for administrative theory” was to be “the rationality of decisions – that is, their appropriateness for the accomplishment of specified goals” (Simon 1957: 240, cited in Spicer, 2010, p. 56).

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even influenced, shifts away from this paradigm (Bevir, 2013, pp. 140, 160–161). For example, Stephen Osborne (2006) offers an alternative understanding of public administration as a pluralist process that he terms ‘New Public Governance.’ This paradigm, he holds, emphasises the importance of inter-organisational relationships and the processes involved in service delivery, in contrast to the NPM focus upon the fulfilment of pre-defined performance measures. The term ‘network’ is so central to much of the governance literature as to warrant its own brief introduction here. As Tanja Borzel puts it, inter-relationships in networks are “of a non-hierarchical and interdependent nature linking a variety of actors, who share common interests with regard to a policy and who exchange resources to pursue these shared interests acknowledging that co-operation is the best way to achieve common goals” (Börzel, 1998). It has frequently been suggested that the years since the late 1980s saw a proliferation of such ‘network governance’ in Western Europe across a range of geographical scales (Marcussen & Torfing, 2006). Much of the network governance research is concerned with the processes through which public goods and services of various kinds are delivered. Such an understanding of governance and policy processes in terms of networks has been deployed in relation to a range of policy areas, from infrastructure planning to the delivery of services such as health and education (Ball, 2009; Nyseth, 2008; Provan & Kenis, 2007). The concept of networks has also been used to understand the process through which regulatory policies are formulated (Eberlein & Grande, 2005). Rather like ‘governance,’ the term ‘network’ has actually been used to conceptualise somewhat different phenomena across a range of disciplines including political science, public administration and organisational sociology (Klijn & Koppenjan, 2012). In broad terms, much network governance research is concerned with the process through which public goods and services are delivered, as detailed further below. With roots in much earlier debates in the discipline, an AngloAmerican political science tradition has focused upon using governance networks as a descriptive-explanatory concept for understanding statesociety relations (Börzel, 1998). The focus is upon the relationship between the state and interest groups in the formation of public policy (Klijn & Koppenjan, 2012), with the aim of responding to the perceived shortcomings of previous conceptions of pluralism, corporatism and elitism as explanatory theories of power (Jordan & Schubert, 1992; Van Waarden, 1992). A key early contribution in this regard was the work

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of Hugh Heclo on ‘issue networks.’ Heclo questioned US elitist analyses of ‘iron triangles,’ in which vested interests are suggested to have a decisive influence on policy. He emphasised how influence and responsibility for policy delivery were actually dispersed across a wide range of different organisations and actors (Heclo, 1978). This was followed by a burgeoning of political science scholarship on policy networks, at the centre of which was research by a number of British authors (Jordan, 1990; Rhodes, 1988, 1990; Thatcher, 1998). Rod Rhodes, whose work on policy networks focused initially on the British state, was amongst the first to discuss a shift having taken place from hierarchical government to more distributed, network forms of governance (Kjær, 2011). This, he emphasised, marked a shift away from the traditional ‘Westminster model’ of policymaking through formal legislative and executive arrangements (Rhodes, 1997a, 1997b, 1998). His much-cited comment that Britain had seen a ‘hollowing out of the state’ (Rhodes, 1994) prompted extensive debates across the fields of political science and public administration about how far this is an accurate characterisation of the shifting distribution of power and resources across the networks that characterise the modern British state (Bell & Hindmoor, 2009; Colebatch, 2009; Lynn, 2010; Marsh et al., 2003). Here, the debate is firmly situated within the primarily descriptive-explanatory purview of political science, with the focus being upon analysing the processes through which policy is formed and delivered. In contrast to Anglo-American scholarship applying the concept of networks to a range of different contexts of policy formation and delivery, a school of thought in political science that emerged from the Max Planck Institute in Germany understood networks as a distinct type of governance, which was distinguished from hierarchy and markets (Börzel, 1998). Theirs was a macro-level theory which, taking a systems theory perspective, understood governance networks as fulfilling necessary coordinative functions in the face of complex societal challenges. In this way, somewhat in contrast to the Anglo-American focus upon developing descriptive-explanatory analysis, Max Planck scholarship raises and engages more directly with evaluative questions about the effectiveness of networks as a distinct form of governance in the political economy sense defined here. The Max Planck School are concerned with comparing the strengths and weaknesses of hierarchies, markets and networks in addressing collective action problems. They suggest that networks offer significant potential advantages in this respect. Max Planck scholarship,

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working within an institutionalist analytical framework, emphasises how coordination can emerge through networks (Kenis & Schneider, 1991). As Renate Mayntz argues, the decentralised character of networks means that they have the capacity to address collective action problems in a way that allows actors an important degree of autonomy. Through such network-based collective action, negative market externalities can be mitigated in a way that avoids the subjugative effects of hierarchy (Mayntz, 1993b, pp. 9–10). However, with their focus upon conceptual analysis of macro-level systems, these contributions leave open the need for more detailed empirical research exploring the hypotheses they raise through micro-level analysis of cases. Use of the concept of networks in the sociological field of organisational studies has also had significant influence upon the study of governance (Klijn, 1997). Within this field, inter-organisational theory has been developed for understanding the inter-relationships and dependencies between different kinds of organisations across societies and economies. In contrast to uses of the term governance to understand state-society relations at macro-level, organisational studies develop micro-level analysis (Powell, 1990). Hence, within inter-organisational theory, there is extensive work seeking to explain the inter-relationships between different organisations involved in the delivery of public services and policy (Aldrich, 1976; Hudson et al., 1999; Levine & White, 1961; Metcalfe, 1976).9 In seeking to identify the factors that explain inter-organisational relationships in public service delivery, organisational studies focus upon the relative positions of power and resource inter-dependencies between organisations. The term ‘resources’ is used to refer to the various kinds of resource held by organisations, including human, material and economic (see, for example, Aldrich, 1979; Cook, 1977). Inter-organisational relations are understood in terms of exchanges of such resources between organisations, which reflect resource independencies and power relationships between them (Cook, 1977; Emerson, 1962; Jacobs, 1974; Levine & White, 1961; Thompson, 1967). With networks being such a significant if not defining presence in contemporary governance, a more recent ‘second generation’ of network 9 German scholarship from the Max Planck School, as well as British scholarship (Rhodes, 1980), also drew from organisational studies, with political science scholars having developed the conception of ‘inter-organisational networks’ for analysing governance (Hanf & Scharpf, 1978; Mayntz, 1993b).

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governance literature (Torfing & Sørensen, 2005; Torfing et al., 2012) has engaged more fully and directly with vital normative questions of effectiveness, legitimacy and the related challenge of how to effectively manage networks (Benz & Papadopoulos, 2006; Kickert et al., 1997; Koppenjan & Klijn, 2004; Sørensen & Torfing, 2005).10 Key contributions to this second generation of scholarship pointing to a normative case for network governance have been made by schools of thought based in Rotterdam (Kickert et al., 1997; Koppenjan & Klijn, 2004) and Roskilde (Sørensen & Torfing, 2018; Torfing et al., 2012). Aside from this literature framed in terms of network governance, there are a further range of studies of public governance and management where similar evaluative questions are addressed. Stephen Goldsmith and William Eggers consider how to effectively manage networks in the delivery of public services, highlighting the imperative of moving beyond the traditional hierarchical bureaucratic model (Goldsmith & Eggers, 2004). Literature on ‘collaborative governance’ similarly considers the effectiveness of the arrangements through which public, private and third sectors work together across a range of policy areas (Agranoff & McGuire, 2003; Huxham & Vangen, 2005). This is illustrated through a range of case studies. The focus of Robert Agranoff and Michael Maguire (2003) is upon city-scale spatial planning and infrastructure development that cuts across a range of sectors including transport, environment and economic development. The variety of case studies explored by Chris Huxham and Siv Vangen (2005) includes the promotion of social inclusion, health services and business development. Increasingly, the second generation of network governance research has drawn together insights from across the different traditions involved in the first generation of research on networks, each of which had rather distinct disciplinary origins (Klijn & Koppenjan, 2012; Torfing et al., 2012). In the second generation, there is much emphasis on the capacity of networks to foster trust and collaboration (Klijn & Koppenjan, 2012), reducing transaction costs (Klijn et al., 2010, p. 197) and achieving more effective implementation (Sørensen & Torfing, 2003, p. 614). Yet, there is also recognition of the contingencies involved in the search for effective network management strategies. Networks, like hierarchy and markets, 10 It should be noted that earlier literatures did touch upon normative questions such as the legitimacy of governance. For example, drawing together a range of case studies, Marsh and Rhodes strongly emphasise their lack of accountability (Marsh, 1992).

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can fail (Scharpf, 1997; Torfing, 2012). Reflecting the influence of interorganisational theory in the literature, there is significant emphasis upon how conflicting goals and interests of network actors can potentially affect network success, blocking solutions from being reached (Kickert & Koppenjan, 1997; Klijn & Koppenjan, 2012; Sørensen & Torfing, 2005; Torfing et al., 2012). A further, emerging question has been whether networks threaten the accountability and legitimacy of public policy processes (Kickert et al., 1997; Klijn & Skelcher, 2007; Sørensen, 2015). If managed appropriately, it has been suggested, networks can foster legitimacy by providing improved ‘outputs’ (Sørensen, 2016). Yet, so far, these are emerging questions and conjectures, which reflect the origins of contemporary network governance in the disciplines of political science and public administration with their analytical-descriptive focus. These evaluative questions have been articulated conceptually and given prominence in the second generation of network governance research. Yet they remain open, with a need for further, empirically orientated investigation. Research within this second generation has highlighted the need to develop more comprehensive sets of criteria and frameworks for empirically orientated research addressing evaluative questions concerning network effectiveness. Building upon earlier contributions (Provan & Milward, 2001),11 Torfing et al. (2012) address this need, proposing a set of general criteria to serve as such a provisional, evaluative framework. They point out the limitations of previous research that had focused upon comparing the effectiveness of networks in specific sectors of public service delivery, utilising sector-specific outcome measures (Provan & Milward, 1995; Provan & Sebastian, 1998; Riccio, Bloom & Hill, 2000).12 Reflecting on these earlier studies, Torfing et al. (2012, p. 168) point to the scope for further scrutinising the question of what counts as effectiveness assessed in terms of outcomes. In this regard, there are echoes of heterodox perspectives, which question the assumption in mainstream economics of the numerical measurability of all costs and benefits of economic decisions. The criteria proposed by Torfing et al. 11 As Torfing et al. (2012, p. 168) point out, this study by Provan and Milward directly addresses the question of how to assess the effectiveness of networks in the public sector, though the criteria are specific to the context of public service provision in American municipalities. 12 These studies, Sørensen and Torfing (2009, p. 239) remark, do not scrutinise the concept of ‘efficiency’.

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include the capacity of networks to foster understandings of problems, opportunities and alternative strategies for addressing them, flexibility and responsiveness to changing conditions, a coordinated approach to implementation and establishing favourable conditions for cooperation and learning (Sørensen & Torfing, 2009, p. 242; Torfing et al., 2012, p. 172). Although these criteria might become widely agreed as a basis for evaluation, presentation of them raises the question of how we might identify when they have been achieved. How might we assess whether policy fosters understandings amongst network actors of problems and alternative strategies for addressing them? What exactly counts as ensuring flexibility and a coordinated approach? Torfing et al. progress the issue of governance evaluation while leaving such vital questions open. The approach proposed later in this book offers a way of engaging with these questions. Torfing and Sørensen (2009, 2018) have also emphasised that a key aspect of evaluating network governance processes is the role of elected political leaders in shaping the scope, goals and operation of networks. This they refer to as the ‘democratic anchorage’ of governance networks for the delivery of public goods and services (Sørensen & Torfing, 2009, 2018). While this context of political democracy is clearly vital to assessing the role of networks, it is argued here that there is also a need for such evaluation to consider their ‘effectiveness.’ This question can be approached through a focus on the closely related challenge of fostering ‘coordination.’ This book argues that the concept of coordination, understood in the sense used in heterodox political economy, can serve as an even more fundamental underpinning to governance evaluation, interconnecting with the range of other evaluative criteria such as those suggested by Torfing et al. Although often understood in terms of ‘networks,’ the concept of governance is widely considered to have a broader meaning, referring to a broad spectrum of possible inter-relationships between state, third sector and markets (Kjær, 2011). Feeny defines governance as the setting, application and enforcement of rules for “pursuing public goals” (Feeny, 1993). On such a definition, governance can be taken to be applicable to a wide range of institutional arrangements which might include hierarchical structures as well as networks. Used in this way, the concept can serve as a framework for comparative analysis of a range of such institutional possibilities through which governing occurs in different contexts (Peters, 2000). Scholars have often emphasised the continued significance of the

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role of the centralised state, understood to include the legislative and executive institutions, as well as civil servants and other public sector officials. Hence, the state vitally shapes the institutional settings within which more decentralised networks operate (Kooiman, 2003, pp. 115–132; Mayntz, 1993a; Rhodes, 1996). This idea is also echoed in discussions of ‘meta-governance.’ Although used in some different ways, this concept can generally be understood as ‘the governance of governance’ (Kooiman, 2003). Meta-governance is widely understood to involve the state “designing and managing sound combinations of hierarchy, market and networks” (Meuleman, 2011, p. 1554). Uses of the term range from Bob Jessop’s understanding of meta-governance as a function of late capitalist states exercising power through the selection of various institutional forms and mechanisms (Jessop, 2002, pp. 240–243) to Koppenjan and Klijn’s (Koppenjan & Klijn, 2004) account of ‘meta-governance’ as an approach within public sector management that involves steering complex networks in the delivery of public services. These uses of the term ‘metagovernance’ are based on certain assumptions, notably that the state has a pivotal role in fostering ‘meta’-coordination. As Torfing and Sørensen stress, there is a political dimension to such ‘meta-governance’ that is concerned with attaining goals that are inevitably subject to contestation (Sørensen & Torfing, 2016, p. 450). From a classical liberal or public choice perspective, the assumption that ‘meta level’ coordination must be the task of the centralised state is open to question, as explored by Knight and Johnson’s discussion of the various institutional arrangements through which ‘meta’ or ‘second order’ coordination might be addressed. As discussed in Chapter 6, there is a need for an approach to governance evaluation that offers engagement with this second order question.

2.4

Neoclassical Economics

The central questions of governance effectiveness concerning the relative scope of and inter-relationship between politics, policy and markets demand attention to the fields of economics, as well as political studies. Scholarship in heterodox political economy often straddles both fields, especially in the traditions that are the focus of this book. As context for the introduction to and exploration of heterodox political economy that follows, there is firstly a need to introduce key features of mainstream, Neoclassical economics. The Neoclassical tradition established itself within economics during the late nineteenth and early twentieth

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centuries and came to define the mainstream. As further explained later in the chapter, heterodox approaches have in part been developed in response to the limitations of Neoclassical economics. Furthermore, the assumptions of Neoclassical economics have had significant influence in both the development of policy analysis and political science. In policy analysis, widely used cost–benefit analysis and related techniques have been founded upon Neoclassical assumptions. In political science, as further discussed in Section 2.6 below, these assumptions have had especially significant influence in the emergence of public choice theory during the 1960s and 1970s. The term ‘Neoclassical School’ of economics was first coined by Thorstein Veblen,13 himself a key early figure in the development of alternative heterodox approaches. The Neoclassical label has been used to refer to a range of contributions from the nineteenth century onwards (Colander, 2000). With economics as a discipline having evolved, partly in response to heterodox critiques that have influenced this disciplinary evolution, the question of how far a ‘Neoclassical School’ of economics can now be distinguished from the various heterodox approaches has become the matter of significant subsequent debate on which no clear consensus has been established (Arnsperger & Varoufakis, 2006; Lawson, 2013; Morgan, 2015).14 It is beyond the scope here to contribute to this debate. Rather, we highlight key, defining concepts and assumptions within what is widely considered as ‘Neoclassical’ economics.

13 In referring to Neoclassical economics, Veblen himself placed the term ‘School’ in inverted commas, suggesting that he recognised there is scope for questioning whether Neoclassical economics constituted a distinctive school of thought. Some of the key differences are indicated further below between the approach of early Neoclassical economists and influential mainstream economists who became identified as part of the Neoclassical tradition during the twentieth century. 14 As discussed further below, the mainstream tradition in economics, often referred to as ‘Neoclassical’, has in some respects evolved in response to critiques. In the light of this evolution, Lawson (2013) suggests that the distinctive approach of mainstream economics should be defined in terms of its methodological focus on the deployment of mathematical analytical techniques rather than any specific starting assumptions. He questions the usefulness of the ‘Neoclassical’ label. By contrast, Arnsperger and Varoufakis (2006) hold that the following core assumptions of Neoclassical economics can be identified: individualism; instrumentalism (i.e. human behavior is assumed to be preference-driven) and equilibration. The role of such key assumptions within the Neoclassical tradition is discussed further below.

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A central aim of those early economists widely considered ‘Neoclassical’ was to establish economics as a rigorous science, focused on explanatory, predictive analysis that refrains from making value judgements. Of key importance in this regard was the work of William Stanley Jevons, Leon Walras and Francis Edgeworth during the late nineteenth century as economics established itself as an academic discipline (Coats, 1987). These economists sought to define a logical-deductive scientific methodology, modelled upon that of classical physics, that involved seeking to discover predictive laws (Mirowski, 1989, pp. 218–222).15 Their contributions served as a platform for how the discipline developed during the twentieth century. Only very separately from this formal development of analytical models did these Neoclassical authors address normative questions concerning the relationship between economic outcomes and social welfare.16

15 Jevons clearly stated the aim of contributing to economics establishing itself as a science in a sense analogous to the natural sciences (Jevons, 1871, pp. xii–xiv). Walras saw theoretical physics as a model for economics in terms of methodology, as did Jevons who also advocated economics similarly aspiring to become like astronomy in this respect (Jevons, 1871, pp. 5–7). Walras distinguished the ‘physico-mathematical sciences’ from the normatively orientated political economy of Adam Smith. For Walras, the use of mathematics could make economics a science of absolute exactness, like physics (Walras, 1984, pp. 65–72). Marshall recognised the sociological context within which economies are situated (Zafirovski, 2005), though a central priority for him was to demonstrate a scientific rigour akin to that achieved by engineering (Kadish, 1989, pp. 96–97). The use of formal mathematical techniques was a central part of Marshall’s economics, even though he did recognise their limitations (Weintraub, Weintraub and EBSCOhost, 2002, pp. 17–25). As Robbins (Robbins, 1981, p. 7) was to later note, Marshall’s was a key influence upon the term ‘political economy’ falling out of use and being replaced by economics understood as a science that refrains from making value judgements. Such a methodological approach might be associated with a positivist approach of the kind that has been articulated by August Comte. It is beyond the scope of this discussion to investigate in more detail the extent to which Comte’s positivism influenced these authors. While Cirillo (1977) notes Comte’s influence on Walras, Jevons was explicitly critical of features of Comte’s positivist rejection of political economy as a field of study (Zouboulakis, 2008). 16 Key early Neoclassical authors offered contrasting responses to the problem of how to operationalise the concept of utility to measure social welfare (Dooley, 1983; Moscati, 2013). They were influenced by Jeremy Bentham’s famous statement that “It is the greatest happiness of the greatest number that is the measure of right and wrong” (Bentham et al., 1988, p. 3). They also recognised the inherent problem of seeking to measure the total utility of multiple individuals, given the problem of how to conduct interpersonal comparisons of utility. Hence, like Bentham, they concluded that the broad

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Following the later work of Lionel Robbins (1932) and then Milton Friedman (1966), along with the influence of logical positivism,17 the view of the discipline as a value-neutral science, which had been evident in the work of earlier Neoclassical economists, became central to what Philip Mirowski (2006) describes as the “mainstream Neoclassical orthodoxy.”18 In a highly influential paper, Friedman distinguishes between ‘positive’ and ‘welfare’ economics (Friedman, 1966). Welfare economics, Friedman explained, in contrast to positive economics, engages directly with normative questions concerning the prescription of policies,19 through a focus

impacts of policy upon social welfare can be considered only in an approximate way (Peart, 1996, p. 126). 17 There is some difference of emphasis in how the relative influence of these different factors and individuals is articulated in the literature. Robbins sets out the distinction between positive and normative analysis in his famous 1932 essay (Robbins, 1932). However, he recognises the validity of scholarly engagement with evaluative questions concerning the distribution of wealth and the issue of interpersonal comparisons of utility that they entail (Hennipman, 1992, pp. 92–93). He cannot be characterised as a ‘logical positivist’ and had strong associations with the Austrian School whose emphasis on the subjectivity of knowledge contrasted markedly with positivism. 18 As indicated above, this use of the term ‘Neoclassical’ has been questioned. While recognising the wide usage of the term ‘Neoclassical economics’ to describe the mainstream frameworks, Blaug characterises the post-war shift in economics as a “formalist revolution” (Blaug, 2003). During the last two decades, debate has taken place concerning how far mainstream economics can be termed ‘Neoclassical,’ given the range of conceptual and methodological approaches across the discipline (Colander, 2000; Colander et al., 2004; Dequech, 2007). It is beyond the scope here to explore these debates. In broad terms, the Neoclassical framework of equilibrium analysis can be viewed as having established central importance to post-war mainstream economics. In this regard, the work of Samuelson (Samuelson, 1948) and Arrow and Debreu (1954; Debreu, 1959) was of key importance, as reflected in key textbooks (e.g. Lipsey & Chrystal, 1995; Samuelson & Nordhaus, 2010). In framing the discipline in terms of the positive/normative distinction, authors such as Friedman (1966), Machlup (1984) and Lipsey (1989) sought to help economics achieve the same level of objectivity as the physical sciences (Drakopoulos, 1997). 19 This was previously referred to as ‘normative economics,’ until the term welfare economics became more widely used (De Scitovszky, 1941).

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on their allocative and distributive outcomes (Mishan, 2011, pp. 19– 20).20 This distinction became included in mainstream economic textbooks, with Paul Samuelson and William Nordhaus’s famous introductory text being a case in point. As they put it: (P)ositive economics describes the facts of an economy while normative economics involves value judgements. (Samuelson & Nordhaus, 2010, p. 6)

As logical positivism gained predominance, the Neoclassical approach advocated by Friedman still held the positivist aim of establishing impartial, value-neutral analysis. This aim was also held within the welfare economics branch of Neoclassical analysis (Alvey, 2005). This seems rather paradoxical, given that the questions addressed by welfare economics are inherently normative (Blaug, 1980, p. 126). This delineation of positive and welfare economics posited by the Neoclassical mainstream has since been strongly challenged by a range of heterodox economists. The two fields of positive and welfare economics, although distinguished by Friedman in the mid-twentieth century, were founded upon some shared conceptual foundations. Hence, before reflecting further on Neoclassical welfare economics, here it is firstly necessary to introduce some key features of positive Neoclassical models. Analytical models in Neoclassical economics famously recognised the important influence upon prices of individual preferences, analysed in terms of marginal utility. This represented a marked departure from the supply side explanation of value offered by classical economists such as Adam Smith and David Ricardo. Early Neoclassical economists, notably Jevons and Walras, formulated the concept of ‘equilibrium’ prices that, ceteris paribus, markets would tend towards. Equilibrium is defined as the point at which demand matches supply for all goods across every market (Mukherji, 1990, p. 5). Walras famously described the process, which he called ‘tatonnement,’ through which prices are continually adjusted in response

20 Mishan points out that ‘welfare economics’, focusing upon questions of allocation and distribution, is narrower in scope than ‘normative economics.’ Welfare economics, he explains, covers “only norms of allocation and distribution.” Normative economics, by contrast, also considers issues of equity that have “no direct or necessary relation to distribution” (Mishan, 2011, pp. 19–20).

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to excess demand or supply, with prices rising in response to a shortage and falling in response to a surplus until equilibrium is reached. The Walrasian Neoclassical model in which market prices converge upon equilibrium assumes that all producers and consumers are ‘price takers,’ meaning that, given the large number of firms and individuals in the economy, the decisions of each about whether to buy or sell at specific prices do not in themselves influence the price level. The Walrasian account of how markets converge upon equilibrium also started from the assumption that individuals act rationally to maximise their utility. Often termed ‘homo economicus,’ this starting point actually consists of two logically distinct assumptions that individuals act rationally and according to their own self-interest (Urbina & Ruiz-Villaverde, 2019). The assumption that individuals act according to self-interest concerns the substantive content of individual motivations. While there are longstanding debates about how precisely to formulate this premise, the general assumption is that individuals will act to maximise their levels of personal wealth and consumption, as defined in terms of ‘utility.’21 Rationality, by contrast, does not concern the content of individuals’ consumption choices but rather means that such decisions are transitive and mutually consistent (Rodriguez-Sickert, 2009, pp. 224–225). Hence, it is quite possible to consider altruistic motives as rational, according to our general understanding of the concept (Sen, 1977, pp. 342–344). In addition to this understanding of human volition, early formulations of homo economicus also carried an important epistemological assumption. This is that individuals act on the basis of comprehensive information about the consequences of the possible means that might be chosen for attaining their ends (Bensusan-Butt, 1978, p. 139).22 21 There is some debate about the origins of the concept of homo economicus. The roots of this treatment of individual motivation are often traced back to the economics of John Stuart Mill and Adam Smith. However, the work of these authors also recognises the rich range of motives that are evident in individuals’ economic behaviour (Rodriguez-Sickert, 2009, p. 223; Urbina & Ruiz-Villaverde, 2019, pp. 71–73). The standard Neoclassical treatment of the individual motivation in terms of self-interest and utility maximisation is more closely evident in the work of Jevons, Edgeworth and Marshall as discussed above. 22 Although early formulations of Neoclassical models assume individuals to have perfect knowledge, more recently this assumption has usually been qualified. Neoclassical models now tend only to assume individuals taking decisions on the basis of given, albeit limited, information (Urbina & Ruiz-Villaverde, 2019), an observation previously made by Simon (1959).

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Just as the concept of equilibrium is pivotal to Neoclassical explanatory models, so the concept is central to welfare economics within the same tradition. As was observed by Walras23 and famously highlighted by Wilfredo Pareto, because equilibrium prices are the point at which demand equals supply, there is a sense in which they represent a point of welfare optimisation. As Pareto later demonstrated formally, under general equilibrium the distribution of commodities is efficient in the narrow sense that there is no scope for mutually beneficial trade between individual economic actors. Hence, ‘Pareto efficiency’ as it later became widely known is a point where it is impossible to make somebody better off without making somebody else worse off (Samuelson & Nordhaus, 2010, p. 160). Although a maximising point in this formal sense, equilibrium is widely considered insufficient as a sole criterion for evaluating economic outcomes. In introducing the concept, Pareto’s emphasis, anticipating the later emergence of logical positivism (Cirillo, 1979, p. 29), was that economics as a rigorous science could go no further than evaluating outcomes solely in terms of such efficiency. Introducing further criteria, such as evaluating the justness of allocative distributions, Pareto held, would necessarily require value judgements, hence would extend the analysis beyond the scope of scientific rigour. For critics, this need to broaden the range of values considered in evaluating economic outcomes highlights that economic analysis must extend beyond the logical positivist strictures of Neoclassical models. Both types of Neoclassical model, the analytical and welfare type, have been the subject of critique. The assumptions of homo economicus, considered by Hodgson (2019, pp. 78–108) to be a defining feature of Neoclassical economics,24 are often challenged. Indeed, these assumptions have been questioned within what can broadly be understood as the Neoclassical tradition, as well as being emphasised especially strongly by heterodox scholars. On the assumption of self-interested motivation, critics have pointed to the range of human motivations, including the

23 Equilibrium on the Walrasian definition involves the optimal use of resources in fulfilling consumer preferences, hence is a point that maximises “satisfaction” (Walras 1965, cited in Walker, 2006, p. 170). 24 Hodgson refers to this assumption as ‘Max U,’ defined as “the assumption of utilitymaximising agents with preference functions” (Hodgson, 2019, p. 78).

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capacity to act altruistically.25 In defence of this assumption, there might be a sense in which even altruistic motivations might be understood to involve an element of self-interest, involving the altruist’s satisfaction of their desire to be a moral actor.26 However, to reduce all ethical motives to self-interest or utility maximisation in this way, critics hold, is to empty the notion of self-interest of any meaning. What kind of behaviour, it might be asked, would not count as utility maximising on this thin, formalistic treatment of individual motivation? Critics therefore suggest that the proposition of individuals being utility maximisers is non-falsifiable (Hodgson, 2019; Sen, 1977, pp. 322–326). Similarly, the response of critics to the assumption of individual rationality has been to ask how the hypothesis that individuals act rationally might be defined specifically enough to be testable (Green & Shapiro, 1994, pp. 34–36). In so far as rationality can be defined in terms of there being some form of consistency between preferences and actions,27 a body of empirical research provides grounds for questioning rational choice assumptions. Behavioural economics, drawing from insights in psychology, is of key importance in this respect, exploring how human decision-making can be influenced by the way in which choices are presented, referred to by Richard Thaler and Cass Sunstein (2009) as ‘choice architectures.’ 25 As Vaughn puts it, while the starting premise of ‘homo economicus’ is that individuals act according to ‘self-interest,’ “all self-interest means is that individuals have purposes and projects which they wish to accomplish. These purposes and projects are not necessarily confined exclusively to those that will bring personal benefit in a narrow sense. It is perfectly within the scope of the self-interest assumption for individuals to want to improve the welfare of others rather than their own” (Vaughn, 1988, p. 162). 26 As Keita (1997, p. 94) puts it: “It can always be demonstrated that any plurality of motivations collapses into self-interest. Unless behavior is physically coerced then whatever choices any agent consciously makes must be understood as instances of self-interested behavior. The point is that any non-coerced act consciously performed yields psychic satisfaction, whether that act be one of extreme altruism or painful masochism” (Keita, 1997, p. 94). 27 Such a conception of rational action is adopted by Vaughn who, following Mises, states: “To say that individuals choose rationally among alternatives to achieve their purposes simply means that individuals will never knowingly sacrifice a greater end for a lesser one or will never knowingly choose a more expensive means for their end than is necessary. Both are ways of saying that rational action means economizing action” (Vaughn, 1988, p. 162). She continues, “‘It simply says that individuals choose what they choose because that’s what they want. Rationality’ in this context can be made consistent with any kind of action imaginable so long as the actor is conscious and not mentally deranged” (Vaughn, 1988, p. 163). See also Mises (1949, pp. 18–21).

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The closely linked assumption that individuals act upon the basis of perfect information has also been challenged. Contemporary Neoclassical models now often qualify the early formulations of homo economicus, tending only to assume individuals taking decisions on the basis of limited information (Urbina & Ruiz-Villaverde, 2019), an observation previously made by Simon (1959). Mainstream models have been refined to account for ‘information asymmetries’ (Akerlof, 1970; Greenwald & Stiglitz, 1986). Some research within a broadly Neoclassical framework has thus incorporated a modified understanding of rationality in recognition of the limited knowledge of the individual actor (Santos, 2011). Models have been devised that feature agents with ‘bounded rationality’ (Dequech, 2001, 2007, pp. 286–287), meaning that only a limited rather than full range of possible courses of action are considered. Hence, while Neoclassical models continue to treat individual motivation in terms of utility maximisation, their understanding of rationality has been modified to account for individuals’ inevitable epistemological limitations. These critiques of standard Neoclassical assumptions, some of which are from heterodox economists, have thus prompted significant shifts within mainstream positive economics (Arnsperger & Varoufakis, 2006; Colander et al., 2004; Davis, 2006). Heterodox critics have also highlighted the limitations of equilibrium as a normative standard for evaluating outcomes. Neoclassical equilibrium, these critics point out (e.g. Sen, 1991), is blind to the distributive pattern of market outcomes. The inequalities of market outcomes, often viewed by political philosophers as deeply unjust (Cohen, 1995), can be viewed as the inevitable side effect of the motivational drivers fostered by markets. The contrasting abilities, aptitudes and circumstances of individuals across society, which are often beyond individuals’ control, inevitably affect their opportunities to engage in economic activities that will yield relatively higher levels of wealth. Aside from normative questions about the implications of inequalities of outcome, the possibility of various forms of ‘market failure’ (Common, 1995, pp. 126–130) is widely recognised amongst Neoclassical economists. Indeed, some types of market failure have been influentially formulated by economists in the Neoclassical tradition, such as Samuelson’s famous treatment of market ‘externalities.’ The term ‘externalities’ refers to the costs and benefits of market exchange that are not captured by market prices, even in equilibrium. While pollution is the classic example of negative external costs, positive externalities are the benefits of goods and services not reflected

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in the price paid for them by any parties to market exchange. As highlighted by Samuelson’s famous definition, such positive externalities are a defining feature of public goods that arise due to their characteristics of ‘non-rivalry’ and ‘non-excludability.’ There are a wide range of goods with such ‘public’ characteristics, from defence to the worldwide web, from public parks to immunisation programmes for limiting the spread of infectious diseases. Another source of market failure is the epistemic limitations of consumers, which mean that they are poorly informed about the products they are purchasing. In Neoclassical terms, this means that consumption does not yield the expected level of utility. As discussed above, recognition of such epistemic limitations has led to reformulations of ‘homo economicus’ within, as well as outside, the Neoclassical tradition. A further type of market failure occurs when firms hold a monopoly or form an oligopoly which means they are able to influence the price level, hence are no longer ‘price takers’ as assumed by Neoclassical models (Le Grand, 1991, p. 426). These various kinds of market failure can be taken as providing a foundation for the case for governance understood as a set of institutional arrangements concerned with shaping market outcomes to attain policy goals. For, as further explored in Chapter 4, widely adopted policy goals in contemporary governance, such as those concerned with social opportunity, equity or sustainability, typically entail the need to address market failures. Various literatures have highlighted the significance of such market failures, such as the emphasis in Ecological Economics on the impacts of negative ecological externalities (Daly & Farley, 2011). Economists working within Neoclassical as well as heterodox traditions have been motivated by concerns about market failure. There has been much work done seeking to address problems such as externalities, information asymmetries and monopolies within the Neoclassical tradition. The variety of such contributions cannot be fully reviewed here, though we can note that they range from proposals for socialist planning such as those of Oscar Lange, to those informing debates about contemporary governance from authors such as Julian Le Grand. To highlight the limitations of Neoclassical equilibrium as a normative standard is not in itself sufficient to reject the Neoclassical framework in its entirety. However, as further discussed in Section 2.6 below, there are a range of contingencies that affect the nature and significance of market failures, which especially concern the institutional contexts that shape markets. In highlighting and exploring how institutions shape the process and outcomes

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of market exchange, a range of heterodox traditions reveal the limitations of the Neoclassical framework. Section 2.6 provides an overview of the Austrian and Bloomington traditions, that, as explored in subsequent chapters, are key exemplars of such heterodoxy. However, before proceeding with this overview of heterodox approaches, there is a need to note the influence of Neoclassical economics, especially the starting assumption of homo economicus, within political science and the study of institutions. This is the purpose of Section 2.5 below.

2.5

Public Choice and Institutional Evaluation

As well as in economics, the standard Neoclassical assumption of ‘homo economicus’ has had significant influence in political science, most notably within key early contributions in the field of public choice theory as it became prominent during the 1960s and 1970s (Dunleavy, 1992, p. 4; Frederickson, 2016, pp. 196–199). This tranche of public choice scholarship has upheld the primary aim of achieving rigorous scientific analysis. The field is also noteworthy for having strongly influenced normatively charged proposals for governance, yielding strong scepticism about the effectiveness of state interventions in attaining their goals. Indeed, compared with the trajectory of political science research more generally, the engagement of public choice research with normative questions of governance effectiveness is notably marked. As discussed further below, within political science, adoption of the homo economicus assumption, and indeed the inferences drawn from it by public choice theorists concerning questions of governance effectiveness, have been the subject of sociological critiques. While some of these critiques have emerged from outside the public choice tradition, others have been offered by scholars positioning their work within the field of public choice. These debates, that have been central to the evolution of political science as a discipline, have a strong focus on the motivational dimension of institutional analysis. The critiques of the motivational assumptions of mainstream public choice theory parallel challenges to the Neoclassical framework from heterodox economists. As further explained below, these critiques share important common ground with, and indeed in some instances stem from, heterodox political economy scholarship. As reviewed below, recent heterodox contributions offer engagement with questions of institutional effectiveness that accommodate the insights of mainstream public choice theory while also incorporating sensitivity to sociological critiques. This

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serves to highlight the strength of the conceptual foundations for institutional evaluation provided by heterodox political economy that form the basis of the approach proposed by this book. Public choice is defined as “the economic study of non-market decision making” (Mueller, 1989, p. 1), applying the tools of economics to politics (McLean, 1987). Key early contributions in the public choice tradition were founded upon the Neoclassical treatment of individuals as rational utility maximisers. As in Neoclassical economics, in comparison with the focus on the motivational dimension of institutional analysis, the epistemological dimension receives only a secondary level of attention in much public choice theory. Use of the ‘homo economicus’ assumption is justified on the grounds that it yields significant explanatory power, hence can be justified on the grounds of parsimony (Brennan & Hamlin, 2008, pp. 85–6; Munger, 2011, p. 342). The focus of much political science set out in Section 2.2 to develop explanatory theory is thus evident in the public choice tradition. The express purpose of public choice theory is to establish a “positive” social science (Aligica, 2015, p. 122; Meade, 2021; Rowley, 2013a, p. 3) with explanatory and predictive power.28 However, aside from this explicit purpose, public choice scholarship, as further explained below, has been a pivotal influence upon strongly normative proposals for governance, notably ‘New Right’ thought, that took an especially critical view of the state, emphasising the need for markets to have an extensive role in society. Public choice frameworks based upon the assumption of homo economicus have been deployed to analyse and seek to predict outcomes in various types of political process, including extensive work on elections, legislatures and bureaucracies (Mueller, 2003). A key seminal text was James Buchanan and Gordon Tullock’s The Calculus of Consent which proposes a classical liberal constitutional framework, analysing the costs entailed by different voting systems (Buchanan & Tullock, 1965). Buchanan in particular made clear that he saw a central purpose of social science as being to yield normative proposals for improving society. In designing suitable rules and constitutional arrangements for society, he argued, it is prudent to assume that individuals have egoistic motivations (Buchanan, 1986, p. 238). This leads Buchanan to emphasise 28 For example, William Niskanen explains that the primary focus of his widely cited public choice analysis of bureaucracy is to develop a positive theory of the behaviour of bureaus (Niskanen, 1994, pp. 8–11).

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the need for constitutional constraints upon post-constitutional decisionmaking, limiting the number of political decisions left to majoritarian voting (Engelen, 2007, p. 173). Buchanan and Tullock’s work serves as a foundation for a significant tranche of public choice research on the constitutional frameworks and voting systems within which political decisions are taken (Mueller, 1989). However, there are important limits to how far public choice approaches have been applied to non-market decision-making at the level of policymaking (Aligica, 2015, p. 113). The branch of public choice scholarship where questions of policy effectiveness became most prominent was in the study of bureaucracy. As discussed further below, this branch of public choice scholarship yields strong scepticism about how far government officials will deliver policy in a way that promotes the wider public interest (Downs, 1994; Niskanen, 1994; Tullock, 2005). These contributions led to more recent, generic formulations of government failure which mirror mainstream Neoclassical conceptions of market failure (Le Grand, 1991; Wolf, 1986). A starting point for public choice scholarship on bureaucracy, reflecting common ground with the Neoclassical assumption of homo economicus, is to assume that bureaucrats act on the basis of individual self-interest. On this assumption, bureaucrats’ motivations are not necessarily aligned with the normative goals of policymakers. This is evident in the work of Anthony Downs and Gordon Tullock (Downs, 1967, pp. 81–87; Tullock, 2005, pp. 30, 32–33), exploring how bureaucrats respond to and act upon policies and directives in ways that reflect their own individual interests. Both, for example, emphasise that bureaucrats will distort information as it is communicated upwards through the organisational hierarchy, so as to ensure that it casts their own work in the most favourable light possible (Downs, 1967, pp. 77–78; Tullock, 2005, pp. 76, 404). The analytical model of bureaucratic behaviour defined by William Niskanan further deploys such an approach. Niskanen concludes that a primary aim of bureaucrats is to maximise their own career prospects and salaries. As a proxy for such self-interested motivation, his model assumes that bureaucrats’ motivations are to maximise the budgets for the services for which they are responsible. Niskanen’s model, it should be noted, does accommodate the possibility that some bureaucrats might be concerned to represent the wider public interest (Niskanen, 1994, p. 39). However, he emphasises, even where they do hold such a normative goal, this will still tend to become manifest in the aim of budget maximisation (Munger,

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2011, p. 352). Although Niskanen does acknowledge the limited information available to individual bureaucrats and the need to consider their knowledge and skills,29 the motivational dimension is central to his model of the bureaucrat as a budget maximiser. A more recent framework offered by Julian Le Grand for comparing market and non-market decision-making reflects the focus of earlier public choice contributions, being articulated primarily with reference to the motivational dimension of governance and policy challenges. Le Grand emphasises that the lack of a profit motive for public sector officials means that, compared with the private sector, they will not use resources as efficiently, or in a way that is as responsive to the demands of users of their services. This is because, as suggested by the earlier public choice works of Tullock and Niskanen, the incentives of private sector entrepreneurs are more directly aligned with achieving such efficiencies and responsiveness to consumer demand through ongoing processes of innovation. Vincent Ostrom, a key figure in the Bloomington School, who initially situated his work within the public choice tradition (Rowley, 2013b, p. 19), highlighted the significance of the epistemological limits of individuals for economic decision-making, which he considered to have been rather overlooked within public choice theory (Ostrom, 1993). Public choice scholarship does incorporate a recognition of the epistemological challenges facing political and policy processes. Indeed, in public choice scholarship, as Michael Munger puts it, “the costliness of information and of collective action has been a constant theme” (Munger, 2011, p. 349). For example, Niskanen emphasises that bureaucrats hold only limited information (Niskanen, 1994, p. 39), including about the demands of the population whom they are understood to serve (Niskanen, 1994, p. 27).30 Le Grand also refers to the informational problems that policymakers face in defining policy (Le Grand, 1991, p. 438). However, public choice scholarship refrains from detailed exploration of the content and scale of these epistemological challenges.31

29 See Chapters Two and Three of Niskanen (1971). 30 Recognition of the limited information held by bureaucrats is also prominent in

Downs (Downs, 1967, pp. 71, 75–78). 31 Ikeda (1997, p. 11) comments that problems of unintended consequences, clearly an epistemic issue, tend to play only a “marginal role” in public choice analysis.

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The public choice analyses of bureaucracy and policymaking discussed above, while holding the aim of establishing rigorous explanatory analysis, have served as the basis for strongly normative proposals for governance. Starting from a treatment of motivation in the terms of Neoclassical ‘homo economicus,’ their emphasis on the significant potential for government failure has tended to resonate with classical liberal scepticism about state-led policies and interventions in the economy and society (Stretton and Orchard, 1994, pp. 123–162). Public choice theory directly influenced the emergence of the politics of the ‘New Right’ that emerged during the late 1970s and 1980s, arguing that the scale of the state and taxation had become inefficient and in need of reduction (Barry, 2019; Dunleavy & O’Leary, 1987, pp. 72–135). Academic work also with roots in the public choice tradition articulated closely related proposals that became known as the New Public Management (NPM) (Osborne & Gaebler, 1992). NPM emphasised the need to incorporate private sector working practices into public service delivery and the increased prevalence of public–private partnerships. As a reflection of the motivational focus of public choice theory, their aim was to establish a framework of stronger incentives for public officials involved in public service delivery, through a range of measures, including performance monitoring, targets and league tables (Dunleavy et al., 2006, p. 471). The primary focus of revisions to and critiques of the standard rational choice models of public choice theory has been upon their power as explanatory models. Some significant responses to early public choice models were from scholars working within a rational choice framework. ‘Rational choice institutionalists’ explore how the interests of political and policy actors are shaped and constrained by institutional factors. Key examples include the work of Patrick Dunleavy (Dunleavy, 1992) on the British civil service and Terry Moe’s exploration of how the institutional processes within the US congress shape the activities and influence of interest groups (Moe, 1990). Although rational choice institutionalism is primarily explanatory as a scholarly approach, its various applications, with a close focus on the implications of institutions for individual incentives, have yielded recommendations for institutional design in a range of different research areas (Weimer, 1995). One example is research exploring the impacts of factors such as career structures and performance-related incentives upon achieving cooperation and sharing of information between actors, which can be of key importance for achieving

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effective policy delivery (Calvert, 1995). A further related area is scholarship exploring the causes of corruption and how these can be mitigated (Mbaku, 2000; Rose-Ackerman, 1978). More fundamental critiques, notably those emerging from sociological institutionalism (Hall & Taylor, 1996), have emphasised that the public choice treatments of the individual as essentially motivated by self-interest are too narrow. Sociological institutionalists, following the seminal paper by James March and Mancur Olsen (1984), emphasise how individual behaviour is shaped by social and cultural motives and norms that are integral to institutions. Some proposals for governance drawing from such a sociological approach depart markedly from the scepticism evident in public choice theory about the capacity of political authorities to achieve policy goals. Such sociological critiques are paralleled by contributions from across a range of disciplines such as the evidence of human altruism established in psychology (Anderson, 2000, pp. 174–176; RodriguezSickert, 2009, pp. 225–226). With its recognition of the significance of cultural norms in shaping individual behaviours, feminist institutionalism can be read as sharing significant common ground with this sociological approach, while drawing attention to the gendered dimension of institutions (Mackay et al., 2010, pp. 581–582). Sociological institutionalist analysis has been applied widely in political science, highlighting the important contingencies involved in understanding human motivation that are not fully appreciated by the standard public choice models. For example, Marco Orrù et al. (1997) used this approach, finding that cultural norms based upon the centrality of family had a vital role in shaping the structure of Chinese firms. In a comparative study of immigration policy in Europe and America, Yasemine Soysal (1994) highlights the influence of contrasting social norms, evident in distinctive “regimes” for incorporating immigrants, based on differing models of citizenship. Tanja Börzel and Thomas Risse (2000) highlight the significance of such sociological factors for assessing the impacts of European integration and ‘Europeanization’ within EU member states. Norms associated with EU membership, they find, can influence domestic institutions, in part through a process of social learning and consensus building. However, they suggest, other factors of a kind emphasised by rational choice institutionalist analysis, such as resource dependencies, are also of importance alongside such sociological explanation. The question of how far rational choice and sociological institutionalism frameworks

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might be combined remains an open one (Schmidt, 2014, pp. 114– 117), though it is beyond the scope here to fully explore this. Notably, sociological institutionalism has emphasised the potential for governance actors to establish trust and shared norms, stressing the vital importance for governance of the potential this brings for collaboration and partnership between actors (Bevir, 2013, pp. 160–161). In contrast to mainstream public choice scholarship and its close association with the New Right, literatures on collaborative and partnership-based governance32 are founded upon acceptance of a more substantive role for governance in ensuring the delivery of public goods and services. Yet, sociological institutionalism and the debates it has prompted offer relatively little direct engagement with the challenge of institutional evaluation. By comparison, the heterodox traditions of the Austrian and Bloomington School address evaluative questions in a more direct way. They share with mainstream public choice scholarship a scepticism about the capacity of centralised, hierarchical governmental structures to effectively attain sought outcomes. However, by contrast, their understanding of the problems faced by political institutions and policymakers offers a rich exploration of the complexity and uncertainties they face. In particular, as explored further by the chapters that follow, their insights into the epistemological dimension of coordination problems facing governance and policy processes can serve as the vital foundations for achieving a more direct yet balanced approach to governance evaluation.

2.6

A Turn to Heterodoxy

The way the Austrian and Bloomington Schools address questions of institutional effectiveness is explored further in the chapters that follow.33

32 There is a close affinity between these literatures and some of the second generation of network governance research discussed in Section 2.2 above. 33 Heterodox traditions vary in how far they engage directly with questions of institutional effectiveness in the face of the complexity of societies and economies of which they share a broad recognition. The field of evolutionary economics, for example, is primarily concerned with developing explanatory analysis of technological change and innovation, in relation to factors such as industry structure, competition and institutional context (Witt, 2008). By contrast, feminist economics engages more directly with normative, political questions. The focus of this field is upon issues such as the sexual division of labour, looking at both paid and unpaid work and issues of inclusion and exclusion within the economy (Albelda, 1997). On such issues, analysis is approached in normative terms,

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The focus throughout is on how they conceptualise such evaluative questions, rather than the normative conclusions about institutional effectiveness reached by specific authors within these traditions. Identifying the fundamental importance of epistemological and motivational dimensions of institutional analysis, both of these schools are concerned with how institutions cope with the inevitably imperfect knowledge and motivations of individuals across society and the uncertainties that this creates (Pennington, 2013). They articulate this in terms of assessing institutional ‘robustness’ in the face of complexity, uncertainty and human imperfection (Boettke & Leeson, 2004; Pennington, 2010, 2017). This focus on robustness means a rejection of the ideal standard of optimality used by Neoclassical models. A concern with robustness so defined is evident in the work of Mises and Hayek, though they do not use the term themselves. Elinor Ostrom does come to adopt the term, especially in her later work (Pennington, 2013, p. 453, n2). The heterodox economics of the Austrian School has been deployed in relation to a range of central questions in economics (Backhaus, 2005), such as analyses of the role of capital in a market economy (Lachmann, 1956), theories of the business cycle (Rothbard, 1963) and of entrepreneurship and innovation (Kirzner, 1978). Hayek, whose understanding of the market process and the challenge of coordination in modern societies is especially central to the chapters that follow, also had a key role in developing and deploying this Austrian theoretical approach in a range of other areas in economics, notably in debates about the causes of economic crises that are beyond the scope of this book.34 Instead of focusing on formulating models of equilibrium prices in abstract mathematical terms as in Neoclassical economics, Austrian economics explores in qualitative terms the range of sources of uncertainty that would affect how closely market prices could be expected to approximate to equilibrium in real world markets. These factors include continual, dynamically interconnected changes in consumer preferences,

seeking to evaluate institutions and policy (Agenjo-Calderón & Gálvez-Muñoz, 2019). Feminist economics, they write, “is an ethical–political framework for social transformation and for the construction of an economy that functions on the basis of justice and equality” (Agenjo-Calderón & Gálvez-Muñoz, 2019, p. 139). 34 Indeed, Hayek was a polymath and his voluminous contributions straddle a range of disciplinary fields, from economic analysis to the drivers of the economic cycle, to psychological theory and ethics.

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investment levels and associated demands for factors of production. The Austrian School in general emphasises especially strongly the fragmentary knowledge of individuals in the economy, hence the radical uncertainties often involved in economic decision-making, given the complex, dynamically changing nature of economies and societies (O’Driscoll et al., 1996). In this context, while the Austrians made use of the concept of equilibrium as defined by Neoclassical economists, they did not expect real world markets to ever settle upon equilibrium prices (Hayek, 1946). They emphasised that market prices, rather than inevitably converging upon equilibrium, would, at best, only tend towards equilibrium (Lavoie, 1985, pp. 110–111). The Bloomington School, founded by the pioneering work of the Ostroms, shares significant conceptual common ground with the Austrians. With a central focus upon assessing institutional arrangements for addressing collective problems, the Bloomington School shares with the Austrians a methodologically individualist starting point. The two schools also share a pluralist understanding of the variety of goals and preferences that motivate individuals across society. Both traditions depart from the Neoclassical assumption of ‘homo economicus,’ though this departure is especially explicit in Bloomington School explorations of how socio-cultural factors can shape individual decision-making.35 The Bloomington School’s rich discussions of the diversity of possible institutional arrangements for addressing complex collective action problems also contrast with the Austrian tradition, though can be viewed as complementary. Whereas Mises and Hayek seek to propose a general, widely applicable classical liberal model of political economy, the focus of Bloomington scholarship is developing analytical frameworks for in-depth, context-sensitive analysis of institutional arrangements across different geographic and social settings. The framework developed by the Bloomington School for ‘institutional analysis and development’ (IAD) is applicable to a broad range of collective problems that arise in governance and policymaking (Aligica & Boettke, 2009, pp. 1–2). Elinor’s diverse, international series of case studies of ‘common pool resources’ (CPRs) are especially famous, exploring the potential for actors involved in the management and use of 35 Tarko (2021) and Duhnea and Martin (2021, p. 20) discuss how Elinor Ostrom’s work aimed to improve rational choice theory by providing a richer account of human motivation than that of previous rational choice models.

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ecosystems and natural resources to establish effective means of managing their use, independently of the centralised state, through negotiation and cooperation (Tarko, 2017, p. 57). However, the range of Bloomington School research, most notably the Ostroms’ work on metropolitan and federal-level governance, highlights the variety of potential applications beyond such CPRs (Lemke, Lemke & Tarko, 2021). Recognition of the close entanglement between market and non-market processes is prominent in their understanding of diverse governance arrangements. In contrast to Mises and Hayek, reflecting the later time when they established their research agenda, the Bloomington School understands institutional arrangements in terms of ‘governance.’ Indeed, the work of Vincent Ostrom in particular, as Charles Rowley (2013b) comments, anticipates more recent scholarship on governance networks.36 Bloomington scholarship has been the subject of recent attention from authors whose work also draws closely from the Austrian tradition to develop a classical liberal case for decentralised processes of institutional adaptation in response to complexity (Aligica et al., 2019; Pennington, 2013). As is generally the case across heterodox traditions, the Austrian and Bloomington Schools recognise the externalities and inefficiencies that markets can give rise to, while having reservations about Neoclassical formulations of these concepts. The pertinent question from their perspective is how the extent of such inefficiencies compares across a range of institutional contexts. Both schools highlight the contingencies involved in questions of institutional effectiveness. As Harold Demsetz put it, the problem with the Neoclassical definition of market ‘failures’ is that they are defined relative to the Neoclassical ideal formulation of perfect competition and equilibrium that could never be reached in practice. Comparing a real world scenario involving imperfect markets, to an abstractly defined ideal that state intervention might achieve in theory is, he states, to commit the ‘Nirvana fallacy’ (Demsetz, 1969). Hence, as recent classical liberal scholars from both the Austrian and Bloomington School have stressed, following Demsetz, there is a need to comparatively assess the ‘real world’ impacts of institutional arrangements involving various roles for states and markets (Boettke & Leeson, 2004; Pennington, 2010). In this respect, the heterodox approach deployed by these classical liberal scholars exhibits a degree of openness as to the most 36 For example, Ostrom comments that “It takes a sophisticated system of governance for markets to perform well” (Ostrom, 1987, pp. 207–208).

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suitable institutional arrangements for the operation of markets across different contexts. However, the emphasis of their heterodox perspective is that centralised, political institutions can also be a significant cause of such inefficiencies (Boettke & Leeson, 2004; Pennington, 2010). As argued in subsequent chapters, the commitment of these classical liberal authors to limiting the role of the state in markets and society means there is significant foreclosure in how they address questions of governance effectiveness. By contrast, it is suggested here that heterodox conceptual foundations for institutional evaluation need to be distinguished more clearly from the conclusions that classical liberals tend to reach about the relative effectiveness of specific institutional forms. The Austrian School in particular is often closely associated with a promarket classical liberalism, especially because of Mises and Hayek’s stance. However, there is no necessary connection between vital elements of the heterodox conceptual foundations of Austrian scholarship and such classical liberal conclusions. Carl Menger, Friedrich von Wieser and Eugen Böhm-Bawerk, widely agreed to be the three founding figures of the Austrian School, were less explicit than Mises and Hayek in advancing a classical liberal position. Most notably, Wieser’s support for state interventionism was at odds with the classical liberalism advocated by his Austrian counterparts. Indeed, there are some significant differences of emphasis between Mises’ and Hayek’s account of the suitable role of the state in a classical liberal society (Martin & Wenzel, 2020, pp. 311–312).37 Bloomington scholarship on ‘public economies’ is framed in liberal terms, though, by focusing on the provision of public and collective goods through collective governance arrangements, differs in emphasis from the Austrian focus upon the coordinative functions of markets. Scholarship in the Austrian and related public choice traditions has responded to the different types of limitations and failures of markets in different ways and with varying depth. Mises and Hayek emphasise the priority of individual liberty and the economic efficiencies brought about through markets, responding critically to those advocating governmental interventions motivated by the normative concerns of social justice. Their stance on questions of social justice, especially Hayek’s very widely read contributions, has sparked debates in political philosophy about the 37 Mises (1960: 312, cited in Martin & Wenzel, 2020, pp. 166–167) commented that Hayek’s ‘Constitution of Liberty’ granted too much of a concession to interventionism, given the range of proposals made in areas such as anti-monopoly legislation and taxation.

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normative weight that can be placed upon the concept.38 Mises is critical of Hayek’s proposals for a minimum income, which have been suggested by some to open up a case for a substantial welfare state that would run counter to classical liberal principles (Tebble, 2009). The implications of market failures and the institutional arrangements for addressing them have been the subject of extended discussions amongst scholars in the Austrian and Bloomington traditions. The broadranging scope of Austrian scholarship and the overarching classical liberal proposals of Mises and Hayek means that comment on a range of such issues can be found in their work. Whether suggested market failures, such as those arising from monopolies or the presence of what Neoclassical economists have termed ‘negative externalities,’ really can be classed as inefficiencies, Austrian economists argue, depends entirely upon context. Austrian-influenced and public choice scholars have challenged the suggestion that the presence of monopolies necessarily represents an inefficiency, or ‘market failure.’ Governmental controls seeking to restrict monopolies and their influence over pricing levels, they argue, can discourage the investments and innovation through which companies establish a monopoly position, as well as the economies of scale this can bring (Dilorenzo & High, 1988; Littlechild, 1986, pp. 46–52). On the issue of information asymmetries, the Austrians view consumers as inevitably having only imperfect information. Their emphasis is that markets nonetheless enable knowledge discovery for both producers and consumers. On the question of externalities, the significance of the work of Ronald Coase has resonated in the substantial body of classical liberal scholarship that also builds upon Austrian and Bloomington traditions. Coase’s contribution requires some introduction here. The Coasean understanding of externality problems starts from the premise shared with Neoclassical economics of individuals as rational utility maximisers.39 38 An important contribution to these debates is that of Gerry Cohen (1995), who provides a notable critique of Robert Nozick’s defence of individual liberties exercised through a system of private property rights. Nozick’s deontological treatment of such individual liberty shares at least some common ground with that of Mises and Hayek. Cohen argues that the arbitrariness of the inequalities that tend to build up over time through markets, particularly through the inter-generational inheritance of private property, provides strong grounds for concluding that they are unjust (Cohen, 1995). 39 Williamson explicitly adopts strong assumptions concerning individual actors acting on the basis of self-interest. As he puts it, individuals are assumed to be “opportunistic”

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However, the focus is to highlight the implications of economic actors being time and space bound, hence necessarily having epistemic limitations in the face of externality issues. In this context, institutional rules are of vital significance in shaping the scope for actors to resolve externality problems. For Coase, the presence of phenomena often referred to as ‘externalities,’ such as pollution, does not necessarily represent market failure. To illustrate the argument in relation to negative externalities, Coase uses the example of local air pollution that one Household A might be causing their neighbouring Household B to suffer from. In this scenario, either Household A might agree to compensate B, or B might agree to pay A to cease causing the pollution. The specific settlement that would be optimal, he explains, depends upon the relative costs of each scenario and the level of wealth of the two parties involved. Whether the presence of such pollution can be classed as a ‘market failure’ is thus a contingent matter, depending on the initial distribution of property rights and the preference of the parties involved. In this sense, for Coase, a sub-optimal outcome involving negative effects reflects the actions of both parties, the party suffering negative impacts as well as the party causing them (Cole, 2014; Frischmann & Marciano, 2015). In relation to positive externalities, Coase adopts a similar approach, emphasising the potential for market actors to provide products and services with ‘public good’ characteristics. Here, his work also highlights that the question of the extent to which they will do this depends on context. The starting point for the Coasean approach is to emphasise that, for a large majority of goods that are widely thought of as having public good characteristics of non-excludability and non-rivalry in their use,40 whether they are ‘public’ is a matter of degree and depends upon a range of technological, geographical and institutional factors. Coase (1974)

(Williamson, 1985, pp. 47–49). They act on the basis of ‘bounded rationality’ (Baudry & Chassagnon, 2010). Coase’s work can be viewed as straddling both Neoclassical and heterodox traditions. He starts from the assumption of economic actors acting according to self-interest and he views markets as having an equilibrating tendency. Writers in the Austrian tradition have criticised Coase’s treatment of transaction costs as a given, failing to recognise their subjective character (Cordato, 1992). However, as Hodgson points out, Coase shares key features with heterodox traditions, discarding utility maximisation and being sceptical about the use of mathematics in economics (Hodgson, 2019, p. 59). 40 As a reflection of this position, Rayamajhee and Paniagua (2021, p. 74) comment that “there are rarely any collective consumption goods that are universally (purely) public, other than perhaps gravity or the view of the moon.”

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illustrates his argument with reference to lighthouses, which Samuelson (1964, p. 159) had referred to as an example of a public good. In a detailed empirical study, Coase highlights the role of private actors in building and operating lighthouses in Great Britain between the sixteenth and nineteenth centuries. Shipowners were charged dues for using British ports. Some of the income was used to cover the costs of operating lighthouses.41 In pointing to this scope for charging for the use of public goods through such tying of charges to use of another related service, Coase challenges Samuelson’s view that the public good characteristics of lighthouse services are such that the most efficient way of providing them is necessarily through government.42 Coase’s approach to the question of externalities has inspired some writers in the public choice and Austrian traditions to strongly emphasise that such market-based approaches offer significant potential for addressing a broad range of externality problems. With echoes of Coase’s discussions of lighthouses, they emphasise the potential role of private property rights holders in public goods provision in areas including the media, e.g. television broadcasting platforms (Demsetz, 1970) and environmental management, for example the protection of water resources and conservation sites (Anderson & Leal, 1990). They also set out

41 Commentators have subsequently highlighted some inaccuracies in Coase’s empirical study. They point out that compulsory dues charged by government were vital in the funding of some British lighthouses during the period he studied (Barnett & Block, 2007; van Zandt, 1993). Subsequent debates on the issue have shown that non-governmental actors, notably non-profit making charitable organisations, in combination with market entrepreneurs spurred by making a profit, had a significant role in the development of coastal lighting facilities for ships in Great Britain during this time (Barnett and Block, 2007; Candela and Geloso, 2018; Carnis, 2013). 42 This point is stressed later by Demsetz (1964) who suggests that the cost of government provision of goods and services which generate positive externalities could be more than relying upon private bargaining, even if the outcome of this is sub-optimal. To illustrate the point, Demsetz gives the example of a shopping plaza providing free parking facilities. He notes that the allocation of parking spaces in this scenario can be expected to be sub-optimal, with some of the free parking spaces being used by those people who are not shopping in the plaza. However, he points out, this inefficiency might be outweighed by other costs that alternative options entail. Fully internalising the externality, establishing and enforcing a system of charging for parking spaces, might carry high transaction costs. Provision and rationing of the parking spaces by government would also carry costs (Demsetz, 1964, pp. 14–15). Again, the deployment of the Coasean approach by market liberal authors such as Demsetz raises a set of contingent questions that require further empirically orientated analysis.

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property rights-based solutions to negative externality problems, such as tradeable quota systems for the emission of air pollutants or catching fish (Anderson & Leal, 1990). Private property rights holders, they emphasise, will have the strongest incentives and specific locally situated knowledge about the effectiveness of different possible ways of managing or utilising resources. However, it should be noted that Coase himself accommodates and indeed suggests a role for government that involves more than just defining and enforcing private property rights (Frischmann, 2007, p. 656). In highlighting the theoretical possibility of reaching an optimal resolution to externality issues through bargaining between property rights holders, Coase’s point was to challenge the Neoclassical conclusion, as he saw it formulated by Pigou in particular, that the presence of externalities necessarily entails a need for state intervention.43 Ultimately, the purpose of Coase’s theorem was to highlight the significance of the institutional arrangements within which markets operate and the contingencies involved in assessing their suitability in the face of externality problems of different kinds, across varying scales involving different actors.44 The Coase theorem is an ‘a priori’ argument that challenges the Neoclassical approach of assuming away the transaction costs involved in such bargaining.45 Coase provides a formal proof that, given the Neoclassical assumption that individuals act rationally on the basis of perfect information (Allen, 2015), the transaction costs46 involved in optimally 43 As Hovenkamp (2009) has pointed out, Pigou’s work actually shows a recognition of ways in which economies diverge from the assumptions of perfect competition, including individuals having imperfect knowledge and the significance of transaction costs. In this context in rather Coasean fashion, Hovenkamp points out, Pigou acknowledges the potential role of private bargaining in addressing externality issues. 44 “For anything approaching perfect competition to exist,” he comments, “an intricate system of rules and regulations would normally be needed” (Coase, 1988, p. 9). 45 Early Neoclassical models assumed zero transaction costs, though, as Furubotn notes, some early models were ambiguous on this point (Furubotn, 1991, p. 665). 46 While definitions of transaction costs vary, the concept is generally understood to refer to any costs involved in establishing and securing the terms of an exchange, including those involved in any negotiation and dispute resolution (Young, 2013). For Coase, the presence of such transaction costs corresponds to a lack of knowledge (Coase, 1988, p. 6; Dahlman, 1979; Medema, 2011). The search for knowledge, or ‘information’ as Dahlman puts it, is central to Coase’s conception of transaction costs. Coase (1988, p. 6) affirms his agreement with Dahlman’s conception of transaction costs as “search and information costs, bargaining and decision costs, policing and enforcement costs” (Dahlman, 1979, p. 148).

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resolving externality issues through bargaining would be zero. His point here is that, in the world of zero transaction costs assumed by Neoclassical models, there would be no need for institutions at all.47 In the real world, Coase thus highlights, it will inevitably take time and resources for economic actors to identify mutual gains and negotiate with a view to achieving a resolution, especially given their necessarily limited knowledge of alternative possible courses of action. The level of transaction costs that might be involved in the bargaining required to reach such resolutions would be crucial in affecting whether such optimal resolutions of externality issues are reached in practice (Coase, 1988, pp. 15, 174–175). The scale of such costs, he made clear, depends upon the institutional context within which negotiation and exchange take place. Coase’s point was that Neoclassical models cannot inform the kind of comparative, empirically orientated institutional analysis required to assess how each case involving externalities might be optimally resolved (Aligica et al., 2019, p. 35).48 The Bloomington School, especially Elinor Ostrom’s extensive, empirically orientated research programme can be viewed as following Coase’s call to explore “the world of transaction costs” (Bergstrom, 2010, p. 248).49 Yet, Ostrom’s analyses of institutional approaches for addressing externalities in the face of transaction costs yields conclusions that contrast markedly with the emphasis of Coasean scholarship upon private property-based solutions. Ostrom’s work yields insights into the potential for collective solutions being reached through the formation of collective property arrangements through various possible institutional arrangements across a range of geographical and cultural contexts (Earl &

47 As Kaufman (2007, p. 10) was to later put it, standard Neoclassical models are “institutionally empty.” 48 A number of recent commentators have highlighted Coase’s emphasis on the

importance of such comparative institutional analysis (Frischmann, 2007; Frischmann & Marciano, 2015). 49 Strongly influenced by Coase, the research programme in institutional economics led by Oliver Williamson, which became known as ‘transaction cost economics,’ has undertaken such comparative institutional and organisational analysis. The focus is upon how institutional variation can be explained in terms of the need to minimise transaction costs (Williamson, 1981, 1996). Williamson’s work pays careful attention to the organisational structures within the firm and the rules that govern market transactions, in terms of which he defines ‘governance.’ This differs from, though perhaps overlaps with, uses of the term ‘governance’ in other fields, most notably political science with its treatment of governance as primarily a process of political decision-making and policy delivery.

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Potts, 2011). She explores the formation of such collective arrangements through decentralised processes of institutional adaptation, a distinctive approach that, rather like the idea of governance as a way ‘between market and hierarchy,’ differs from centralised, state-led and market-based solutions. This suggests that emerging from heterodoxy there is a vital need for an approach to institutional evaluation that clearly avoids pre-judgement of the conclusions that such an approach might reach. This book proposes and advocates such an approach that is applicable to assessing the full spectrum of governance forms, from state-led, to more market-orientated proposals.

2.7

Summary

Of integral importance to understanding governance is the question of the most appropriate role of markets in society and the institutional arrangements through which they are shaped by policy. Academic literatures on governance are vast and wide ranging. However, within political science and public administration scholarship on governance, the focus is on conceptualisation and explanatory analysis. This leaves open a need for outcome-orientated governance evaluation. Economics and indeed political economy do have such an outcome-orientated evaluative approach. However, mainstream Neoclassical economics lacks sensitivity to the complexities involved in evaluation. This includes the difficulties of both defining the normative ends of such evaluation and the complex interrelationships with the means through which such ends might be attained. Hence, there is a need to turn to heterodox approaches in political economy, with their contrasting focus upon qualitative analysis of institutional robustness in terms of a plurality of evaluation criteria and emphasis upon the fundamental epistemological dimensions of governance challenges, alongside the question of how social contexts shape the motivations of governance actors. There is a need for governance evaluation to incorporate a more sustained focus on both the epistemological and motivational dimensions of institutional analysis, bringing together the insights of political science scholarship on institutions with the heterodox political economy perspectives of the Austrian and Bloomington Schools with their close interest in evaluative questions.

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CHAPTER 3

The Challenge of Coordination

This chapter sets out the Austrian conceptualisation of coordination, which serves as the central focus for the approach to governance evaluation proposed by this book. Reflecting the Austrians’ standpoint more generally as set out in Chapter 2, this understanding of coordination is highly sensitive to the need for ongoing dynamic adjustment and innovation in the face of complexity and change. Hence, the Austrians depart markedly from the instrumentalist treatments of rationality that became predominant in policy analysis under the influence of Neoclassical economics. As is generally recognised in the literature, such an understanding of coordination challenges does not necessarily commit us to classical liberal conclusions concerning the most suitable institutional arrangements for fostering coordination. To reinforce this point, this chapter sets out the important conceptual ground that the Austrians share with other heterodox approaches that do not necessarily entail any specific conclusion regarding the most suitable inter-relationship between politics, policy and markets. Indeed, the Austrians share key philosophical assumptions with heterodox traditions, such as Ecological Economics, that propose much more extensive forms of non-market organisation and planning, thus differing radically from the classical liberalism of the Austrians. Hence, the heterodox conceptual foundations of the Austrian School can serve as a starting point for evaluating a broad range of institutional possibilities. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_3

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A commitment to the value of individual liberty is central to Mises’ and Hayek’s work. However, their case for classical liberalism is ultimately consequentialist. As explored by an extensive secondary literature, their focus is on the question of how to coordinate the use of a broad range of resources across society. This question, they make clear, is of central, defining importance to all economies and ever more so in contemporary contexts. Austrian insights into this question stem from their account of the coordinative functions of markets operating within institutional arrangements that maintain and protect private property rights. As reviewed in the first part of this chapter, the Austrians’ understanding of market coordination is developed through their critique of non-market planning in their debate with socialists. There is, as is especially highlighted by Hayek, a fundamental epistemological dimension to this challenge, which concerns the knowledge available to individual economic actors. The case for markets put forward by previous classical liberals had focused on their motivational functions. Bernard De Mandeville (1806), Adam Smith (1805) and Herbert Spencer (1898) stressed the indispensability of the incentives generated by markets to ensure that individuals across society engage in productive economic activity, working to meet the needs and preferences of each other. For the Austrians though, as is made especially explicit by Hayek, it is the epistemological dimension of coordination challenges that is the most fundamental reason why markets are indispensable (Lavoie, 1985, pp. 160–162, 170–178). This chapter explores these epistemological insights provided by Hayek’s contributions. A starting point for the Austrian understanding of coordination challenges, as reviewed in Section 3.1, is the concept of complexity. Austrian insights into the epistemological functions of markets, as the fundamental reason for their indispensability, are the focus of Section 3.2. Markets, they argue, enable the encapsulation and discovery of economic knowledge in the face of complexity. Hayek understands coordination in terms of the fulfilment of these epistemological functions (1944, pp. 27, 36; 1945, p. 88). Section 3.3 further explores the nature of coordinative processes through a focus on entrepreneurship. This concept is closely tied with, and indeed pivotal to, the Austrians’ understanding of how markets enable coordination. Mises’ and Hayek’s contributions to the calculation debate, that are the focus of Sections 3.1–3.3, were directed towards socialist proposals for an entirely non-market, planned economy. Section 3.4 then turns

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to Hayek’s case for classical liberalism in full, as developed through his critique of social democratic proposals for a mixed economy. This critique, starting with The Road to Serfdom, targets the substantial role for state planning within social democratic proposals in limiting and shaping the operation of markets. It is through this phase of his work that the relevance of Hayek’s conception of coordination for contemporary governance becomes especially evident. Here, Hayek continues and further develops his epistemological case for classical liberalism. He offers vital insights into the complexities that policymakers face in formulating policy goals and the problems of ‘government failure’ that can occur in this context. This epistemological focus of Hayek’s work, it is suggested, can complement the motivational focus of public choice scholarship on ‘government failure.’ The fundamental questions raised by Hayek’s perspective concerning the normative foundations for the case for contemporary governance are then reviewed. The vital arguments raised by Hayek, as summarised in Section 3.5, prompt exploration in Chapter 4, of the potential for establishing normative grounds for seeking to steer markets through governance that are sensitive to the challenges highlighted by Hayek.

3.1

Complexity

The Austrian account of the problems of socialist planning starts from an emphasis upon the complexity of the economic decisions facing producers and consumers. Mises’ and Hayek’s treatment of complexity in some respects anticipates the complexity theory that has risen to prominence in social sciences during recent years. Mises astutely highlights the number of interconnections between variables and the potential non-linear effects of a change in a single variable in a complex system. More recent literatures on complexity do have a somewhat different focus, exploring patterns of change in the non-linear relationships and the feedback processes that shape them (Byrne & Callaghan, 2013). Yet, the Austrian treatment of complexity, key elements of which are further set out below, also has some distinctive features.

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Starting from a methodological individualism that they share with Neoclassical economics,1 the Austrians understand each individual economic actor as motivated by a set of values, preferences or ‘ends,’ that are specific to them. Rather than suggesting that attainment of these ends is measurable along a single phenomenological scale, they use the term utility to refer to a range of possible ends that they recognise to be qualitatively heterogeneous (Moscati, 2013). Hence, utility is used in a nominal, ordinal sense, as became standard in mainstream, Neoclassical economics (Greenwood, 2006). Instead of individuals being viewed as acting upon full, given knowledge and completely defined preferences, their knowledge and goals are treated as necessarily partial and subjective, reflecting their individual epistemological and normative perspectives. Mises and Hayek refer to these ends in terms of ‘utility’ in a nominal, or ‘ordinal,’ sense. In contrast with some currents of thought in the Neoclassical tradition, the Austrians emphasise that the different values held by individuals are often incommensurable in that they cannot be reduced to a single measure. In this respect, their contributions anticipate the later critiques of Neoclassical economics by ecological and feminist traditions in economics which emphasise the qualitative heterogeneity and often incommensurability of the different values that motivate economic choice (see, e.g., Kabeer, 1992; O’Neill & Spash, 2000). This recognition of the incommensurability of values, shared with other heterodox traditions, makes for a sound basis for governance evaluation. The Austrians’ methodologically individualist starting point also reflects a normative commitment to ensuring that economic processes can accommodate such a plurality of individual motivations, or in other words a “normative individualism” (Aligica et al., 2019, p. 19). It is from this pluralist starting point that the Austrians stress the complexity of the multiple, inter-related decisions involved in translating such values into practice. Mises’ understanding of complexity is evident in his 1920 presentation of the calculation argument (Armentano, 1969, p. 129; Boettke, 1990, p. 13; Lavoie, 1985, pp. 51–54), challenging the feasibility of socialist proposals for a planned economy. The fundamental problem for socialism, Mises makes clear, was how, in the absence of markets, to evaluate the resources and inputs needed to produce goods 1 Methodological individualism can be defined as “the guiding principle that aggregate social phenomena can be and should be explained in terms of individual actions, their interrelations and combined effects” (Vanberg, 1975, pp. 5–29, cited in Vanberg, 1986).

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and services efficiently (Vaughn, 1980, p. 539). Even given a target set of final goods that planners might seek to produce, he stresses, the decisions involved in efficiently producing these goods, given factor supply constraints, involve profound complexity (Mises, 1920, p. 96). There are, he points out, a vast number of different possible methods through which any given final good might be produced, each involving different combinations of ‘factors of production’ (i.e. capital goods, ecological services and human labour).2 Producing even a single good involves a potentially large number of productive calculation decisions, with the impact of each decision needing to be considered in terms of potentially numerous different variables.3 When one considers the vast number of different final goods across the economy, the complexity of productive calculation can soon be appreciated. There is a need to consider not only the number of decisions and variables involved in producing each final good in isolation but also the complex inter-relationships between the productive choices involved in producing different final goods. Hence to summarise, on Mises’ understanding, the complexity of productive decision-making thus arises from the following: i. the number of decisions being made about how to produce a good or service4 ; 2 Around the same time, Max Weber had developed this same argument (Hayek, 1935a, p. 143). Weber maintained that non-monetary calculation (or ‘calculation in kind’) was inadequate for evaluating productive activity where there is a qualitative difference between possible productive means or final products of that process. He commented on the need for enterprises to be aware of inefficient usage and to monitor the value of their stocks, concluding that for calculation in kind “there are formidable problems involved here which are incapable of objective solution” (Weber, 1968, p. 102). 3 The “oppressive plenitude of economic potentialities” (Mises, 1920, p. 101) highlighted by Mises means that a large number of variables need to be considered in production projects. Consequently: “No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightway evident judgments of value” (Mises, 1920, p. 102). In an illustrative example, Mises discusses the complexity of assessing the economic cost of some different possible energy projects: “Here the roundabout processes of production are many and each is very lengthy” (Mises, 1920, p. 96). 4 Mises shows how a vast number of decisions are required, even in a single project such as building a house, let alone an entire economy. Looking at the building project from the point of view of its director, he writes: “The plans of his architects enumerate a vast multiplicity of various items in kind; they refer to the physical productivity of various machines, tools, and procedures” (Mises, 1949, p. 694).

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ii. the number of variables that need to be considered in assessing the likely impacts of each such decision5 ; iii. the extent of interdependency of these variables6 ; iv. the instability of the environment.7 Mises’ calculation argument stresses that the prices generated through ongoing, highly decentralised processes of market exchange capture a huge amount of knowledge concerning these complex inter-relationships. Prices also serve as a guide for economic actors seeking to develop new methods of producing final goods. In the context of ongoing economic change, he emphasises, prices, as indicators of the relative levels of demand and supply for commodities across the economy, continually adjust through the vast, ongoing multitude of decisions in which market actors rank and act upon the choices available to them. In this context of complexity and change, through performing the epistemological functions of encapsulating and enabling the discovery of knowledge, prices serve as indispensable “aids to the mind” in economic decision-making (Mises, 1920, p. 102).

5 The “oppressive plenitude of economic potentialities” (Mises, 1920, p. 101) highlighted by Mises means that a large number of variables need to be considered in production projects. Consequently: “No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightway evident judgments of value” (Mises, 1920, p. 102). In an illustrative example, Mises discusses the complexity of assessing the economic cost of some different possible energy projects: “Here the roundabout processes of production are many and each is very lengthy” (Mises, 1920, p. 96). 6 The interdependency of variables is highlighted in Mises’ discussion of the problem of evaluating ‘higher goods’: “Under simple conditions it is also possible for him without much ado to form some judgement of the significance to him of goods of a higher order. But where the state of affairs is more involved and their interconnections not so easily discernible, subtler means must be employed to accomplish a correct valuation of the means of production” (Mises, 1920, p. 96). Mises later refers to the “inter-related” nature of production goods (Mises, 1920, p. 106). 7 Instability in an economy is the result of change, a key concept in Austrian economics. Mises suggests that the source of the economic calculation problem is that “our economic data are for ever changing” (ibid., p. 109). Hayek later places further emphasis upon this point, suggesting that it is clear that, in a planned, socialist system, “change will be as frequent as under capitalism; it will also be quite as unpredictable. All action will have to be based on anticipation of future events, and the expectations on the part of different entrepreneurs will naturally differ” (Hayek, 1935b, p. 173).

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Mises recognises that market prices do not capture all costs and benefits of each economic alternative being appraised.8 He gives the example of a decision about whether to build a new power works at the site of a beautiful waterfall (Mises, 1922, p. 116). Such a decision, he suggests, involves weighing the potential benefits, in monetary terms, of the increased energy supply that the power works would yield against the costs (Greenwood, 2006, pp. 72–75). These costs would include the loss of the natural beauty of the waterfall, an example of what he refers to as a “noneconomic good” because its value cannot be fully captured in monetary terms. However, Mises makes clear, economic decision-making must take such non-economic values into account (Mises, 1922, p. 116). Hence, Mises’ treatment of complexity recognises that not all values can be perfectly captured by money as single, commensurable unit of measurement (Greenwood, 2006). In this respect, the Austrian perspective that he articulates shares significant common ground with other contemporary heterodox traditions, such as Ecological Economics (Greenwood, 2008). Mises’ understanding of complexity9 and, as further explained below, the challenges of economic calculation serve as a starting point for Hayek’s conceptualisation of coordination.

3.2

Markets and Knowledge

Hayek made especially explicit that the Austrian challenge to socialist proposals for non-market planning centres upon the epistemological assumptions upon which their planning models were based.10 The focus of Hayek’s critique was upon the proposals for non-market planning from Oscar Lange and Henry Dickinson, which he saw as sharing assumptions with Neoclassical equilibrium models. For the Austrians, in the face of complexity, it is unfeasible to achieve an equilibrium defined in terms of

8 Mises views economic decision-making as an imperfect process based upon subjective judgements that are often intuitive, even unconscious (Lavoie, 1985, p. 64). 9 Mises’ treatment of complexity as set out above is echoed in Hayek’s discussions of the concept (e.g. Hayek, 1975, pp. 435–436). 10 It is important to note that Mises’ calculation argument does not seek to deny the a priori possibility of formally defining a model of equilibrium prices in the absence of markets. Rather, the point of his calculation argument is that such models cannot be applied in the complex, continually changing real world, a point that is further elaborated by Hayek.

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optimal efficiency as these socialist models postulated. Market prices do not represent a perfect guide to attaining such an optimum (Mises, 1949, p. 701).11 There is a vital need though for economic and social arrangements to ensure that the unceasing, highly complex choices of means for attaining ends that are inherent to modern economies are addressed with a satisfactory degree of efficacy. Hayek’s critique of socialist planning, which elucidates the fundamental epistemological dimension of this challenge, hinges upon and is inextricably linked with Mises’ calculation argument (Boettke, 1993, pp. 52–53; Greenwood, 2007a; Horwitz, 1998). He fully agrees with what he refers to as Mises’ “demonstration” that factor prices are necessary for ensuring the “economic use of resources” (Hayek, 1935b, p. 143) in the face of complexity. Hayek says of Mises’ thesis that it “represents the starting-point from which all the discussions of the economic problem of socialism… must necessarily proceed” (Hayek, 1935b, p. 143). The models of non-market resource allocation formulated by Lange and Dickinson sought to address the complex inter-relationships involved in economic decision-making that Mises had highlighted. These models were inspired by the prior mathematical demonstration by the Italian economist Enrico Barone (1908), that it is possible, in principle, for a socialist ministry of production to establish a set of ‘prices’ (or “equivalences” as he refers to them) that are analogous to the Walrasian market equilibrium. Such prices, Lange and Dickinson posit, could be established in the absence of markets, to indicate the relative value of factors of production. The thrust of the Austrian calculation argument, as Hayek makes especially clear,12 was to challenge the assumption that the knowledge assumed by the Neoclassical equilibrium models, upon which Barone based his formulations, could be available to planners in the absence of markets (Boettke, 2000; Lavoie, 1985, pp. 117–124; Murrell, 11 Mises states: “We do not assert that the capitalist mode of economic calculation guarantees the absolutely best solution of the allocation of factors of production. Such absolutely perfect solutions of any problem are out of reach of mortal men. What the operation of a market not sabotaged by the interference of compulsion and coercion can bring about is merely the best solution accessible to the human mind under the given state of technological knowledge and the intellectual abilities of the age’s shrewdest men” (Mises, 1949, p. 701). 12 The Austrian critique of Neoclassical equilibrium analysis is less evident in Mises’ earlier work, leading Kirzner (1988, p. 7) to argue that the reader of Mises’ 1920 article might well conclude that Mises believed markets are continuously close to equilibrium.

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1983; Vaughn, 1980). Their models assumed a given set of target final outputs and a set of available technologies for producing them. Lange and Dickinson considered such ‘a priori’ models to be sufficient to refute Mises’ calculation argument (Lange, 1937, p. 55). This claim was based on an interpretation of Mises as having denied the logical, ‘a priori’ possibility of socialism, an interpretation that was shared by a number of their contemporaries, such as Maurice Dobb (1937, p. 274) and Dahl and Lindblom (1963).13 Just as Neoclassical models assumed individuals to possess perfect information, Hayek highlighted, these socialist planning models assumed the central planners to have full knowledge of the utility functions of individuals across society and the production functions of all firms. Hayek challenged this assumption, recognising the significance of non-market values and stressing the inevitable, profound implications of ongoing economic change. Hayek targeted the assumption that the most efficient technology for producing each final good is known, pointing out that such an assumption begs the very question at issue. Furthermore, as Mises had also made clear, continual changes in the supply of factors poses a fundamental problem for socialist proposals. Their models, he pointed out, were ‘static,’ being concerned with calculating equilibrium prices at a specific point in time. As Mises had stressed, technologies and supplies of different factor inputs are subject to continual change. The calculation problem, as Mises put it, is “no problem of statics” (Mises, 1936, p. 139). In this context of complexity and change, Hayek stresses, processes of capturing knowledge and enabling coordination are shaped by ongoing change and innovation (Hayek, 1940, 1945, 1946). Hayek’s critique of the Dickinson and Lange models was also applicable to the assumptions they borrowed from Neoclassical economics. With reference to the Neoclassical models that had become prominent in economics, Hayek comments that production costs are treated as “an objectively given fact ascertainable by inspection, and not something which can be determined only on the basis of his knowledge and judgment – a knowledge which will be wholly different when he acts in a highly competitive market from what it would be if he were the sole producer or one of a very few” (Hayek, 1976a, p. 69). Obtaining knowledge about the most efficient technologies and their associated production costs is, Hayek stresses, the

13 See Bergson (1948, pp. 445–446) and Rothbard (1991, pp. 53–54).

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very task for which markets are an indispensable guide.14 Markets, as he later puts it, are a “discovery procedure” (Hayek, 1978). “(W)hich goods are scarce goods, or which things are goods” he writes “and how scarce or valuable they are – these are precisely the things which competition has to discover” (Hayek, 1978, p. 181).15 In the market economy “we do not know in advance the facts that determine the actions of competitors” and so we need to consider “competition as a procedure for the discovery of such facts as, without resort to it, would not be known to anyone, or at least would not be utilised” (Hayek, 1978, p. 179). Hence, ongoing processes of knowledge discovery in the context of dynamic change are an inextricable part of how markets generate prices that encapsulate key dimensions of economic complexity. This account of markets as a discovery process, that Hayek emphasises Lange and Dickinson to have overlooked, draws from and indeed hinges upon Mises’ account of how markets encapsulate knowledge.16 It is by encapsulating economic knowledge in this way that markets enable the discovery of new knowledge. As Hayek puts it: “Provisional results from the market process at each stage alone tell individuals what to look for…

14 Some commentators and Austrian-influenced theorists stress that the essential function of markets is not computational but epistemological (Boettke & Candela, 2023; Hodgson, 1998; Horwitz, 1998). 15 Starting from his subjectivist treatment of knowledge, Hayek’s discussion of market competition as a discovery procedure intimates that it is questionable whether economic knowledge exists at all, prior to its discovery. For example, he suggests that knowledge can be defined as a capacity: “The knowledge of which I speak consists rather of a capacity to find out particular circumstances, which becomes effective only if possessors of this knowledge are informed by the market which kinds of things or services are wanted, and how urgently they are wanted” (Hayek, 1978, p. 182). ‘Knowledge discovery’ might best be referred to as ‘knowledge generation’. Yet, however, we define the ontological status of undiscovered knowledge, the important point is that the process of market exchange is, for Hayek, an indispensable aid in the quest for new knowledge. 16 This is clear when Hayek discusses how markets provide producers with knowledge about “which of the available technical methods is the most economical in the given circumstances, and the changes in the relative scarcities in the different materials” (Hayek, 1976a, p. 117). Prices thus serve as a “numerical index” indicating the significance of factors “in view of the whole means-end structure” (Hayek, 1945, p. 85) and provide producers with a “signal” as to the level of demand for different final goods that might be produced (Hayek, 1976a, p. 9). This is reminiscent of the Misean calculation argument, as indeed is Hayek’s comment that the beauty of prices is that they can serve as a guide for purchasers of goods, without them needing to know of the events that give rise to them (Hayek, 1945, p. 84; 1976a, p. 117).

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Prices direct their attention to what is worth finding out about market offers for various things and services” (Hayek, 1978, pp. 181–182). The context of inevitable ongoing economic change makes this function of enabling knowledge discovery especially vital. As Hayek argues in response to Lange’s proposals, the continually changing character of economies means that it cannot be known in advance which of the vast amount of spatially specific knowledge will be pertinent to planners (Hayek, 1976b, p. 236) during their ongoing efforts at price fixing. As well as clarifying in conceptual terms this fundamental epistemological dimension of the calculation argument, Hayek further elaborates the varied, dispersed character of the different forms of economic knowledge that shape the contours of economic choice. Resources, goods and services, Hayek stresses, have a variety of characteristics, such as their location, quality and other features that need to be considered if they are to be produced and utilised efficiently. He writes: “Two technically similar goods in different places or in different packings or of a different age cannot possibly be treated as equal in usefulness for most purposes if even a minimum of efficient use is to be secured” (Hayek, 1935b, p. 154). Often, certain products “are produced on individual orders, perhaps after invitation for tenders,” or “are rarely produced twice in short intervals” (Hayek, 1940, p. 189). Hayek’s emphasis is that such various, often spatially particular, characteristics of factors of production mean that, for planning to be effective, “a staggering amount of information” is required (Shapiro, 1989, p. 141). Hayek places special emphasis upon the dispersion of such locally specific economic knowledge across society. Knowledge, as Hayek puts it “is not given to anyone in its totality” but “dispersed among many people” (Hayek, 1945, p. 85). The knowledge required for economic decision-making “never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess” (Hayek, 1945, p. 77).17 The division of labour amplifies this dispersion of knowledge

17 This argument is developed in ‘Economics and Knowledge’ (1937), ‘The Use of

Knowledge in Society’ (1945) and ‘Competition as a Discovery Procedure’ (1978). Indeed, in his later work, Hayek’s case for the market is developed within the context of a broader thesis concerning the need for a general framework of laws and rules that secures individual liberty and facilitates the use of knowledge across society in a range of contexts including, but not confined to, the economic sphere.

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amongst individuals. This spatially particular, often fleeting, character of the knowledge of economic actors, which inevitably reflects their social position and expertise, means that knowledge is, for Hayek, inevitably subjective in character. To illustrate the point, Hayek cites “The shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices” (Hayek, 1945, p. 80). For Hayek, as for Mises, the dispersed, locally situated economic knowledge of such actors is continually changing, in the context of changing consumer demands (Hayek, 1935b, pp. 159–161) and shifting productive technologies and resources (Hayek, 1945, pp. 83–84; 1946, p. 106). While Hayek does not emphasise the point in these early writings, markets, he makes clear, similarly capture the vital locally situated knowledge and preferences of consumers, which emerge and dynamically evolve through the process of exchange.18 Economic knowledge, given the context of complexity and dynamic change, is often ‘tacit’ in character, meaning that it cannot be “articulated in propositional form” (O’Neill, 1998, p. 130) and is thus “linguistically inaccessible” (Horwitz, 1996, p. 73). As Michael Polanyi first put it, this is the distinction between ‘knowing how’ and ‘knowing that’.19 The latter kind of knowledge can be articulated. The former refers to abilities and skills that cannot be, although they can be taught and learnt, hence are tacit. The traders or agents offered by Hayek as examples of entrepreneurial expertise, as discussed above, have such a tacit ability to quickly respond to changing circumstances. The “know-how” involved in choosing a particular production method might be a skill that is not easily articulable, as is true of negotiating skills such as those of the estate agent or the arbitrageur (Hayek, 1945, p. 80). These abilities involve adapting to a multiplicity of situations in various ways that could not

18 In his later writings, Hayek’s discussions of the epistemological functions of markets clearly apply to understanding their responsiveness to the context-dependent knowledge and preferences of both consumers and producers (e.g. Hayek, 1978). 19 The phrase ‘tacit’ knowledge is not used by Hayek himself. It is present in the work of Michael Polanyi who uses it to refer to knowledge that cannot be explicitly specified and so is “more than we can tell.” While Hayek makes only a brief reference to Polanyi (Hayek, 1962, p. 44n), he does use Ryle’s closely related concept of ‘knowing how’ (Ryle, 1945) in The Sensory Order (1952) and Rules, Perception and Intelligibility (1962).

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all be fully specified in advance of them being exercised. This recognition of tacit knowledge complements and indeed is intertwined with the Austrian calculation argument. For the prices continually generated and adjusted through the market process, a form of ‘knowing that,’ serve as a guide to economic actors’ development of tacit know-how. Hence, the coordinative functions of markets and the prices they generate are inextricably intertwined with processes of knowledge discovery and innovation (Greenwood, 2007a). From this context of complexity and the dispersed, variegated character of economic knowledge across society follows Hayek’s view that the fundamental economic problem of society is that of how knowledge is to be made available and used (Hayek, 1945, p. 78; 1946, p. 95). It is in relation to this problem of how to enable the encapsulation and discovery of knowledge for the efficient use of resources across society that Hayek understands coordination. Coordination, for Hayek, is an essentially epistemological process through which knowledge is discovered and utilised. This is evident when he describes market outcomes as approximating to “the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process” (Hayek, 1945, p. 86). If socialist planners could acquire the information needed for economic calculation, he suggests, the remaining task of working out “the concrete decisions” which this knowledge implies would be “arithmetical” and hence, in principle, soluble (Hayek, 1935b, p. 156). In this respect, as Don Lavoie (1990) was to later put it, the calculation problem is not reducible to one of computation. Hayek does not offer an explicit definition of coordination and his understanding of the concept must be inferred from his use of the term. Coordination, for Hayek, can be taken to mean that the actions of individuals take into account the actions being taken by other individuals across society and the actions these individuals might take if one’s own actions were different (Kirzner, 2000, p. 136).20 In this respect, coordination 20 This is similar to Charles Lindblom’s later definition of coordination. For Lindblom, achieving coordination involves ensuring that multiple decisions and their combined effects promote the most effective means for achieving the goals sought. By contrast with Hayek, Lindblom offers an explicit definition of coordination as follows: “A set of decisions is coordinated if adjustments have been made in it such that the adverse consequences of any one decision for other decisions in the set are to a degree and in some frequency avoided, reduced, counterbalanced, or outweighed” (Lindblom, 1965, p. 154). There are

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is a type of process, concerned with the encapsulation and communication of knowledge through the price system (Greenwood, 2007a, 2011). In his later works, he articulates this point in terms of markets being a “spontaneous order” shaped through an ongoing, evolutionary process of individuals adapting to the actions of each other, the outcomes of which are emergent and cannot be moulded according to a pre-conceived plan (Hayek, 1973). It follows from Hayek’s definition that, to establish how far a process has achieved coordination, there is a need to consider its outcomes. Failure to achieve coordination, on Hayek’s understanding, is synonymous with the well-known problem of unintended consequences, where outcomes do not reflect the ends sought by decision-makers. As subsequent chapters set out, this possibility of unintended consequences serves as a central focus for the approach to governance evaluation proposed by this book.

3.3

Entrepreneurship

An emphasis on the integral importance of entrepreneurship is a hallmark of the Austrian account of coordination through markets (Kirzner, 1978). The motivational dimension of the challenge of coordination is prominent in Mises’ account of the role of market entrepreneurs. In the process of market competition, he stresses, entrepreneurs have a personal stake in the outcome, with their “rivalry” driving producers to discover more efficient means of meeting and fostering consumer demand (Lavoie, 1985, pp. 22– 26). Socialism, Mises explains, necessarily involves entrepreneurs being replaced by managers. These managers of public undertakings, he argues, would not be ready to undertake the same kinds of “bold innovations” as private entrepreneurs (Mises, 1920, p. 121). Decisions would not be made with the same level of “seriousness” (Mises, 1936, p. 217) as they would if their own wealth were at stake. Mises contrasts socialist planning with how, in a market economy, entrepreneurs drive the allocation of capital goods. Although Mises does not make this explicit, there is an epistemological dimension to

echoes of Hayek in this emphasis on the danger of decisions having “adverse” unintended consequences, given the context of complexity and the uncertainties to which this gives rise. Policy actors, he stresses, inevitably have only partial knowledge about potential decision outcomes, hence they might not entirely “solve” problems (Lindblom, 1965, p. 157).

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his treatment of the concept. For Mises, entrepreneurship is a speculative activity concerned with seeking to establish how best to utilise the factors of production to meet future demand. This process essentially involves investment decisions that result in “dissolving, extending, transforming, and limiting existing undertakings, and establishing new undertakings” (Mises, 1936, p. 215). Rather than simply occurring on the basis of existing knowledge (Rothbard, 1991, pp. 66–68; Salerno, 1990, pp. 43–44), Mises emphasises, entrepreneurial calculation involves assessing production possibilities, based on expectations about the future, with a view to shaping future action. This process, which involves addressing significant uncertainty, is referred to by Mises as ‘appraisement,’ in which entrepreneurs exercise their subjective judgement about the future course of economic opportunities (Mises, 1949, pp. 328–330). On the Misean view, as Lavoie explains, by engaging in such futureorientated decision-making, the entrepreneur “does not treat prices as parameters out of his control but, on the contrary, represents the very causal force that moves prices in coordinating directions” (Lavoie, 1985, p. 129). Hayek also recognises the significance of entrepreneurial functions, concurring with Mises that they need to be fulfilled by private owners of capital. His critique of Lange and Dickinson makes the Misean point that socialist managers would be more risk-averse owing to the lack of incentive to take risks (Hayek, 1935b, p. 174; 1940, p. 199). Hayek’s critique of Dickinson and Lange does also reflect his more explicitly epistemological emphasis. He is critical of their Neoclassical assumption that the planning board “will possess at least as much knowledge as the individual entrepreneurs” in a market economy “and will therefore be in a position to make the decisions at least as good if not better than that in which the entrepreneurs are now” (Hayek, 1940, pp. 201–202). This exemplifies how the motivational and epistemological dimensions of analysis are closely intertwined in Hayek’s account of market coordination.

3.4

Policymaking and Coordination

After these contributions to the calculation debate, Hayek’s line of argument turns towards stressing the coordination challenges that social democratic proposals for a mixed economy entail. Here his focus shifts from stressing the indispensability of markets and the problems of nonmarket planning to developing a broader case for classical liberalism.

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From Hayek’s perspective, the coordination problems faced by planners and policymakers seeking to shape the scope and operation of markets in mixed economies are of the same type that he saw plaguing Soviet attempts at non-market socialist planning. Hence, these later contributions serve to highlight how the challenge of economic calculation arises in contemporary public administration and governance (Aligica et al., 2019, p. 19). They show the pertinence of Hayek’s conception of coordination, with its epistemological focus, for understanding not only the functions of markets but also the challenges involved in steering market economies towards policy goals. As discussed in Chapter 2, mainstream public choice theory focuses primarily upon the motivational dimension of the challenge of policy delivery. Public choice scholarship generally gives only a secondary level of attention to this epistemological dimension of the coordination problems faced by contemporary governance. Hayek turns to the challenges of policymaking in mixed economies in his famous The Road to Serfdom and then in further detail in The Constitution of Liberty. These key texts where he develops policy-related insights largely pre-date the emergence of policy analysis as a research field. Hayek’s starting point in these works, as set out above, is a recognition of the profound complexities involved in translating broadly defined ends into concrete decisions about how to attain them. As further discussed below, his reflections on the implications of such complexity for policymaking are of contemporary relevance in two key inter-related respects. Firstly, he highlights the challenges involved in formulating policy goals in a way that can command broad support in pluralistic societies. Secondly, they offer vital insights into the significant risks of negative unforeseen impacts involved in seeking to balance and deliver such goals. 3.4.1

Defining Goals

Decentralised coordination through markets, as set out in Section 3.2 above, involves individuals continually adjusting their goals and preferences through exploration of possible means for attaining them. Market coordination is a process that enables such ongoing pursuit and adjustment of goals to be carried out simultaneously by multiple individuals, each acting according to their own specific local circumstances and knowledge. By contrast, policy decisions are taken outside of the market by authorities, with members of society explicitly or tacitly agreeing for them

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to take such decisions (Lindblom, 1977, pp. 17–18). In so far as policymakers seek a degree of democratic legitimacy, they will be concerned that the policy goals they formulate will command public support as widely as possible. As a first step, goals must be formulated prior to their being communicated to those responsible for policy delivery. This is in contrast with market coordination that emerges through an ongoing process of multiple individuals simultaneously engaging in decision-making. Starting from his conceptualisation of coordination challenges, Hayek’s discussions of state-led policy interventions problematise this first phase of policy formulation. Reflecting his subjectivism, Hayek expresses deep scepticism about how far substantive normative goals can be defined in a way that is sufficiently specific to be possible to translate into practice, while also commanding wide support across society. Stated goals for which broad support is claimed, he emphasises, tend to be much too vague: The ‘social goal’, or ‘common purpose’, for which society is to be organised, is usually vaguely described as the ‘common good’, or the ‘general welfare’, or the ‘general interest’. It does not need much reflection to see that these terms have no sufficiently definite meaning to determine a particular course of action. (Hayek, 1944, p. 60)

Here, Hayek challenges the rationalistic assumption that the goals or ‘ends’ sought by policymakers can be defined prior to consideration of the specific means by which they might be translated into practice. As discussed in Chapter 2, this was an assumption of Neoclassical economics that had significant influence in policy analysis and political science. Anticipating subsequent critiques of this rationalistic assumption (Lindblom, 1959, p. 81; 1965, p. 146; Simon, 1976, pp. 65–66; Wildavsky, 1966, pp. 299–300), Hayek’s argument highlights how general norms and goals are inextricably intertwined with continually shifting economic contours of choice involved in translating them into practice. Defining policy goals in a way that translates into action, Hayek makes clear, necessarily involves ranking the range of different, more specific ends held by individuals across society. In present-day pluralistic societies, he argues, there could be no complete agreement on such a ranking, hence “no such complete ethical code exists” (Hayek, 2001, p. 61). Furthermore, as discussed below, Hayek’s recognition of these complex inter-relationships between multiple ends and means for attaining them

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yields further insights into the risk that policy interventions might have negative unintended consequences. 3.4.2

Balancing and Delivering Goals

These difficulties of formulating policy goals that will command public support have significant implications for the challenge of policy delivery. Indeed, this challenge is shaped by the epistemological and motivational dimensions of coordination problems that are the focus of the calculation debate. The need for policymakers to balance the translation into action of multiple goals further compound the challenge. As discussed in Chapter 2, the possibility of governments failing to attain their stated objectives is well recognised in the public choice literature. The focus of public choice research on ‘government failure’ is upon the motivational dimension of what Jensen and Meckling (1976) famously refer to as ‘principal-agent problems.’ In this case, an ‘agent’ might be a public sector official or another professional expected to implement policy on behalf of a ‘principal,’ in this case a policy decision-maker. Principalagent theory predicts that such implementation by the agent will not optimally satisfy the goals of the principal because they lack the motivation to do so. The focus of the theory is upon the monitoring costs inevitably faced by the principal and the extent to which the principal is able to establish incentives for the agent to fulfil their goals (Douma & Schreuder, 2002, Chapter 7). Hayek’s discussions of the epistemological dimension of the challenges of policy delivery highlight a further potential source of government failure, that has been the subject of less extensive focus in the public choice literature. The danger of unintended consequences, famously highlighted by Robert Merton (1936), is of course widely known in the field of policy studies and evaluation research. However, Hayek stresses especially strongly the fundamental importance and profound implications of this danger in terms of potentially undermining efforts by governments to coordinate the attainment of their policy goals. Indeed, Hayek saw the major task of economics as being to explain the ‘unintended consequences of human action’ (Hayek, 1954, p. 41). In the case of policy interventions, the unintended consequences will often be the well-known problem of price distortions that had been previously discussed by Mises (Mises & Sennholz, 1977, pp. 24– 29). Such distortions, for the Austrians, interfere with the core function

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of market prices, which is to coordinate the expectations of economic actors across a range of locales (Ikeda, 2004, pp. 248–249). The Austrian perspective highlights that there is a fundamentally important epistemological dimension to the causes of such distortionary policy impacts. This epistemological source of the problems facing policymakers is equivalent to that highlighted by Hayek’s critique of socialist planning. Policies are generally, even within local-level governance, concerned with achieving sought outcomes across a population of people, each with their own interests and circumstances. The knowledge held by decision-makers about the potential impacts of their decisions across this population will inevitably be limited. Even in terms of the knowledge that decision-makers hold or could potentially obtain, it is impossible for policymakers, as for planners, to know which areas of their potential knowledge they would need to inform their decisions at a particular time, in the context of inevitably changing circumstances (Hayek, 1976b, p. 236). Ongoing changes in circumstances across the locales affected heighten the possibility of significant knowledge not being captured by the decision, as was stressed by Hayek’s contributions to the calculation debate. This likelihood of important potential impacts of policy interventions not being anticipated is heightened by the economic complexities that policy decisions inevitably involve. As in the case of the coordination problems involved in non-market socialist planning, these epistemological challenges facing policymakers in a mixed economy are closely intertwined with motivational factors. The equivalence between coordination problems in an entirely nonmarket system and in mixed models might seem especially obvious where mixed models explicitly include direct forms of state planning. Planning elements in a mixed economy can take a variety of forms, ranging from the state directly planning the delivery of public goods such as defence, to state-defined regulatory systems such as in relation to land use planning, or to ‘indicative planning’ models in which the state defines a national economic strategy, setting growth targets for each sector and selecting policy interventions for attaining them (Black, 1968). The question of which forms of governmental intervention in a mixed economy can be classed as ‘planning’ arises from these varying uses of the term. Aside from this question, in The Constitution of Liberty Hayek himself explores how coordination problems can arise in relation to a broad range of policy interventions, providing examples from various policy areas. For example, he criticises attempts to use rent controls to tackle shortages of affordable

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housing. Such policies, he comments, create a disincentive to invest in housing maintenance, which has wider negative socio-economic impacts. This in turn, he argues, will exacerbate the housing shortage problem it was meant to solve by discouraging investment and hence labour mobility. While the incentives fostered by markets drive such distortionary impacts, the emergence of these incentives can be considered to arise from the epistemological problems involved in effectively defining such policies. Such unintended consequences arise as an inevitable consequence of policymakers not being able to perfectly foresee the impacts of different price levels. Hayek offers similar accounts of the counterproductive effects of governmental interventions in dynamically changing markets across a range of sectors, such as agricultural policies seeking to achieve ‘conservation’ goals through encouraging particular agricultural practices (Hayek, 1960, pp. 487–488) and industrial policies intended to promote economic competitiveness by protecting new firms. In relation to the goal of natural resource conservation, he stresses that governments seeking to achieve this goal lack the knowledge required to set suitable limits to resource use (Hayek, 1960, pp. 493–497). Hayek is also critical of such policy approaches granting far-reaching powers to political authorities, typically at the local level, that involve them making allocative decisions for which they would inevitably lack complete knowledge of the individuals and families involved, leading to arbitrary outcomes (Hayek, 1960, pp. 469–471). Hayek’s articulation of the coordination problems across these and other economic sectors emphasises the full range of factors affecting the value of various resources and their alternative uses. He suggests that attempts by policymakers to address the epistemological challenges of steering markets in a particular direction will inevitably be far less effective than markets themselves. This, he concludes, means that state interventions will tend to undermine economic efficiency and be counterproductive in terms of failing to achieve their stated goal. Hayek’s critique of state intervention in markets does acknowledge that governments might sometimes be able to anticipate the short-term impacts of the laws and regulations that they define (Hayek, 1944, pp. 38–39).21 His 21 For example, in his discussion of state monopolies, Hayek also provides an example by which some short-term benefits of state intervention might be foreseeable: “it must be admitted that it is possible that by compulsory standardisation or the prohibition of variety beyond a certain degree, abundance might be increased in some fields more than

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emphasis is that the perceived short-term benefits of such interventions often prove to be illusory due to their negative unforeseen consequences. Hayek expressed this by commenting that once the breadth and scale of such interventions reaches a certain point, their inevitably arbitrary impacts come to “dominate the whole system” (Hayek, 1944, p. 64). Hayek’s critiques of various types of policy interventions have inspired subsequent contributions that highlight the epistemological challenges they entail. For example, reflecting on the ‘indicative planning’ models adopted by countries such as France and Japan in the 1960s and 1970s, Littlechild comments that their attempts to set production targets for specific sectors are especially vulnerable to the Austrian objection that, in the context of ongoing economic change, including processes of innovation, it is very difficult for producers to know what a suitable target could be (Littlechild, 1986, p. 70). Making the plan ‘flexible,’ as in some indicative planning models, from an Austrian perspective, simply sidesteps the problem, with the state still facing significant complexity and uncertainty (Littlechild, 1986, p. 71). John Meadowcroft (2005), with reference to the British National Health Service, stresses the significant epistemological challenges involved in defining health policy. In a Hayekian vein, he highlights the subjective component involved in some decisions concerning the relative urgency of some health services. Ikeda and Washington (2015) highlight the unintended consequences of land use planning policies. They take a critical view of the impacts of ‘inclusionary zoning’ policies adopted in some US cities which specify affordable housing targets for selected areas. In a case study based on the urban plans for Tysons Corner in Fairfax County, Virginia, Hamilton (2018) stresses the distortions to the property market caused by prescriptive plans for property types and street design in the area. Like the rent control policies of which Hayek was critical, the effect of these targets, they argue, is to discourage the investment in housing that such areas need. Other studies take a critical perspective towards subsidies and tax

sufficiently to compensate for the restriction of the choice of the consumer. It is even conceivable that a new invention may be made some day whose adoption would seem unquestionably beneficial, but which could be used only if many or all people were made to avail themselves of it at the same time” (Hayek, 1944).

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incentives that seek to promote the competitiveness of particular industrial sectors and technologies (Ikeda, 1997) or firms (Michel, 2018),22 as well as critiques of regulatory policies (Rivers, 2018) that highlight their stifling of innovation and the additional costs they create. Another field, where Hayek’s work has been influential, is in critiques of centralised forms of environmental regulation. Hayek’s direct discussions of this sector and other environmental issues are relatively brief. However, his work has significantly inspired treatments of ecological sustainability issues in a classical liberal vein, including free market environmentalism (Adler, 2009; Anderson & Leal, 1990). This body of work, as well as being influenced by Hayek, also drew inspiration from the Coasean suggestion, introduced in Chapter 2, that externality problems can be most effectively addressed through decentralised, market-driven negotiation between private owners of ecological resources. Private property rights holders, free market environmentalists emphasise, citing a range of examples, such as the management of forests and rivers to quota systems for the users of fisheries, will have the strongest incentives and specific locally situated knowledge about the different possible ways of managing or utilising these resources. While the emphasis in this literature is on the motivational features of property rights systems, the epistemological dimension of the case for market-based approaches to the use ecological services has also been explored (Pennington, 2008). Just as processes of policy delivery face fundamental epistemological problems, so do the models and tools used by decision-makers in the ‘ex ante’ assessment of policy options. Hayekian critiques have been directed towards such tools based on the models of Neoclassical economics. While Hayek himself does not directly discuss the efficacy of cost–benefit analysis as a framework for policy analysis, the Hayekian perspective resonates strongly in recent heterodox critiques of Cost Benefit Analysis (CBA), including some contributions that explicitly draw from the Austrian tradition (e.g. Formaini, 1990; Stringham, 2010). As well as challenging the Neoclassical premise of the individual self-interested utility maximiser, often known as ‘homo economicus’ (Gowdy, 2007), these critiques also question the starting assumptions of CBA about the knowledge available to the analyst. Proposed techniques for assigning monetary values to the costs and benefits of alternative policies have also been challenged by 22 Michel provides a critique of firm-specific tax incentives in the USA, emphasising that they violate key principles including the need for a neutral, equitable tax system.

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ecological theorists. They emphasise strongly that such techniques overlook the inherent uncertainties and complexities involved in attempts at measurement of impacts in terms of money as a single unit (O’Neill & Spash, 2000; Vatn & Bromley, 1994).

3.5

General Rules and the Promotion of Trust

As well as highlighting the challenges involved in formulating and delivering specific policy interventions, Hayek is concerned with the legislative framework within which policies are formulated. He presents classical liberalism as a general framework that avoids the use of interventions that seek to achieve the particular outcomes that might be favoured by different parts of society (Hayek, 1944, p. 55; 1960, p. 153). As Mario Rizzo (2021) puts it, he favours rules that “abstract” from the particular goals and circumstances of individuals. Hayek later uses an analogy of cultivating a garden to illustrate how such a set of general rules fosters coordination in the face of complexity. Such rules do not, he writes, “shape the results as the craftsman shapes his handiwork” but rather “cultivate a growth by providing the appropriate environment in the manner in which the gardener does this for his plants” (Hayek, 1975, p. 442). Although Hayek does not quite express the point in these terms, a consistent set of institutions and rules for the operation of markets can be viewed, as Buchanan suggested, as a ‘public good’ (Buchanan, 1975, Chapter 7), carrying positive externalities. A classical liberal framework of private property ownership and market exchange, Hayek stresses, enables vitally important social norms to become established. The voluntary nature of cooperative activities and exchanges that take place between individuals in such a market-based system, Hayek explains, fosters the development of trust. It is through the process of competition that economic actors learn who to trust. Such trust means that, for example, a trader allows a locally based customer to have a product on credit. Customers in turn learn which firms will serve them well (Hayek, 1948, pp. 96–97). Such cooperative norms and trust, that can be fostered by markets, are, as Ikeda (2004) highlights, an aspect of social capital. This social capital, Hayek emphasises, provides a degree of certainty for economic actors that their expectations concerning the activities of others will be fulfilled, for example that established rules and practices will be followed. Furthermore, this important element of social continuity and

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the degree of certainty it provides encourages entrepreneurs to innovate (Ikeda, 2004, p. 250). By the same token, from this Hayekian perspective, the inevitably arbitrary nature of governmental interventions in the market erodes this mutually enforcing inter-relationship between competition and trust. Faith in how others will act becomes undermined, causing uncertainties about the future rules and arrangements within which market exchange will take place, discouraging entrepreneurship. As well as having negative impacts on social capital, such interventions are famously suggested by Hayek to have deleterious political consequences. As he stresses in The Road to Serfdom, the profound complexity of policy challenges and the knowledge problems they generate means that policy interventions inevitably come to rely on the decisions of political leaders and their appointed experts and planners (Hayek, 1944, pp. 35–42, 46–49). This creates the opportunity for elected and unelected decision-makers to arbitrarily set policy according to their own ends. As it happens, he suggests, those leaders who ‘get on top’ in such an illiberal system will very often be the less well-intentioned (Hayek, 1944, pp. 67–73). In a “pre-cursor” to the public choice theory that was to later emerge (Poole, 2017),23 the ‘road to serfdom’ analogy thus refers to where politics and the self-interests of leaders come to undermine the need emphasised by classical liberals for the state to retain neutrality with respect to the ends of individuals across society.

3.6

The Contingencies of Policy Evaluation

For Hayek, the arbitrariness and unintended consequences of governmental attempts to intervene in markets to attain particular outcomes mean that public support for such initiatives will ultimately be undermined over time. He stresses that a classical liberal framework, due to its consistency, will command greater support in the medium to long term. Hayek’s profound scepticism about the capacity of policymakers to address the challenge of complexity has been contested by numerous authors. The possibility of unintended consequences, they argue, may

23 See Boettke (1995) for an account of how the concerns of public choice theory resonate in Hayek’s work. As Boettke explains, Hayek’s approach to public choice questions reflects his distinctive Austrian approach that diverges markedly from the Neoclassical assumptions that, as explained in Chapter 2, had a marked influence upon public choice theory.

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indeed be an inherent danger in policymaking. Yet, in assessing the possibility of policy interventions extending beyond those generally countenanced by classical liberals, there are inevitably multiple factors to be balanced. The risk of negative unintended impacts must be weighed against the consequences of non-intervention, given the various potential limitations and failures of markets. As James Meadowcroft puts it: It is true we cannot possibly know all future repercussions of acting to realise a particular advance; but since we also cannot know all the repercussions of not acting to secure it, we may well conclude that public action to secure a known good, or right a known wrong, is preferable to inaction. (Meadowcroft, 2002, p. 26)

As Michael Bennett argues, government interventions do not need to hit a normatively perfect outcome to be justified. They simply need to result in an outcome that is better than if no such intervention in the market was made (Bennett, 2016, p. 14). Such an emphasis on the contingencies involved in evaluating policy interventions is entirely consistent with the approach of classical liberals such as Mark Pennington and Peter Boettke, who, as discussed in Chapter 2, stress the need to assess the relative robustness of different institutions and policy options in the face of the inevitable limitations of the actors involved rather than using an ‘ideal,’ optimal standard. Indeed, it is notable that, as some commentators have stressed, Hayek’s classical liberal proposals did accommodate an albeit limited form of state welfare provision which prompted some criticism from Mises and subsequent commentators in the classical liberal tradition (Tebble, 2009; Mises, 1960). Aside from this question of the conclusions we might infer from them, Hayek’s insights into the complexities of delivering policy goals are nonetheless of fundamental, ongoing importance for contemporary policy delivery and evaluation (Greenwood, 2007b, 2011). Indeed, the significance of the challenge of coordination he raises has been recognised beyond the classical liberal tradition, including by authors from the left (Griffiths, 2007, 2014). A notable example is Andrew Gamble, a socialist academic who notes that Hayek raises the important question of the most appropriate type and scale of institutional and policy processes for enabling coordination in the face of potential unintended consequences. This question, he comments “lies at the heart of contemporary debates in political economy and public policy” (Gamble, 1996). Gamble continues:

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The identification of co-ordination failures and of the institutional changes, such as the supply of knowledge and forms of governance, which might remedy them offer a rich and varied agenda both for social science research and for political action. (Gamble, 1996)

As Gamble’s comments suggest, there is a need for critics of classical liberalism to recognise the vital importance of the coordinative functions of markets and the challenges involved in policy interventions seeking to shape their outcomes. Governance evaluation needs to assess and compare the potential failures of both markets and the policy interventions that seek to shape their outcomes. As the classical liberal author Pennington puts it: The way is open for both theoretical and empirical analyses that can explain how alternative institutions might cope more effectively with bounded rationality and incentive compatibility in specific problem situations. (Pennington, 2013, p. 453)

As this book argues, there is a need for such analysis to be applied to the full spectrum of institutional possibilities, including those that depart from classical liberalism. Chapter 4 turns to the question of the normative grounds on which such evaluative analysis can be based. The heterodox conceptual foundations upon which Mises and Hayek base their case for classical liberalism, it is argued, can also inform the case for more substantive shaping of market outcomes than these leading Austrian School economists countenanced themselves.

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CHAPTER 4

Policy Goals and Knowledge

4.1

Introduction

As discussed in Chapter 3, Hayek offers vital insights into the challenge of defining and attaining policy goals, notably highlighting the epistemological problems faced by policymakers in the face of complexity. He discusses these challenges as part of a wider case for a general legislative framework that is intended to remain independent of the ends sought by specific individuals or groups within society. Only such a classical liberal framework, he argues, could sustain broad support across society. As this chapter explores, a potential response to these arguments for classical liberalism can be made in terms of the heterodox conceptual foundations from which Hayek develops his thesis. This response establishes policy goals for steering markets while allowing for significant flexibility in how they are translated into practice. This is illustrated in relation to the principles of meeting human needs, enabling individual autonomy and promoting environmental sustainability. Rather than seeking to propose a set of principles to serve as a definitive guide for policymakers,1 these principles are discussed here as illustrative of a general approach. Nonetheless, 1 Such is the aim of a range of contributions in political philosophy, such as the famous contributions of John Rawls and Robert Nozick. A recent contribution that draws from the insights of both Nozickian libertarians and Rawlsian social liberals is John Tomasi’s Free Market Fairness (2012) which combines an emphasis on social justice with a clear commitment to a market-orientated conception of liberty.

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the discussion of these principles does serve to highlight their potential significance for contemporary normative perspectives on the role of governance. As is explored, Hayekian insights into the epistemological difficulties involved in shaping outcomes in terms of such goals resonate strongly in debates about how to define them.2 A case can be made in terms of the Hayekian perspective for adopting such goals as general criteria for governance evaluation in a way that is sensitive to complexities involved in translating them into practice. A starting point for the argument in this chapter is to accept Hayek’s premise that to advocate convincingly any such values and any governance and policy proposals resting upon them, it is necessary to demonstrate their potential to gain widespread support across society. As set out in Section 4.2, this is a well-established approach in political philosophy and indeed academic scholarship more widely. Hayek’s case is that, ultimately, liberty as a normative principle can achieve more sustainable support across society than those values that seek to shape the distributive outcomes of markets. As Section 4.3 sets out, such ‘pattern-shaping’ policy goals vary in the degree of specificity with which they entail sought outcomes. As is explored by subsequent sections in depth, this variation has important implications for their potential to serve as grounds for seeking to shape market outcomes through governance. Sections 4.4–4.7 explore Hayek’s insights into the ambiguities and complexities involved in translating into practice the goals of human needs, equality of opportunity, autonomy and environmental sustainability. As these sections highlight, Hayek’s insights are shown to resonate in debates about such key goals that are prominent in contemporary policy agendas. In response to Hayek and drawing from more recent work in political philosophy, it is argued that it is possible, from a pluralist

2 The implications of Hayek’s thought for the challenge of delivering specific policy goals are the subject of relatively little discussion in debates in political theory about how to define such normative concepts. As is explained in this chapter, most scholarly discussions of Hayek’s treatment of equality and justice are from political theorists whose work does not have a specific focus on defining and delivering policy. An exception is a piece by Raymond Plant (1991b). However, Plant assesses the general “Neoliberal” critique of social justice rather than the Hayekian argument in particular. While Plant’s other work does include close engagement with Hayek, the focus is primarily on his normative political philosophy. As Griffiths notes in a detailed review of Plant’s contributions, “Hayek’s argument against central planning is largely presented in terms of its imposition of values, not its epistemological difficulties” (Griffiths, 2014, p. 66).

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starting point, to define such policy goals in a way that still achieves wide support and can serve as a basis for evaluating governance and policy. Definition of such goals as pattern shaping, it is argued, can maintain a degree of neutrality with respect to individuals’ particular ends, allowing for significant flexibility in how they are translated into practice in different contexts. Such a defence, it is held, can potentially be responsive to the epistemological challenges involved in translating such normative goals into practice.

4.2

Values and Discovery

How should the normative grounds for governance and policy evaluation be established? It is commonplace in policy evaluation research to present such normative grounds in a way that emphasises the breadth of support they can potentially command, while recognising that they are inevitably contestable. In proposing and justifying ethical principles as a guide for policy actors, political philosophers commonly adopt a similar approach in emphasising the close alignment of their conclusions with widely shared moral convictions and intuitions. In weighing up different potentially conflicting principles, philosophers reflect on what the consequences would be of following proposed principles in a given situation. Through these reflections, they seek to establish which principle is most clearly aligned with broadly held understandings about what would be the right course of action in a given situation. John Rawls, the hugely influential political philosopher whose articulation of the foundations for his liberal conception of justice is especially well known, explicitly articulates such an approach. His initial formulation, in his famous A Theory of Justice, is that his theory would command an ‘overlapping consensus’ (Rawls, 1972, pp. 133–172). Rawls uses this concept to refer to the possibility of agreement between “reasonable persons” across different societies and cultures, who hold a range of particular life goals and substantive values. Later, he famously recognises that the extent of such agreement is ultimately a contingent matter. For his conception of justice to command an overlapping consensus, he acknowledges, depends on the society having adopted particular liberal values, hence is not entirely neutral with respect to different conceptions of the good (Rawls, 1996). Rawls articulates this as a case for “political liberalism,” which, he explains “looks for a political conception of justice that we hope can gain the support of an overlapping

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consensus of reasonable religious, philosophical, and moral doctrines in a society regulated by it”(Rawls, 1996, p. 10). Such an approach is widely adopted in evaluation research and has been proposed by some scholars adopting an interpretivist approach to policy analysis. For example, for Frank Fischer, evaluative research involves the policy analyst “probing” policy actors’ factual knowledge in establishing the grounds for analysis, exploring the norms and contested assumptions that inevitably shape understandings. This approach, being sensitive to how framings are shaped by the complex contexts and actors’ contrasting norms that shape them, Fischer (2003, pp. 181–202) suggests, can be viewed as more rigorous, even scientific, than positivist approaches. Fischer’s aim is not to suggest that complete consensus on evaluative criteria can be reached. Rather, his emphasis is that there is some degree of potential for synthesising contrasting normative perspectives to serve as the foundation for policy evaluation (Fischer et al., 2007, pp. 227– 228). Also recognising the need for evaluative research that avoids the vulnerabilities of positivism, John Dryzek similarly suggests that evaluation might be founded upon widely shared, even if not universally agreed, values, identified through a process of comparison and dialogue (Dryzek, 1982). On this meta-ethical point, Hayek, aside from his emphasis on the subjective, context-specific and contested nature of values, it would seem, also accepts that where widely shared values can be identified they could serve as the grounds for evaluating institutions and policy. Hayek’s pivotal argument in favour of liberty is that, as a process-orientated concept, it has most potential to command such broad support, compared with other normative principles that seek to define a particular kind of desirable social outcome in more substantive terms.3 For Hayek, the principle of liberty underpinning classical liberalism has the most long-term potential to command widespread public support in a pluralist society. There will, he stresses, inevitably be differences in the substantive ends of individuals. Individuals, as he puts it, do not agree on “the relative importance of their respective ends” (Hayek, 1976), especially given the complexities involved in translating them into practice as discussed above. He holds that the principle of liberty, at least in the longer term, can command more support than principles like social 3 This suggestion is evident in parts of Law, Legislation and Liberty, Volume 1 (Hayek, 1973, pp. 53, 180, 183).

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justice that are concerned with shaping distributional outcomes. Hayek acknowledges that this is ultimately a contingent matter. In smaller, tribal societies, where people know each other’s personal circumstances, Hayek allows that different, substantive norms can command a stronger degree of consensus (Hayek, 1976). Although broad agreement on the value of liberty, he suggests, may evolve only slowly, it can be broader and deeper than more transient majority opinions about substantive issues of policy (Hayek, 1979).

4.3

The Challenge of Shaping Outcomes

There is a sense in which commitment to any given norm implies a desire for a certain kind of outcome or set of outcomes. However, as this chapter explores, the degree of specificity with which such sought outcomes can be defined varies from one norm to the next. The process of understanding this variation in what we might refer to as the ‘outcome specificity’ of norms is important in three respects related to Hayek’s arguments for classical liberalism introduced in Chapter 3. Firstly, this has important implications for the nature and extent of the epistemological challenges involved in translating a norm into practice. Secondly, this has an important bearing upon the extent of the support that the norm itself can command. Thirdly, this affects the extent to which interventions can be viewed as arbitrary in reflecting the particular ends sought by individuals, rather than adhering to what Rizzo (2021) terms ‘ends independence.’4 The purpose of this chapter is to explore these implications, with regard to key normative principles that often underpin proposals in contemporary governance for shaping market outcomes. The first normative commitment discussed, in Section 4.4, is meeting human needs. This can be taken to require universal provision of a set of goods that is defined in relatively specific terms. Human needs are presented as having an objective status that strengthens their normative force. The concept has been prominent in various proposals for governmental welfare provision, including models of socialism and social democracy. The Austrians, with their individualist, subjectivist treatment of ends develop an especially stringent critique of this use of the concept of human needs. However, as is discussed below, theorists advocating 4 Chapter 3 (Section 3.5) introduces the importance for Hayek of rules being independent of the particular ends of individuals.

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more substantive forms of social welfare provision have also highlighted problems with seeking to specify universal human needs, especially given the pluralistic character of societies and the varying motives of individuals within them. Some scholars who propose a range of different models including social liberals5 or socialists have articulated norms that can be viewed as offering a response to the Austrian subjectivist critique of human needs. These proposals tend to be articulated in terms relating to justice, often focusing on related concepts such as equality of opportunity and individual autonomy. In terms of their policy implications, these norms often share significant common ground, for example in emphasising the importance of educational provision and various forms of social support to enable individuals to develop and fulfil their life goals. Compared with the earlier socialist uses of human needs, articulation of these norms incorporates greater sensitivity to the variety of goals, circumstances and preferences of individuals across society. Hence, they are referred to here as pattern-shaping, rather than definitively “patterned” principles of the kind discussed previously in the contributions to political philosophy of Robert Nozick (1974). For their advocates recognise that there are limitations to how far policymakers can pre-specify the patterns of resource usage or allocation that they entail. Shaping or ‘steering’ market outcomes in this sense resonates with recent conceptualisations of governance where this need for flexibility and responsiveness to local circumstances in recognised. While broadly sharing a commitment to social justice, such approaches range from those focusing upon equality of opportunity to those emphasising individual autonomy. As further explained below, those scholars more clearly concerned with the delivery of normative ideals tend to emphasise the importance of the latter goal of autonomy, highlighting the limitations of the various attempts to capture egalitarian goals in terms of equality of opportunity. Some treatments of equal opportunity are viewed as too minimal while others are criticised as over-stretching the concept beyond its originally intended purpose. Alternative proposals that focus on promoting individual autonomy through provision of a certain minimum level of welfare provision resonate with, and have indeed significantly influenced, contemporary visions of governance. Advocates 5 Compared with classical liberals, social liberals envisage a more substantive role for the state in terms of shaping social outcomes (Bell, 2014).

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of environmental sustainability goals also often share a focus on how such a normative principle can be attained in practice. Various contributions developing a broadly ‘social liberal’ approach show appreciation of the need to foster the attainment of such goals while allowing decision criteria to be suitably balanced across different contexts. As is further discussed below, this kind of approach is potentially responsive to the epistemological challenges involved in policy delivery and can serve as a foundation for governance and its evaluation.

4.4

Human Needs

The notion of ‘human needs’ has often been adopted as the basis for radical critiques of the market from authors such as Karl Marx, William Morris, Peter Kropotkin and Herbert Marcuse6 and the proposals of social democrats such as Sidney and Beatrice Webb and Anthony Crosland for welfare state provision, including minimum income protection, education and health services (Hewitt, 2000, pp. 29–46). More recent, mainstream proposals for governance, such as the World Committee on Environment and Development, have also been premised upon a commitment to meeting human needs (World Commission on Environment & Development, 1987, pp. 43, 49, 54–55). Human needs are generally considered by these authors to include basic physiological needs (including a need for food, housing, clothing, light and fuel), as well as psychological and social needs. Emphasis on the normative significance of human needs has a long history, traceable back to Aristotle. The normative strength of the concept follows from it having a universal, or “objective” character (Braybrooke, 1987, p. 32). As the philosopher David Wiggins puts it, “What I need depends not on thought or the workings of my mind (or not only on these) but on the way the world is” (Wiggins, cited in Plant, 1991a, p. 192). The Austrian subjectivist perspective highlights difficulties involved in defining such universal human needs, differences which have since

6 Marx points to the fundamental significance of needs for food, water, clothes, shelter,

rest for other human beings, for sexual relations and circumstances conducive to health (Geras, 1983, pp. 72–73). Furthermore, as is implicit in his conception of alienation, Marx places strong emphasis upon the further human needs for fulfilment and individual development that involve “cultivating (one’s) gifts in all directions” (Marx, cited in Geras, 1983, p. 73).

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frequently emerged in debates about the concept. Mises and Hayek both question what exactly count as human needs, given the widely varying, multi-faceted nature of the demands of individuals across society.7 This pluralism, Mises stresses, means that human needs cannot be distinguished from individual preferences. As Mises puts it, “there is no room left in the field of economics for a scale of needs different from the scale of values as reflected in man’s actual behaviour” (Mises, 1949, p. 96). Hayek makes a closely related reference to the “boundless variety of human nature” (Hayek, 1960, p. 86). Their shared emphasis is that any consumer demands that are of particular importance to an individual will, in any case, be prioritised by that individual in their scale of preferences, as exhibited in their actions. Closely connected to this argument is their epistemological observation that individuals themselves have especially close knowledge of their own requirements that shapes their actions,8 whether these be termed ‘needs’ or ‘preferences.’ There are a huge variety of particular goods that might be chosen by individuals to satisfy any strong preferences, or ‘needs,’ and individuals inevitably vary in their prioritisation of these goods. Attempts by governments to select particular sets of goods to provide universally on the grounds of need will thus inevitably fail to reflect this hugely complex variation in the preference scales of individuals across society. Consequently, although meeting human needs might seem to command wide support when stated as a policy goal in the abstract, this level of support might not be sustained as the goal is translated into practical measures. Complexities of the kind emphasised by the Austrian subjectivist perspective have resonated in responses to Abraham Maslow’s early attempts to define the concept of human needs. These criticisms stem from various authors, not just those who share the pro-market stance of Mises and Hayek or even their subjectivist philosophy. Maslow proposed a five-tier ‘hierarchy’ of needs. Most fundamental, he emphasised, were basic physiological needs (food, water, warmth and rest). The next four categories in the hierarchy, in declining order of importance, were safety, 7 As Hewitt (2000, p. 79) explains, Hayek in particular stresses how “self-interest exists alongside other motivations to produce a diverse range of drives in each individual.” 8 As Mises (1949, pp. 18–19) puts it: “Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented.”

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belongingness and love, esteem and self-actualisation. Indicative of the widely expressed criticisms of this proposed hierarchy is that of Mary Douglas et al. (1998, p. 209) who argued that the theory carries the implication that “one need becomes pressing only after the preceding lower need has been satisfied.” Her criticism, echoing a point highlighted by Austrian subjectivism, suggests that such proposals underestimate the particularity and variation of individuals’ preferences. She suggests that no such strict priority ordering of needs is possible: “there are no sharp target levels after which one urge disappears and the next suddenly appears” (Douglas et al., 1998, p. 210). Consistent with the line of argument from Douglas, critics have suggested counter-examples that support this challenge to Maslow’s theory. For example, some offer evidence that the need for self-actualisation can be of more fundamental importance than Maslow recognises, with some individuals often prioritising this objective above their own safety. Other findings provide cause for questioning the importance that Maslow assigns to the desire to minimise labour, given the wide variation in the amount of work done in different human societies and cultures (Lea, Tarpy & Webley, 1987, pp. 145–146, 176, 410). Perhaps not even all of the fundamental needs included in listings such as that of Maslow are universal. David Braybrooke (1987, p. 44) comments that some individuals manage to live quite easily without certain proposed needs, such as companionship, sex or much sleep. Such criticisms suggest that specific policy measures may not obviously follow from a commitment to the broad goal of meeting human needs. The normative appeal of a commitment to meeting human needs in a general sense may arguably withstand such critiques that highlight the complexities and subjectivities involved in specifying particular listings of needs. Some studies, such as those of Max-Neef et al. (1991) and Naryan et al. (2000),9 define human needs in a generic sense distinct from the various, particular goods or ‘satisfiers,’ for satisfying those needs, which are much more specific to “time, place and circumstance” (Max-Neef et al., 1991, p. 17). Such fundamental, basic survival needs would include food, drink and shelter, referred to by Max-Neef as ‘subsistence needs’ and by Naryan et al. as “material” and “bodily well-being” (Naryan et al., 2000, pp. 24–30). Even within the work of some Neoclassical economists who, like the Austrian School, take 9 Note that the study by Naryan et al. is framed in terms of assessing ‘human well-being’ rather than ‘needs.’

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individual preferences as a starting point, there is some recognition of the fundamental importance of basic subsistence needs. Alfred Marshall distinguishes between necessaries, comforts and luxuries (Drakopoulos, 1994, p. 138).10 Indeed, an importance ranking of certain categories of goods is implicit in the well-established principle in economics of diminishing marginal utility (Hennipman, 1987, p. 147), as socialist and ecological critics have pointed out (Georgescu-Roegen, 1954, p. 513; Macpherson & Macpherson, 1973, p. 1778; e.g. Daly et al., 1990, p. 87). Hayek’s own proposals for a minimal level of state welfare provision are introduced as a way of ensuring that the basic subsistence needs of citizens are met, though the normative rationale is presented in terms of maintaining security across society rather than achieving human welfare.11 Meeting human needs in a general sense might potentially sustain more support as a justification for public welfare provision, while incorporating a recognition that the particular satisficers required for meeting these needs vary between individuals, groups and societies. In this way, the case for shaping markets on the grounds of human needs could survive an appreciation of the complex plurality of individual preferences across society. Such an approach is a marked departure from that of early advocates of human needs whose proposals envisage more specific outcomes being secured. It might be questioned how far it is appropriate to refer to generic, widely shared goals for an egalitarian society in terms of the language of human needs. As Braybrooke suggests, “even with majority support,” advocates of a certain human need “will not succeed in having the matter in question treated as a need so long as there is a substantial and articulate minority that rejects it as such” (Braybrooke, 1987, p. 122). Some socialists and social liberals have turned to defining a just, egalitarian society in terms of process-orientated principles that can more clearly accommodate pluralism and the need for sensitivity to local knowledge. As further explored below, these norms provide grounds for challenging classical liberal proposals in a way that more explicitly recognises the significance of the individual subjectivities, pluralism and complexity highlighted by the Austrians’ thesis. 10 See also Hennipman (1987). 11 Hayek acknowledges that “(t)here are common needs that can be satisfied only by

collective action and which can be thus provided for without restricting individual liberty” (Hayek, 1960, p. 257). Plant (1984, p. 85) emphasizes the inconsistency of Hayek on this point.

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Equal Opportunity

Ensuring equality of opportunity in some form is a widespread goal, generally more prominent in contemporary governance discourses than the goal of meeting human needs. Compared with the satisfaction of human needs, ensuring equality of opportunity would at least appear to be a more process-orientated goal that accommodates the plurality and subjectivity of individuals’ various goals and preferences. As an objective, equality of opportunity does not necessarily entail any particular substantive outcome in the sense that might follow from a commitment to meeting human needs. However, ‘equality of opportunity’ has been defined and used in ways that vary significantly in their implications for evaluating outcomes and the epistemic challenges they entail for policymakers. These range from minimal forms of equal opportunity that would be supported by classical liberals to more substantive forms of equal opportunity proposed by socialists that would entail the need for extensive state intervention. Anne Phillips (2006) describes some of these latter formulations of equal opportunity as ‘over-stretching’ the concept beyond its originally intended meaning. Discussions about these various treatments of the concept often focus upon defining a normative ideal, with relatively little if any consideration of the challenges of delivering the goal defined. Yet, as further discussed below, the epistemological challenges involved in delivering different versions of the principle have an important influence in these debates, reflecting their fundamental importance to the use of such norms in policy evaluation. One use of the term ‘equal opportunity’ is in a formal sense, defined as ensuring that all individuals have the same rights to be considered for educational or employment opportunities, without discrimination on the grounds of their ethnic and social class background, religion, gender or sexuality (Galston, 1986). Being the most limited, strictly process-orientated treatment of the concept, this formal treatment of equal opportunity is consistent with the principles of classical liberalism (Belliotti, 1986, p. 71). Securing formal equality of opportunity, it is often emphasised, is not only of inherent normative significance but also enhances prosperity by promoting economic competitiveness. Substantial research on contemporary societies with stated goals relating to formal equal opportunity has found them to fall short of achieving the goal in various ways. This suggests that its attainment involves significant challenges. However, compared with more substantive, pattern-shaping

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principles, the goal would seem to be significantly less susceptible to the kind of epistemological problems highlighted by the Hayekian perspective. Achieving equality of opportunity in the formal sense requires policies that are relatively straightforward to define. Success in ensuring that the policy is delivered hinges on the local scale implementation of policy by people such as members of recruitment panels within firms and other organisations. Indeed the area of employee recruitment is of key importance for attaining equality of opportunity as defined in this narrow sense. Members of recruitment panels are generally chosen according to their expertise and local knowledge. Challenges of ensuring that their decisions reflect the principle of equal opportunity lie primarily in ensuring that recruiters accept and are motivated by the principle, rather than them lacking access to the knowledge required to make a fair decision.12 The objective of formal equal opportunity does not fully capture the vision for society that would be held by those considering themselves egalitarians. Although egalitarians agree on the importance of formal equal opportunity, they are critical of reliance upon it as sufficient for securing egalitarian goals, instead advocating a more ‘substantive’ treatment of the concept (Segall, 2013, pp. 3–4). They emphasise the importance of not only preventing discrimination in allocating opportunities but also enabling all citizens to acquire the skills that will open up opportunities for them. Structural inequalities in society, they stress, significantly affect the availability of such opportunities for education and learning, which entails a need for governmental institutions to provide forms of support and interventions to promote equality of life chances (Swift, 2019, pp.183–188). Reflecting the intuitive appeal of this critique of formal equal opportunity, there are numerous contributors to debates about how exactly to define such a substantive version of the concept. They tend to assign central importance to ensuring that everyone has 12 In the case of the UK, some notable progress has been made over the last few decades in addressing inequalities in the opportunities available to people from ethnic minority backgrounds. However, recent statistical analysis of the UK labour market finds that ethnic minorities still suffer a significant ‘pay penalty,’ as measured after controlling for factors such as age, location and occupation (Henehan & Rose, 2018). Research suggests that discrimination in recruitment practices is a significant factor in explaining this pay penalty (Ashe & Nazroo, 2016; Heath et al., 2019), with the caveat that acquiring evidence to measure more firmly the extent of such discrimination would clearly involve significant challenges (Henehan & Rose, 2018).

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access to a certain level of educational provision (Phillips, 2006, p. 10).13 These more substantive treatments of equal opportunity often take the form of ‘starting gate’ theories, meaning that they advocate equalising the life chances of everyone in society prior to a certain stage in their lives, such as the start of adulthood (Arneson, 1989).14 As further discussed below, such theories have been criticised as being inconsistent, acknowledging the normative grounds for supporting some people during their early years to mitigate circumstances that are no fault of their own, while ruling out any normative grounds for doing so for individuals who have passed a certain stage in their lives. As further explained below, such normative debates about the various substantive forms of equal opportunity are also interlaced with concerns about the epistemological problems that, in varying degrees, they might entail. Directing his critique towards more substantive treatments of the concept, Hayek emphasises that the goal of equality of opportunity has a certain logic, escalating into interventions that entail profound epistemological problems. The goal, he suggests, implies the need to remove any disadvantages facing individuals caused by the environment in which they are raised. Governments, he argues, do not have the capacity to effectively deliver equality in this sense. Such a variety of factors that shape the opportunities of each individual, including family, inheritance, education, geography and culture, would require consideration (Hayek, 1960, p. 89).15 Attempts to achieve the goal would, he expects, become undermined by their unintended consequences. If, to tackle inequalities that might be viewed as ‘unjust,’ measures were taken such as restrictions upon inheritance rights or outlawing of private schools, wealthier, more privileged parents would find other ways of bestowing benefits upon their 13 Rawls refers to this as a commitment to ‘fair equality of opportunity.’ Broadly, this principle means ensuring that each individual is not prevented from having access to opportunities due to morally arbitrary features of their life such as the social class they are born into (Mason, 2006). To illustrate the implications of this commitment, Arneson explains that “The son of a banking magnate and the daughter of a janitor who works in the bank, if they have equal native talent and equal ambition, have equal competitive prospects” (Arneson, 2018, p. F157). 14 Another example of a starting gate theory is that of G. A. Cohen (1989). See Fleurbaey (2002). 15 In Law, Legislation and Liberty, Hayek comments that “government would have to control the whole physical and human environment of all persons, and have to endeavour to provide at least equivalent chances for each” (Hayek, 1976, pp. 84–85).

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children, such as providing access to jobs and positions, that would lead to much more harmful consequences for society in terms of wasted resources (Hayek, 1960, pp. 90–92).16 Scholarly discussions between advocates of various versions of substantive equal opportunity often refrain from engaging fully and directly with epistemological challenges of the kind highlighted by Hayek. Indeed, much of the discussion operates in the realm of ideal theory, defining normative ideals without considering the specific type of institutions through which their translation into practice might be progressed.17 The work of Ronald Dworkin on equality as a normative ideal is a case in point. Through an imaginary thought experiment, he defines an egalitarian distribution as one in which no individual envies the resources allocated to any other. This definition is designed to take into account the goals, preferences and circumstances of each individual. Dworkin’s conception of an egalitarian society seeks to avoid the arbitrariness that he views as an inevitable consequence of the starting gate approach. He instead advocates an equal distribution of resources across peoples’ lives in their entirety. For Dworkin, an egalitarian distribution is one that is ‘ambition sensitive’ and ‘endowment insensitive.’ This means one in which people with disabilities or lacking what are referred to in the literature as ‘marketable talents’18 are compensated, while people with the ambition and effort to exercise their talents are rewarded for this. In other words, for Dworkin individuals should be compensated for what he refers to as ‘brute’ bad luck, i.e. for circumstances beyond their control, as opposed to bad ‘option luck,’ which refers to the negative consequences

16 Hayek indicates that this argument is applicable more widely to different treatments of justice. He similarly applies this epistemological critique to proposals to reward people according to merit rather than the market-determined value of what they produce (Hayek, 1960, pp. 94–95). Such a commitment is stressed by Hayek to require the state to undertake an impossible task of acquiring the necessary knowledge about the effort made by each individual in their work, given the range of factors involved, such as the individual’s skill, confidence, state of mind, attention, energy and persistence (Hayek, 1960, pp. 95, 97). As explained further below, this argument resonates in contemporary critiques of luck egalitarianism. 17 See Chambers (2009) on the critique of starting gate theory. 18 This term refers to abilities that enable one to develop marketable skills that can

serve to generate income, such as by joining a certain profession or trade. For example, a physical ability that means one is able to do building work or reasoning skills that lead to one joining the legal profession.

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of the choices they have made for which they should take responsibility (Dworkin, 2002, pp. 73–74). Operating at the level of ideal theory, Dworkin does not claim to provide an answer to the profound epistemological challenges that would be involved in translating such an ideal distribution in practice.19 Distinguishing ambitions from endowments, as required by this definition, is in practice problematic given that one’s level of ambition might reflect social factors beyond one’s control (Arneson, 2018, p. F157; Phillips, 2004, pp. 15–16).20 This is acknowledged by Richard Arneson who, as further explained below, shares common ground with Dworkin in advocating individuals be compensated for brute bad luck. Arneson points out that schools, for example, can vary significantly in the level of aspiration they set for their pupils. It might be that higher proportions of children from privileged backgrounds attend schools instilling higher levels of ambition, which makes it very difficult in practice to distinguish between ambition and endowments (Arneson, 2018, p. F157). Arneson’s work is an example of an approach to equality of opportunity known as ‘luck egalitarianism,’ that takes even further Dworkin’s argument that brute bad luck should be compensated for.21 It is this approach, which would have still more far-reaching re-distributive implications than that of Dworkin, that Phillips suggests marks an over-stretching of the concept for which it was not originally intended. Rather than only mitigating the effects of people’s natural endowments, luck egalitarians argue that individuals affected by a broader range of disadvantages caused by factors beyond their control deserve compensation. These include individuals who have expensive tastes that were caused by factors beyond their control. One of the early, most widely cited luck egalitarians, G. A. Cohen, gives the example of Paul who, through no fault of his own developed a love of photography, a hobby that is much more expensive

19 Dworkin, for example, explains that his interest is “primarily in the design of an ideal, and of a device to picture that ideal and test its coherence, completeness and appeal.” For this reason, he explains that he “shall therefore ignore practical difficulties, like problems of gathering information, that do not impede these theoretical goals” (Dworkin, 2002, p. 73). 20 Arneson acknowledges this, though he himself is a luck egalitarian. 21 Note that the term ‘luck egalitarianism’ was coined by Anderson (Anderson, 1999)

and not all philosophers she places under this category favour the label (Arneson, 2003; Dworkin, 2003, p. 192).

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to engage in than Fred’s love of fishing. For Cohen, Paul should be given help to support his more expensive taste (Cohen, 1989, p. 923). In places, luck egalitarians do acknowledge the epistemological challenges that would be involved in implementing such distributive principles (Arneson, 2018, p. F170). However, with their focus on defining a normative ideal, luck egalitarians such as Cohen are not concerned with how it could possibly be established whether individuals’ tastes are their own responsibility or caused by factors beyond their control. Through a critique of the individualist welfarism implicit in luck egalitarianism, some political theorists have developed a case for what they emphasise is a more socially orientated conception of equality (Anderson, 1999; Scheffler, 2003). One strand of this broader critique is a highlighting of the profound if not impossible epistemological challenges that luck egalitarianism would seem to entail. ‘Social egalitarians’ challenge the luck egalitarian treatment of social justice in terms of attaining an optimal allocation of resources that perfectly reflects the utility function and level of ambition and effort shown by each individual in society. A central point in this critique of individualist welfarism is that, rather than simply taking individuals’ preferences as given, individual choices should be viewed as socially conditioned. Arguing in a social egalitarian vein, Phillips (2006) gives the example of women who take time off from employment for reasons of childcare. She emphasises that such decisions cannot be simply treated as matters of individual preference as reflected in the choices that are taken. Such choices and perhaps even the preferences underpinning them are shaped by social expectations, in this case the widespread social expectation that women will take on the larger proportion of childcare responsibilities (Phillips, 2004, pp. 18–19, 2006). Hence, for Phillips, the provision of universal good quality childcare is a pre-condition for a society that secures equality between the sexes. This kind of inequality requires the provision of public goods in order to be tackled,22 rather than simply compensating individuals. Even though not the subject of sustained, explicit discussion, the epistemological argument is at least present in this case for a social approach to defining and delivering egalitarian goals. In contrast with the individualist, welfarist approach of luck egalitarians, the emphasis is upon mitigating the deepest forms of injustice rather than achieving a

22 Such goods are referred to by Pereira (2006, p. 74) as “irreducibly social goods.”

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welfare optimum. A social approach, it is emphasised, can foster individual responsibility. As Phillips (2006) suggests, attempts to compensate individuals for holding preferences and life goals for which they are deemed to not be responsible risks undermining recognition of their responsibility as autonomous actors for the consequences of their choice. Such interventions, she points out, could be very extensive and intrusive, for example in labour markets and social care provision. Although Phillips herself does not make the point explicitly, her argument highlights the profound epistemological difficulties involved in translating into practice the welfarist approaches to individual compensation advocated by luck egalitarians.23 How could policy actors possibly hope to establish how far each individual is responsible for the various past choices they have made that have shaped their utility function? Alongside this argument concerned with how to establish responsibility, with its at least implicit epistemological dimension, there is a further, strong normative objection to luck egalitarianism. This is that, as Elizabeth Anderson (1999)24 argues, luck egalitarianism fails to fully acknowledge the need for the kind of social support that is the hallmark of an egalitarian society. In articulating this criticism, Anderson emphasises that there is a sense in which the approach falls short of showing equal concern and respect to all citizens. Luck egalitarianism, she points out, does not acknowledge that individuals who suffer due to their own negligence or lack of foresight could still have entitlements to support from society.25 Although the point is not emphasised by social egalitarians, there would also seem to be a strong potential epistemological, as well as normative argument for such a basic minimum level of entitlement to support. For, providing a certain level of service for all, regardless of their 23 Chambers (Chambers, 2009, p. 378) explicitly refers to such epistemological challenges in her critique of starting gate theories of equal opportunity. 24 Anderson’s approach is similar to that of Amartya Sen (Pereira, 2006, p. 71). 25 The example given by Anderson herself in support of this point is that of a negligent

driver who suffers a serious injury due to an accident he caused. Anderson argues that it follows from the principle of equal concern and respect for all citizens that the driver should be entitled to emergency health care. In making a similar point, Phillips cites Brian Barry’s comment that “Destitution is too high a penalty for failure to insure” (Barry, 1999: 149, cited in Phillips, 2004, p. 16). Phillips (2004) also gives the example of an artist who chose a life of material poverty but artistic creativity. Phillips argues that the artist, for whom this decision has dire consequences later in life that she does not fully anticipate at the time, should be entitled to some form of state welfare.

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characteristics and prior decisions, avoids the profound epistemological difficulties that would be involved in implementing luck egalitarianism. In summary, there are a range of forms of equal opportunity that vary significantly in the nature and extent of the epistemological challenges they pose for policymakers. Formal equality of opportunity is relatively less vulnerable to such Hayekian problems. However, this version of the concept is one that cannot satisfy egalitarians who are concerned with the substantive inequalities that markets tend to generate. By contrast some of the more substantive treatments of the concept, most notably those of luck egalitarians, would entail profoundly ambitious forms of state intervention leaving them vulnerable to a number of criticisms, including epistemological concerns. Social egalitarian alternatives to this perfectionist approach, which focus on limiting the degree of outcome inequality rather than aiming for a seemingly unattainable welfare optimality, would seem to offer a more robust approach that would be less susceptible to epistemological obstacles. Demonstrating their feasibility is important for such principles to obtain wider support. As further explored in Section 4.6, such social egalitarian proposals are not always cast solely in terms of ‘equality of opportunity.’ They might be more suitably presented and justified primarily in terms of promoting individual autonomy. We now turn to the question of how authors focusing on such a goal of promoting individual autonomy offer further responses to the epistemological challenges of policy delivery.

4.6

Autonomy

While the term ‘autonomy’ may not frequently be present directly in contemporary governance discourses, the concept can be viewed as underpinning many contemporary visions for the welfare state and public services. Autonomy is generally understood to mean people freely shaping their lives (Hassoun, 2014, pp. 96–97). Compared with the individualist welfarism that has come to characterise the case for equality of opportunity amongst some scholars, a commitment to fostering autonomy might be viewed as offering a more feasible, socially orientated approach. In political philosophy, fostering individual autonomy is of central importance in key social liberal proposals for a just, egalitarian society developed by authors, such as John Rawls, Amartya Sen and Martha Nussbaum. As reviewed further below, their proposals share significant common ground with the case for social egalitarianism reviewed in Section 4.5, though

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amongst these authors there are contrasting visions about how their normative principles should be operationalised. The significance of autonomy for the liberal tradition can be traced back to the work of John Stuart Mill and through to more recent liberal scholarship from authors such as Joseph Raz and David Held. Although there is significant variation in the approach of these authors to defining and operationalising the concept, there would seem to be agreement on its meaning in general terms. This general understanding is captured, for example, by Held’s definition as “the capacity of human beings to reason self-consciously, to be self-reflective and to be self-determining” (Held, 2002, p. 25). Like substantive forms of equal opportunity, the concept has pattern-shaping implications in highlighting the need for various forms of educational and social support for citizens. The goal of promoting individual autonomy is treated by many liberals as consistent with retaining a significant degree of neutrality with respect to the goals and values that motivate individuals across society, allowing significant space for individuals to act freely according to their own locally situated knowledge and preferences. The concept of ‘autonomy’ has had greatest prominence in the social liberal, rather than classical liberal, tradition. Interestingly, Hayek, albeit briefly, alludes to the value of autonomy in this sense espoused by Millean liberals. This contrasts with his deeply sceptical view of equality of opportunity as a public policy goal, suggesting that Hayek might view the concept as more potentially compatible with a commitment to individual liberty. However, with echoes of Adam Smith before him (O’Neill, 1998, p. 60), Hayek emphasises how it is markets and the discipline they foster that promote such character development. As John O’Neill highlights (1998, p. 60), he views state intervention as a form of coercion that undermines autonomy. Coercion, he argues, is an “evil” because it “eliminates an individual as a thinking and valuing person and makes him a bare tool in the achievement of the ends of another” (Hayek, 1960, p. 21). Hence, Hayek’s allusions to the value of individual autonomy that might be fostered by markets are at best somewhat peripheral to the core Austrian case for market liberalism. Far more central is his emphasis on the dangers of state interventions that might seek to foster goals such as autonomy. John Rawls’ theory of justice can be viewed as a social liberal response to the case for classical liberalism (Buckler & Dolowitz, 2000). Starting from a recognition of the important role of markets in a liberal society,

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Rawls thoroughly develops a case for the state to shape market outcomes through a substantive distributive role, while remaining neutral with respect to the particular ends, or, as Rawls puts it, ‘thick’ conceptions of the good life that individuals might seek to pursue. For Rawls, justice is delivered through redistribution of resources. Along with some other recent authors, as further discussed below, Rawls has subsequently defended this resourcist approach, notably in response to critique from Amartya Sen. A significant feature of this defence is to emphasise that this is the most feasible approach in the face of the significant epistemological challenges involved in promoting individual autonomy. As highlighted in Section 4.2, Rawls grounds his theory of justice in emphasising its capacity to command public support. This philosophical starting point is accompanied by an epistemological argument in favour of his resourcist approach, as further explained below. In A Theory of Justice, Rawls articulates his conception of a just society through a famous thought experiment, imagining individuals being in an ‘original position,’ prior to their adoption of a particular life, shaped by their personal characteristics, circumstances and goals. He considers what kind of society individuals behind such a ‘veil of ignorance’ about their future life might choose. This includes the question of how to justly distribute ‘primary goods,’ including economic goods measured in terms of income and wealth, amongst individuals across the future society.26 Rawls suggests that they would favour what he refers to as the ‘difference principle,’ according to which inequalities of wealth are justified only in so far as they are of benefit to the worst off in society. Translating this principle into practice, he makes clear, involves the state having a role in the provision of public benefits funded through some form of taxation. This involves policies involving a degree of wealth redistribution, though the question of the specific policy instruments is left open.27 The work of Sen, which is especially concerned with translating the goal of autonomy into practice across a range of socio-economic contexts,

26 Rawls’ list of ‘primary goods’ includes both political liberties such as freedom of movement, association and occupational choice, as well as a set of economic goods measured in terms of income and wealth. 27 While we might expect this to be achieved primarily through a progressive income tax, Rawls is somewhat non-committal about this possibility. He suggests there could be a case for a flat consumption tax, though does not provide a definitive answer about which policy tools might offer the most just approach to redistributing wealth (Sugin, 2004).

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has been influential in contemporary international governance, especially in the field of development.28 Sen’s famous ‘capabilities approach’ does not purport to define a universal normative ideal but rather aims to provide a framework for policy evaluation. As further explained below, Sen, in articulating the approach, offers a critique of what he refers to as Rawls’ ‘resourcism’. Sen defines capabilities as the ability of human beings to engage in certain valuable activities and enjoy certain states of being, referred to as ‘functionings.’ He aims to define ‘functionings’ in general terms, distinct from the culturally specific forms they might take, in the same way as Max-Neef’s generically defined needs, as discussed in Section 4.4, are distinguished from particular satisficers. Sen illustrates the concept using the example of the ‘functioning’ of entertainment: “there may be more agreement on the need to be entertained, or to have the capability to take part in the life of the community, than on the form that entertainment must take or on the particular way the life of the community may be shared” (Sen, 1992, p. 109). Challenging the resourcist approach of authors such as Rawls, Sen points out that the provision of the same quantity of resources to different people can result in significant differences in the extent to which they are able to perform particular, important functionings. In other words, resourcism would lead to sub-optimal outcomes. Sen, as well as Martha Nussbaum who builds on Sen’s contribution, emphasises that it is having the capability to perform a certain functioning x that is of value to an individual, not just having the material resources required but also to possess the necessary physical and mental capabilities. Sen gives the subsequently much cited example of an individual owning a bicycle. It is not the bicycle itself that is of value to the owner but the capability of mobility that is facilitated by the bike (Sen, 1983). Sen’s articulation of this argument is highly sensitive to the plurality of life goals held by people across different societies and the complex choices of possible means for attaining these goals. Translating into practice the goal of fostering individual autonomy, Sen emphasises, requires consideration of more than just the re-allocation of resources but also the particular capacity and needs of individuals in different socio-economic contexts to make use of the resources allocated to them. Although Sen does not seek to offer a definitive account of valued capabilities as a perfectionist ideal, the picture of a just society that 28 Sen contributed to the first Human Development Reports and developed the Human Development Index.

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might emerge through adoption of the capabilities approach might be notably comprehensive in character, requiring close consideration of the abilities, circumstances and goals of individuals across society. Achieving capability equality or meeting human needs in the sense conceptualised though not substantively defined by Sen involves the same kind of profound challenges highlighted by critics of substantive forms of equal opportunity. In seeking to achieve this goal, welfare provision must be responsive to local contexts, individual goals and preferences. Rawls does not seek to define such a comprehensive pattern of egalitarian resource distribution but rather a feasible, political vision of a just society. Following Rawls, authors such as Martha Nussbaum (2011) and Elizabeth Anderson (2007) have also articulated their social egalitarianism as being a more feasible, ‘political liberalism.’ Although he does not quite articulate the point in these terms, Rawls’ response to Sen’s critique importantly includes an epistemological point in favour of his resourcist approach. In contrast with Sen, Rawls’ purpose is to define the minimum degree of redistribution that meets the requirements of justice (Daniels, 1990; Pereira, 2006, pp. 279–280). Although Rawls does not formulate practical policies for achieving a just, liberal egalitarian society, he does emphasise that equality of resources is a more practically deliverable, or “workable” guiding principle for a theory of justice (Rawls, 1999, p. 13). In response to Sen, he stresses the difficulties of acquiring information about individuals’ capabilities and that certain “simplifying assumptions” must inevitably be made. Otherwise, he argues: “to apply the idea of effective basic capabilities… calls for more information than political society can conceivably acquire and sensibly apply.” He adds that “by embedding primary goods into the specification of the principles of justice and ordering the basic structure of society accordingly, we may come as close as we can in practice to a just distribution of Sen’s effective freedoms” (Rawls, 1999, p. 13n). These challenges have been referred to by subsequent defenders of Rawls. For example, Thomas Pogge (2010) and Erin Kelly (2010), defending a resourcist approach, emphasise that policy proposals for delivering social justice and enabling individual autonomy should be defined and measured in terms of the resource transfers that

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they entail, alluding to the profound epistemological challenges involved in operationalising the capabilities approach.29 Hence, epistemological concerns have had an important role in the case for fostering autonomy as a pattern-shaping goal, whichever specific formulation and means of delivering this goal is adopted. Indeed, as is particularly explored by Jeremy Shearmur, such a case for a degree of universal welfare provision and support can be developed as a potential response to the Hayekian challenge. As Shearmur highlights, an analogy can be drawn between the Austrian case for markets and the social liberal case for promoting individual autonomy. Just as the procedural rules of the market might enable individuals to act on the basis of their own particular knowledge and preferences, so might the provision of a certain level of resources for all people enable them to become autonomous citizens, participating fully in the political process (Shearmur, 1996, p. 189). Indeed, the argument mirrors that offered by Hayek himself in defence of certain political rights such as freedom of speech and association, which, he argues, serve to protect minorities and prevent majority rule from stifling the potential for minorities to explore and discover alternative ways of life (Hayek, 1960, pp. 109–111). Yet, such an argument proposes a more substantive role for the state than does Hayek. Shearmur points to the contribution of Amartya Sen as of key importance in offering such an epistemologically orientated, normative case for individual autonomy. Given that a Rawlsian resourcist approach to promoting autonomy may be a less epistemologically demanding, hence more feasible goal, this approach might also be defended as a countermove to the Hayekian challenge. However specifically it is to be operationalised, the goal of fostering autonomy offers significant, potentially widely convincing, normative grounds for shaping market outcomes in a way that is sensitive to epistemological challenges.

4.7

Environmental Sustainability

The goal of environmental sustainability has become increasingly prominent in contemporary governance discourses, particularly since the emergence of ‘sustainable development’ discourses in 1987 Brundtland Report 29 Pogge (2002, p. 210) refers to the “large administrative bureaucracy” this would entail. Kelly (2010, pp. 61–62) refers to the difficulties of interpersonal welfare comparisons that the capabilities approach would require.

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(World Commission on Environment & Development, 1987) and 1992 Rio de Janeiro Earth Summit (Meadowcroft, 2000). While the term has been defined in various ways, ‘environmental sustainability’ is generally used to mean that the quality and quantity of the valued environment should not decline. There are of course various forms of ecological decline that are of concern for contemporary governance. Mitigating climate change has risen markedly up the agenda of political debates internationally, even in the last few years. There are a range of other environmental challenges such as water shortages, depletion of fish stocks, deforestation and degradation of agricultural land. These problems are often characterised by the kind of complex inter-relationships highlighted by the Austrian perspective. For example, climate change exacerbates pressure upon water resources and farmland. Deforestation causes biodiversity loss and leads to higher CO2 emissions, thus contributing to climate change. Addressing such environmental concerns involves a range of social and economic factors with which they can be inter-related in complex ways and are inevitably shaped by the preferences and goals of individuals across society. In this context of complexity, the question of which ecological services should be protected is inevitably contested. Articulation of the normative goal of ecological sustainability is usually inextricably tied with considerations of the welfare of individuals across society, with the opportunities for welfare for future generations being integral to the debate. This starting point concerning the welfare of present and future human beings may not be universally agreed, with some ‘deep ecologists’ criticising the ‘anthropocentric’ nature of such an approach (Jamieson, 1998). Indeed, there are a variety of norms held across society concerning how we treat nature, adoption of which affects how we value the environment. These norms range from treating nature in solely instrumental terms to those emphasising human obligations to nature to the various ways in which the moral claims of future generations might be treated (Dryzek, 2021). Yet, as William Nordhaus puts it, debates about sustainability, at least when concerned with present and current human welfare, are essentially about ensuring that the capacity to provide per capita utility does not decline (Neumayer, 2013, p. 7). As discussed in Chapter 3, this nominal use of the term ‘utility’ leaves wide open the question of exactly how we should define human welfare or wellbeing. As discussed above in relation to debates about egalitarianism and justice, delivery of such a goal requires consideration of the plurality of

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values and preferences held by individuals across society that reflect their subjective perspectives. Defining and delivering environmental sustainability goals in the context of complexity and pluralism involves epistemological challenges analogous to those discussed above in relation to equality and justice. This epistemological dimension surfaces in and indeed shapes normative debates about the definition of environmental sustainability. Scholarly debates about how to define the goal of environmental sustainability centre upon a distinction between ‘strong’ and ‘weak’ treatments of the concept (Neumayer, 2013). The debate may in places focus on defining sustainability in ideal normative terms. In spite of this, the course the debate has taken, as further discussed below, suggests the significance of the epistemological dimension for understanding the challenge of delivering sustainability as a policy goal. Advocates of a ‘strong’ conception of sustainability emphasise the fundamental importance of critical elements of ecological resources or ‘natural capital’ that require specific preservation (Daly, 1992). This case emphasises the importance of protecting those ecological services the loss of which is irreversible (Spash, 1993). Clearly, there are scales of ecological degradation that, if they are to occur, would have profound implications for human life. For example, the loss of rainforests has profound consequences, given that they perform vitally important functions of regulating climate, air quality and water supply, along with being rich in biodiversity. As critics of ‘strong sustainability’ have stressed (e.g. Beckerman, 1994), the question of the level of ecological resource that should be treated as a limit is an inherently normative one that cannot be reduced to a purely scientific matter.30 This point is more explicitly acknowledged and emphasised by advocates of ‘weak’ sustainability. While still being concerned with the preservation of natural capital, weak sustainability allows that a degree of natural capital depletion is justified, so long as an increase in other resources takes place that will compensate. This might include manmade capital substituting for natural capital to some degree. Significantly, advocates of strong sustainability do allow for the possibility of an element of such substitution taking place (Holland, 1997, p. 126). Hence, as commentators have concluded, the different 30 Beckerman (1994, p. 194) uses especially strong rhetoric to express this point that may be unfair to the case for ‘strong sustainability.’ However, his point here is nonetheless valid.

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views of the advocates of strong and weak sustainability would seem to be empirical in kind, concerning the degree to which such substitution is possible (Holland, 1997, p. 77; Ekins, 1999; Perman, 2011, p. 86). Weak sustainability, as Paul Ekins puts it, derives “from a perception that welfare is not normally dependent on a specific form of capital and can be maintained by substituting manufactured for natural capital, though with exceptions” (Ekins, 1999, p. 76). Strong sustainability “derives from a different perception that substitutability of manufactured for natural capital is seriously limited by such environmental characteristics as irreversibility, uncertainty and the existence of ‘critical’ components of natural capital, which make a unique contribution to welfare” (ibid).31 Proponents of strong sustainability stress that such substitution possibilities between natural and manufactured capital are over-estimated by the weak sustainability view. They emphasise that establishing a limit to market activity is a normative imperative, given the irreversibility of some of the ecological damage associated with market externalities. Advocates of strong sustainability often articulate their position in terms of the ‘precautionary principle,’ a principle of risk avoidance (Barry, 2001, pp. 67–72; Funtowicz & Ravetz, 1994; Westra, 1997). Although in need of more specific definition, the general emphasis of the precautionary principle is that decision-makers should act to protect the environment from harm before having certain scientific knowledge about the impacts of different courses of action (O’Riordan & Jordan, 1995, p. 194). Hence, rather than seeking to fully measure environmental gains and losses across different cases of ecological resource use, the principle establishes a clear limit to the use of ecological services (Greenwood, 2007, p. 84). There is an epistemological dimension to the case for strong sustainability, which is informed by Ecological Economics critiques of the Neoclassical assumption that decision-makers have perfect information about the consequences for human welfare of any particular level of resource use. These critiques highlight the complexities and uncertainty involved in defining sustainability limits, given not only the various types of welfare benefits that use of ecological services can bring but also the uncertainties associated with the consequences of ecological degradation 31 As Gowdy (2005) explains, advocates of strong sustainability argue that traditional neoclassical models overestimate the possibilities of substitution between natural and manufactured capital given the related problems of complementarity, irreversibility, pure uncertainty and discontinuous change.

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(Daly, 1995; Ng & Wills, 2002). Their approach is to treat rationality as ‘bounded.’ Deciding upon a limit for the purposes of guiding policy, even if based upon imperfect assumptions, it is emphasised, could be considered preferable to refraining from establishing any such limit. These epistemological considerations, combined with a range of normative concerns about use of individuals’ stated preferences as the underpinning criterion for evaluating policy options, inform ecological economists’ case for the ‘precautionary principle’ (Gowdy et al., 2004, p. 251). In support of attempts to establish such a limit, it is, after all, known that, in order to avoid a certain level of ecosystem impairment that might be considered unacceptable, a limit does exist for the causal variables involved. For example, in order to avoid a given increase in mean global temperature, scientists know that there is a particular level of greenhouse gas emissions that must not be exceeded over a certain time period. Defining sustainability limits, which can be defined as a level of an environmental variable beyond which a given ecosystem function is substantially impaired or disabled, is established practice for a variety of different ecological services (Ekins & Simon, 2003). The complexity of ecosystems might mean that scientists do not always have precise knowledge of this limit. The ecological impact of certain productive technologies is characterised by uncertainty, indeterminacy and possible irreversibility. Ecosystems can be subject to dynamic, non-linear change and are complex, reacting unpredictably to disturbances. Aggregating data to measure ecological change can also be problematic because of what Hayek refers to as the ‘particular circumstances of time and place.’ However, it is known that such limits exist and that the scale of the consequences of not seeking to ensure any such limits needs to be considered. Whereas debates on equality and justice reviewed above are often in the realms of ideal theory, discussions in green political thought about the definition of sustainability are often closely connected with discussions of the institutional arrangements and types of policy through which this goal might be delivered. Since the 1990s, a significant body of scholarship has emerged developing a normative case for the ‘green state’ (Barry & Eckersley, 2005; Eckersley, 2004). This ‘green state theory’ strongly emphasises the need for states to take decisive market interventions to establish limits to markets in order to secure a certain level of environmental sustainability. The term ‘governance’ may not be as prominent in

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the work of green state theorists as it is in other political science literatures.32 Analogously to scholarly discussions of network governance, green state theory does exhibit a strong sensitivity to the complexities involved in defining and delivering environmental sustainability as a policy goal (Barry & Eckersley, 2005).33 Also like wider governance literatures, green state theorists recognise the importance of a range of different actors from public, private and third sector having a role in the policy process. Work on the philosophical position underpinning green state theory articulates the case for state shaping of market outcomes to achieve sustainability as one that is entirely compatible with, indeed necessary for, a liberal society (Wissenburg, 2006). Rather like the case for a commitment to human needs and promoting individual autonomy within a liberal society as discussed above, it is emphasised that there is scope to define the goal in general terms in a way that allows for flexibility in how it is translated into practice in particular contexts. It is argued that having the goal can be consistent with a liberal recognition of the plurality of values and goals held by individuals across society. The principle of sustainability might compromise the objective of neutrality in clearly ruling out unsustainable choices. Though as Marcel Wissenburg (2006, p. 24) argues, neutrality cannot be absolute. Recognition that neutrality is necessarily a matter of degree and is never perfect, is, he argues, quite consistent with the liberal tradition itself (Wissenburg, 2006). When defined in ideal terms, this liberal case for maintaining welfare opportunities for future generations may indeed be compelling. However, settling upon policies that reflect such an ideal normative commitment involves profoundly complex and difficult trade-offs and choices involving various ecological, social and economic criteria. As discussed above in relation to the policy goals of human needs and autonomy, this complexity is shaped by empirical facts about society and the environment, in combination with peoples’ subjective goals and preferences. There is no denying that, as Terry Anderson and Donald Leal (2001, p. 162) put it in their

32 Nonetheless, green state theorists do use the term. For example, Barry (1999) uses the term ‘ecological governance,’ while Barry and Eckersley (2005) discuss global ecological governance. 33 Such a recognition is especially evident in the Ecological Economics tradition (see, e.g., Faucheux et al., 1997), which strongly influenced the emergence of green state theory. Operationalising sustainability in the face of such ecological complexity thus involves profound epistemological difficulties (Faucheux et al., 1997).

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case for free market environmentalism: “the seemingly simple concept of sustainable development gets considerably more complex when we recognise opportunity costs and attempt to implement policy.” Yet, green political thought, somewhat analogously to Anderson’s case for social equality, provides a compelling case for sustainability as a policy goal to achieve outcomes that would, on balance command greater support, than if no such pattern-shaping goal was adopted.

4.8

Summary

There are strong normative grounds for viewing the delivery of substantive, pattern-shaping norms as a core function of governance. The review here of philosophical debates concerning key examples of such possible goals for contemporary governance highlights their significant potential for commanding a wide degree of support. This review has also explored how the extent of any such agreement will depend upon how exactly the goals are operationalised and balanced. This challenge of coordination involves a number of distinct though inter-related aspects, given the plurality of values and complexities involved. There is a need for policy goals to be defined in a way that retains a significant degree of neutrality with respect to individuals’ specific values and preferences. There is also a need for sensitivity to the complex choices and trade-offs involved in translating broadly defined goals into practice and the significant epistemological challenges this entails. As discussed in Chapter 3, this challenge becomes compounded when multiple policy goals need to be balanced. Hence, actors with a role in delivering policy goals need to be allowed an appropriate degree of flexibility and discretion. Epistemological challenges involved in delivering pattern-shaping goals, such as equality of opportunity or sustainability, do resonate in philosophical debates about their meaning, highlighting the prescience of Hayekian concerns. The discussion here has explored the potential unintended consequences that might arise from the adoption of such goals. For example, a commitment to meeting human needs, social justice or fostering individual capabilities might not translate into welfare policies that sufficiently consider the priorities of the individuals who they are intended to benefit. Policies seeking to promote ecological sustainability might not be the most effective means of achieving the goal. However, as this chapter has explored, there are grounds for challenging the Hayekian conclusion that individual liberty is the only normative principle that can

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command sufficiently wide sustained support in complex, pluralistic societies. As suggested here, the orientation of such a position should be towards aiming to shape outcomes, while recognising the epistemological problems involved in determining them. In Hayek’s terms, such an approach might be viewed as cultivating values, providing an appropriate environment for them to prosper, rather than seeking to specify exactly how they will be attained. A common response to Hayek from those challenging his classical liberal conclusions is to acknowledge the potential imperfections of state interventions in markets, while stressing that these will nonetheless be outweighed by the negative consequences of refraining from such interventions. These critics emphasise the profound scale and normative significance of the inequalities and market failures that would arise under a classical liberal model. Raymond Plant, a key figure amongst these critics, has pointed out that the significant role of the state in Hayek’s own classical liberal model could involve significant epistemological challenges. This is especially notable in relation to the goal of maintaining security, a key public good that Hayek views as requiring governmental provision. Attaining this goal, he argues, requires a decision on the specific level of public provision and the allocation of public resources for this purpose. If Hayek allows that such decisions can be taken “through normal processes of political bargaining” asks Plant, “why cannot we do the same for rights such as health care and education?” (Plant, 1991b, p. 85). Balancing these considerations are various scholars, as discussed above, who envisage more substantive forms of governance than is envisaged by classical liberals, while recognising the need for sensitivity to value pluralism. They advocate levels of public goods provision and regulation of markets more substantive than classical liberals propose. This is a case for governance that recognises the epistemological challenges involved in delivering pattern-shaping goals. The epistemological argument is often strongly at play in their contributions, even though their central argument may be a normative one. Key examples are the work of Sen, Nussbaum and Anderson on equality, Rawls and Dworkin on justice and Wissenburg and Barry on environmental sustainability. The basis of such a case for governance emerging from these authors is the potential to establish a degree of widely shared common ground in support of key pattern-shaping principles such as those discussed above. As the Hayekian perspective highlights, these definitional debates are inseparable from the question of the institutional processes through which

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such norms are translated into practice. Addressing this latter question requires a close focus on the epistemological dimension of the coordination challenges involved in delivering policy goals. This vital pertinence of the epistemological argument for evaluating governance effectiveness has been picked up by relatively few commentators.34 A relevant observation is made by Jeremy Shearmur (1996, Chapter 5) who refers to a potential “post-Hayekian” research agenda that balances a recognition of the epistemological functions of markets with an appreciation of the significance of both potential market and state failures and the potential coordinative role of political institutions.35 The next two chapters turn to this institutional question. The Austrian conception of coordination, it is argued, can be detached from the market context within which it was developed and applied to understand non-market processes and their role within governance.

References Alkire, S. (2005). Valuing freedoms: Sen’s capability approach and poverty reduction. Oxford University Press. Anderson, E. (2007). How should egalitarians cope with market risks? Theoretical Inquiries in Law, 239. Anderson, E. S. (1999). What is the point of equality? Ethics, 109(2), 287–337. Anderson, T. L., & Hill, P. J. (2004). The not so wild, wild west: Property rights on the frontier. Stanford Economics and Finance. Anderson, T. L., & Leal, D. (2001). Free market environmentalism (Revised ed.) Palgrave. Arneson, R. (2003). Ronald Dworkin and luck egalitarianism: A comparison. In S. Olsaretti (Ed.), The Oxford handbook of distributive justice (pp. 41–64). Oxford University Press. Arneson, R. (2018). Four conceptions of equal opportunity. The Economic Journal, 128(612), F152–F173. Arneson, R. J. (1989). Equality and equal opportunity for welfare. Philosophical Studies: An International Journal for Philosophy in the Analytic Tradition, 56(1), 77–93. Ashe, S. D., & Nazroo, J. (2016). A qualitative analysis of the 2015 race at work survey.

34 As discussed in Chapter 3, Andrew Gamble (1986) does briefly comment on this potential. 35 In Chapter 5 he sets out such a research agenda.

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CHAPTER 5

Coordination Beyond the Market

The normative case for shaping market outcomes through governance, as presented in Chapter 4, raises the question of how we might understand and assess the institutional arrangements for the processes of steering this involves. This chapter addresses these questions by setting out in conceptual terms the potential for institutions and processes beyond market exchange to address the coordination challenges involved in delivering policy goals. Hayek’s work in particular, as reviewed in the previous two chapters, can be taken as prompting the vital question of the capacity of policymaking processes to facilitate the communication and discovery of knowledge required to deliver pattern-shaping policy goals. The way this epistemological challenge is addressed under different governance arrangements is of core importance for governance evaluation. Still with a focus on tasks of first order coordination, this chapter highlights the potential for various types of non-market process to fulfil this role of shaping market outcomes. This potential is under-explored in classical liberal reflections on the capacity of political and policy processes to address complex problems. Market processes are shaped by institutions and rules that are established through non-market processes. Such rules in turn reflect social agreements, norms and customs which can themselves be fostered by markets where this institutional context is widely understood and relatively consistent and stable (Ikeda, 2004; Storr, 2008). In this respect, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_5

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market and non-market processes are inextricably connected or ‘entangled’ (Wagner, 2016). This entanglement has become especially apparent in contemporary governance with private sector actors often having an important role in processes of policy formation and delivery. However, as this chapter explores, non-market processes of different kinds can coordinate in first order terms the attainment of outcomes in a way that cannot be reduced to market-driven forms of coordination as understood by the Austrian School. Authors from a range of different fields from within and beyond the Austrian tradition have suggested this potential, as reflected in the range of contributions that are drawn upon. Section 5.2 reviews scholarship on network governance, which is shown to not only recognise the epistemological dimension of coordination challenges but also suggest that the decentralised, pluralistic character of networks means they can serve as a way of fostering coordination, knowledge sharing and mutual learning in processes of policy delivery. However, overall, compared with the motivational dimension of institutional analysis, this epistemological dimension has been the subject of only secondary attention in the network governance literature. The chapter then turns to other contributions both from within and beyond the Austrian tradition. These contributions, it is suggested, offer a closer focus on this epistemological dimension and seek to conceptualise the coordinative potential of non-market processes. Some of these contributions focus on democratic politics in general terms, while, as is explained, others consider the interfaces of market and non-market processes that are integral to how policies are delivered through governance. As a starting point for the conception of non-market coordination offered here, Section 5.3 reviews philosophical understandings of the relationship between norms and the social processes through which they are translated into practice. These further contributions are situated in a social liberal tradition, with the work of Sen being of key importance. Rather than approaching such questions in ideal philosophical terms, the need is emphasised for them to be addressed as ongoing processes of dialogue and discovery. This approach exhibits sensitivity to the complexities and epistemological challenges involved in defining norms in a way that can guide practical action. The emphasis is upon drawing from the expertise and locally situated knowledge of a range of stakeholders. Indeed, the account provided of this process is reminiscent of the Hayekian conceptualisation of coordination. This suggests the potential to deploy

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the Austrian conceptualisation of coordination to understand how nonmarket, political processes might foster such a social process of identifying shared goals and values. The chapter then moves on to further explore this potential, considering how a range of non-market processes and institutions might be understood as possibly fostering coordination in somewhat analogous terms to markets. This review includes contributions from both within and beyond the Austrian School. As Section 5.4 explores, the significance of the Hayekian epistemological critique of the hierarchical state is recognised by several authors from the left who emphasise the capacity of institutions and forms of organisation beyond state and market, both within the firm and in wider civil society, to foster social learning and coordination. While not directly engaging with the concept of governance, these discussions of various forms of non-market coordination stress the market-centric character of Hayek’s approach. They serve to highlight the need for exploration of the interface between market and non-market processes within governance. As reviewed in Section 5.5, contributions from democratic theory suggest significant potential for understanding democratic politics as fulfilling a coordinative role. Indeed, such a suggestion is evident in scholarship based within or drawing from Austrian and Bloomington traditions. Hayek’s work, it is highlighted, does at least suggest that democracy might be understood as performing a coordinative role that is in some significant ways analogous to that of markets. Hence, it is argued, Austrian concepts can serve as a basis for assessing nonmarket forms of institutional coordination. However, these contributions tend to focus on the functions of democratic politics in general, rather than exploring governance understood as a process of policy delivery. Section 5.6 explores how the concept of entrepreneurship, of pivotal importance for Austrian School scholarship, can enable a closer focus on understanding the range of non-market processes that shape contemporary governance. While the Austrian treatment of entrepreneurship emerged from their conceptualisation of the market process, the concept, it is explained, can be used to assess the coordinative potential of a range of non-market institutions and processes.

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5.1

Networks and Knowledge

Network governance literatures often suggest there is potential for achieving coordination through networks. Problems of knowledge, so fundamental to the distinctive, heterodox understanding of coordination being utilised here, are also often evident in the literature. However, the close interconnections between coordination challenges and the questions of knowledge focused upon here are generally not discussed. Frequent suggestions are made that networks might potentially offer a way of addressing epistemological challenges, drawing together information and knowledge from a range of different actors (Huxham & Vangen, 2005; Innes & Booher, 1999, p. 5; Kooiman, 1993, p. 4; Kickert et al., 1997, pp. 57, 171; Mayntz, 1993, pp. 13–16; O’Toole, 1988; Powell, 1990; Scharpf, 1999, p. 20; Sørensen & Torfing, 2016, p. 448), capturing tacit knowledge (Kenis & Schneider, 1991, pp. 41–2) and facilitating learning (Agranoff & McGuire, 2001; Alter & Hage, 1993). The earlier work of Hugh Heclo (1974, 1978), emphasising that policy decisions involve “collective puzzlement,” had previously highlighted the epistemic dimension of policy problems. While Heclo’s work focused on how different actors share and communicate knowledge, his primary focus, reflecting the political science tradition within which his work was situated, was upon developing descriptive and explanatory analysis of the policy process, rather than considering the effectiveness of different policy approaches in response to complex problems. The specific questions prompted by the Hayekian understanding of coordination, concerning the capacity of decision processes to address the complex choices and trade-offs policy problems involve are generally not explored directly. Socio-cybernetic theory has influenced the way some governance theorists, for example Jan Kooiman (1993), articulate this epistemological dimension of governance and policy processes relating to the use of information and knowledge (Rhodes, 1996). The word ‘cybernetics’ shares with ‘governance’ the same root word in Greek, and the two concepts are intimately connected (Peters, 2014, p. 124). Theoretical approaches in cybernetics, influenced by systems theory, focus upon analysing the communication and flow of information in social systems.1 Both systems theory and cybernetics strongly emphasise the importance of “feedback,” understood as a means of “signalling” to decision-makers that 1 Hayek was aware of early writings in cybernetics (Hayek, 1973, p. 37, 1976, p. 125).

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some adjustment in the system is needed (Peters, 2014). The cybernetic perspective views social changes, including the occurrence of social, economic or environmental problems, as ‘feedback’ in this sense. Political science scholarship that largely preceded the ‘turn to governance’ in political science had previously been influenced by cybernetics, most notably Karl Deutsch (1966), David Easton (1965) and Andrew Dunsire (1986). These authors analysed the different ways in which political systems and processes can potentially fulfil functions of information collection and processing, performing a steering role in response to societal feedback. The governance perspective articulated by Kooiman (1993) is similarly systemic, exploring the vital importance for the policy process of horizontal interactions between multiple actors both within and beyond government, which are shaped by their contrasting understandings and knowledge, being intertwined with their contrasting values and interests. More recently, following the influential work of Haas (1992), the sharing of knowledge and expertise in relation to particular policy areas across a range of geographical and policy contexts has been understood in terms of ‘epistemic communities.’ Numerous policy process studies analyse the role of these communities and their inter-relationships with policymakers. These studies often provide important insights into the strengths and limitations of governance arrangements in specific cases. For example, divisions between or lack of involvement of some epistemic communities in the policy process can lead to fragmented, incoherent governance and policy.2 However, the focus, reflecting that of political science more generally, as set out in Chapter 2, is upon the policy process rather than considering outcomes of the decisions taken. The epistemological dimension of policy challenges is well recognised and the subject of more sustained reflection in some contributions to the network governance literature. However, by comparison with the very extensively explored motivational dimension, the level of focus upon knowledge problems has been secondary. Furthermore, there tends to be no clear attempt to distinguish between market-driven and non-market processes

2 In a study of EU security policy, Faleg (2012) identifies cleavages between particular epistemic communities which disrupt policy coherence. The analysis by Adams et al. (2014) of spatial planning in the Baltic region finds that some professional communities are disconnected from the governance process that has consequently become fragmented, undermining policy coordination.

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within networks. A focus on this distinction is vital for evaluating different forms of governance and networks in terms of fostering coordination. In conceptualising non-market coordination, the focus of this chapter, there is a need to turn to a range of contributions in political economy and political theory that offer a closer focus on understanding the goals and processes that such non-market coordinative processes involve. Section 5.3, centring upon the contributions of Amartya Sen and Martha Nussbaum, discusses the social processes through which policy goals can become established. Sections 5.4–5.6 then turn to explore literatures within and beyond the Austrian tradition in political economy on how different types of political and other non-market processes can be understood as fostering coordination and discovery.

5.2

Policy Goals and Processes of Discovery

In the debates reviewed in Chapter 4 about how to define pattern-shaping policy goals such as meeting human needs and promoting individual autonomy, some contributions advocate an approach that is primarily social. This approach contrasts markedly with the ideal approaches that, as discussed in Chapter 4, are prominent within political philosophy. The work of Amartya Sen is of key importance in setting out such an approach and drawing out its implications for the processes of policy formation. Indeed, his work has served as the foundation for a range of further contributions in a similar vein, some of which are reviewed further below. The approach incorporates a recognition of the complexities involved in the delivery of goals. The need is suggested for a discovery process, involving an ongoing search for suitable means of translating norms into practice in a way that balances multiple decision criteria in the context of variation and change across different societies. On this view, such a discovery process might be considered analogous to the discovery process fostered by markets. For achieving a flexible, responsive approach to operationalising policy goals for complex, pluralistic societies, Sen proposes that social welfare policies be defined through open, participatory processes that draw from those whose lives they shape. He proposes such dialogue in terms of capabilities. Sen, whose work has a strongly practical orientation, does not aim to propose a particular ‘ideal’ set of capabilities as most valuable. This would, as Gustavo Pereira (2006) comments, be a perfectionist exercise. Rather, the ‘capabilities approach’ is proposed as a conceptual

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currency for fostering understanding of varying accounts of the good life, enabling comparisons of policies for promoting capabilities across different national and local contexts. Capabilities, as a conceptual tool formulated by Sen, are closely connected to the concepts of equality of opportunity and autonomy. As discussed in Chapter 3, these concepts, like the goal of ecological sustainability, might be similarly treated as a framework for assessing ongoing processes of choice and discovery in the face of a complex range of economic dimensions of choice. There are ambiguities in Sen’s philosophical method, which might perhaps reflect how his research spans both theoretical and empirical sides of political economy. Sen, though, does quite clearly refrain from endorsing a unique list of functionings or capabilities as “objectively correct” (Clark, 2005, p. 1346). He occasionally refers to the value of particular capabilities such as “being able to live long, escape avoidable morbidity, be well-nourished, be able to read, write and communicate and take part in literary and scientific pursuits and so forth” (Sen, 1983, cited in Clark, 2005, pp. 1346–1347). In contrast with Hayek’s emphasis on the strongly variegated character of value pluralism, Sen sees scope for a significant, even if only partial degree of consensus about the value of functionings. “(T)here might well be considerable agreement as to what functionings are valuable” (Sen, 1988, cited in Clark, 2005, p. 1346), he comments. For Sen, the capability approach is intended as a framework for establishing the nature and extent of such a ‘partial consensus’ (Clark, 2005). As discussed in Chapter 3, such a socially orientated approach differs markedly from ideal theory. Sen’s proposals for a more substantive form of welfare state, as Alkire (2005, p. 10) puts it, are “more concerned with ruling out ‘patently unjust’, inefficient, or otherwise unacceptable possibilities” than he is with defining perfect outcomes. Some authors treat Sen’s concept of ‘capabilities’ as a normative ideal, thus overlooking his clear acknowledgement that capabilities are not necessarily of value in themselves and that his intention is for capabilities to serve as a currency for evaluation. For example, Arneson (2006) rejects Sen’s capability approach on the grounds that not all capabilities are of value, hence they need to be evaluated in terms of a more substantive objective such as ‘well-being.’ In the case of an anorexic person who is fully informed and has the capability of understanding the consequences of their condition, Arneson argues that “paternalistic restriction of liberty for the person’s own good” is still justifiable (Arneson, 2006,

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p. 38). Hence, Sen’s approach, he argues, provides insufficient leverage for evaluating different kinds of capabilities and functionings. Actually, rather than seeking to establish definite normative criteria for evaluating outcomes, Sen’s purpose is to propose a process through which such evaluation might be achieved. His proposals for identifying and evaluating capabilities can be viewed as a more specific process for achieving what Rawls terms an ‘overlapping consensus,’ as the following passage suggests: “The primary claim is that in evaluating well-being, the value-objects are the functionings and capabilities. That claim neither entails that all types of capabilities are equally valuable, nor indicates that any capability whatsoever—even if totally remote from the person’s life—must have some value in assessing that person’s well-being… The relative valuation of different functionings and capabilities has to be an integral part of the exercise” (Sen, 1992, p. 46). Once the incompleteness of any social agreement on the relative value of different capabilities is recognised, the question of identifying a commonality of ends becomes explicitly one of scale. This highlights the need for detailed attention to the nature and extent of scales of agreement and variation between how different actors evaluate governance and policies. Far from being embarrassed by this fact that any consensus is likely to be partial and incomplete (Sen, 1992, pp. 48–49), Sen sees this recognition of incompleteness as a strength of his process-based account of the emergence of values. Incomplete normative conclusions, he suggests, can be “consistent and combinable with several different substantive theories” (Sen, 1993, p. 48).3 Such a process-based approach is evident in the work of Martha Nussbaum, building upon Sen’s contributions. Nussbaum seeks to deploy the approach more substantively to propose criteria for evaluating outcomes in international development. Her purpose in doing so is to set out a feasible political project. Somewhat like Arneson, she considers that Sen’s capability approach lacks sufficient substance on the question of

3 Such partial agreements can, Sen suggests, be defined in terms of a ‘dominance partial

ordering’ of alternatives, a concept that Sen illustrates by means of the following example: “if there are four conflicting views claiming respectively that the relative weight to be attached to x vis-à-vis y should be 1/2, 1/3, 1/4, and 1/5 there is, then an implicit agreement that the relative weight on x should not exceed 1/2, nor fall below 1/5” (Sen, 1992, p. 46).

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which particular capabilities are of value. Nussbaum offers a listing of human capabilities that she holds can potentially be the subject of “an overlapping consensus among people who otherwise have very different conceptions of the good” (Nussbaum, 2000, p. 5, 2011, p. 70).4 She explicitly supports this Rawlsian approach of seeking a ‘reflective equilibrium,’ through a Socratic, dialogical process, principles that reflect the structure of socially shared judgements about social justice (Nussbaum, 2011, p. 77). Reflecting a liberal recognition of the spatio-temporal variability of human ends, she does not claim that her listing of capabilities is definitive, allowing that her list “can always be contested and re-made” (Nussbaum, 2011, p. 77). She agrees with Sen about the importance of establishing processes, involving public participation, for specifically defining capabilities that will enable people to achieve functionings that are widely agreed as valuable in particular social and cultural contexts. Nussbaum does not directly address the epistemological challenges that might be involved in operationalising a capabilities approach. However, her clear focus is on defining a set of guiding principles for a politically feasible project (Nussbaum, 2011). Subsequent debates have ensued between Nussbaum, with her project of defining such ‘political liberalism,’ and her critics such as Arneson whose focus is upon defining egalitarian norms in ideal terms. Arneson criticises the imperfections of Nussbaum’s approach that he refers to as ‘sufficientarian’ for focusing on defining a minimum level of welfare that is a sufficiently satisfactory outcome for all individuals. Faced with a choice, Arneson points out, between bringing a single individual from just below the minimum threshold level of welfare to just above it or very significantly raising the welfare of many people already above this line, Nussbaum is compelled to take the former option. For Arneson, following Nussbaum’s principle in this case would therefore result in a welfare loss. Yet, the focus of Nussbaum on defining a feasible political project means that her work does not have the same purpose as Arneson’s equal opportunity for welfare, which focuses on precisely defining an ‘optimal’ normative ideal. Like the heterodox political economy approaches in Chapter 2, the aim of Nussbaum’s proposals is not to achieve such optimality. Rather, her purpose is to identify a set of capabilities that 4 Nussbaum supports Rawls who argues that such an overlapping consensus need not actually exist at present but there must at least be a “plausible path” towards this (Nussbaum, 2011, p. 91).

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are fundamental for human flourishing while allowing for flexibility in how these capabilities are prioritised and operationalised across different social contexts (Kaufman, 2005).5 It is not the purpose here to reach a definitive conclusion on Nussbaum’s proposals but rather to highlight this approach, which draws from Sen, to establishing criteria for the comparative evaluation of actually existing socio-economic systems. A further contribution taking such a process-based approach to establishing normative principles for evaluating outcomes is that of Len Doyal and Ian Gough (1991). They offer an explicitly ethical theory of human needs on the grounds that it can potentially command an overlapping consensus.6 Their theory incorporates a twin commitment to providing for physical survival and securing autonomy, two objectives that, it is suggested, constitute basic preconditions for any individual action in any culture. From these two core human goals, Doyal and Gough infer a list of clearly defined and measurable categories of goods which can be considered needs. Their list extends well beyond the most basic survival needs to include, for example, a more substantial role for the welfare state in providing health and educational services than is accommodated within Hayekian classical liberalism. With their emphasis on the need to extend such concern over human welfare to future generations and their emphasis on environmental justice, green political theorists also position themselves on similar normative ground. Hence, Doyal and Gough’s work shows how taking a process-based approach to defining generic human needs, the concept shares significant common ground and hence dovetails with other normative principles, like equality of opportunity, justice and sustainability. The question of how principles such as social justice and sustainability translate into practice, concerning the specific levels and kinds of welfare provision or environmental protection they entail, will inevitably be contested. To some degree such contestation will reflect fundamentally different, possibly irreconcilable norms. For example, some philosophers, question how far justice requires the state to provide welfare services to 5 Note that it is beyond the scope here to seek to resolve this debate. 6 Responding to Hayek’s critique of social justice, Raymond Plant had previously

suggested a similar approach, asking: “Is it really the case in the UK that there is no agreement that income, health, nourishment and housing are not part of basic needs, or the generic conditions of action? If this is claimed it would be interesting to see the empirical evidence on which such a claim is based” (Plant, 1991, p. 82).

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compensate for or alleviate the negative impacts of the decisions and risks that individuals might choose to take. Others place a primary emphasis upon a commitment to a universal entitlement of all citizens to a certain level of support, regardless of any poor decisions they have taken.7 As we have seen, such fundamentally different normative views also arise in the context of debates about environmental sustainability. These debates take place between those who define sustainability in terms of ecological services that benefit humans and deep ecologists who challenge the former approach as inherently anthropocentric. Aside from these fundamental normative differences, policymakers face challenges, as highlighted by the Austrians, of how to navigate through the complex choices and trade-offs involved in translating them into practice. Sen’s work highlights the importance of this process of navigation. Unlike the Austrians though, his work suggests potential for this coordination to be achieved through non-market institutions. As further discussed below, there is potential for such non-market coordination to be understood in terms analogous to the Austrian account of market coordination. There is insufficient acknowledgement of this potential in classical liberal scholarship.

5.3

Social Coordination Beyond the Market

Although the left in general can be viewed as having tended to overlook the significance of the Austrian case for markets with its epistemological focus, some authors from a leftist or social democratic tradition turned to Hayek’s work in considering the future of socialist ideas, particularly in the years immediately after the end of The Cold War (Griffiths, 2014). Their contributions explore how a range of institutions and actors beyond both our formal democratic systems and the market can be viewed as performing a coordinative role in society. Hayek’s own understanding of market coordination was based on a recognition of how, beyond the market, language, cultural norms and mores form the basis of social order (Boettke & Coyne, 2005; Vanberg, 1986). Responses to Hayek from the left go further, emphasising the capacity for various kinds of non-market processes to address complex allocative choices in a way that is insufficiently acknowledged by the Hayekian classical liberal position. Key cases in point are the contributions of Hilary Wainwright (1994) and John 7 As an example of such debate, see, Anderson (1999) in response to the luck egalitarianism of Rakowski (1991).

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O’Neill (1998). Both find common ground with Hayek in their critique of the positivist treatments of knowledge often found in the Marxist and Fabian traditions.8 They emphasise that non-market institutions can foster trust and cooperation while also fulfilling the epistemological functions of facilitating the use and discovery of locally situated organisational and productive social knowledge (Wainwright, 1994). While neither author uses the language of ‘governance,’ they offer important insights for achieving a balanced assessment of how both non-market and market processes might foster coordination within contemporary governance. Wainwright’s work, with a political and sociological orientation, explicitly advocates a form of socialist economy, while O’Neill’s contributions are positioned within the philosophy of economics. A shared starting point for both authors is a recognition of the subjective, spatio-temporally bounded character of knowledge highlighted by Hayek. Each has a particular interest in Hayek’s understanding of the tacit character of much economic knowledge.9 Their emphasis on the importance of locally situated knowledge leads them to question traditional socialist or social democratic commitments to a centralised state. Both O’Neill and Wainwright challenge what Wainwright refers to as Hayek’s “reliance on price as the means of communication” (Wainwright, 1994) and his individualistic view of market exchange as the only way of capturing and communicating economic knowledge (Wainwright, 1994). The generation and communication of knowledge, they emphasise, is a social process that can be achieved through non-market institutions and practices. Wainwright emphasises how workers situated within the firm build up tacit knowledge through cooperative activity. This potential for coordination within the firm is indeed relatively neglected by Hayek and the Austrian political-economic tradition subsequently (Langlois, 1992), though, as

8 This is made clear in Wainwright’s reference to the socialist calculation debate (Wainwright, 1994, pp. 52–3) and her expression of sympathy with the departure from positivism evident in 1960s radical movements (Wainwright, 1994, p. 268). O’Neill’s more philosophically orientated work provides a detailed elaboration of this common conceptual ground that critics of the market might share with Hayek in departing from positivism (O’Neill, 2004). This was evident, for example, in the early models of central planning developed by socialist economists such as Oscar Lange and Abba Lerner, towards whom Hayek directed his critique in the socialist calculation debate. This was also evident in the tendency for Fabian and Bolshevik writings and practices to assume a central state as holding the knowledge required for achieving social goals. 9 Wainwright (1994, p. 52); O’Neill (2006, p. 75, 2012).

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Oliver Williamson (1988) suggests, this may be true of economics as a discipline more generally. Non-market forms of organisation, such as trade unions and wider social movements, are also vital sources of such knowledge. Wainwright (1994) points to the market-orientated character of the examples of tacit economic knowledge discussed by Hayek that tend to focus on the expertise of the individual entrepreneur.10 Wainwright draws from a significant breadth of evidence and indeed personal experience to support this account. O’Neill makes a parallel point, by highlighting scientific associations as an example of non-market coordination (O’Neill, 1998, 2012). Here, O’Neill refers to Michael Polanyi’s use of the field of science as a key, early illustrative example of a “spontaneous order” and which prompts his deployment of the concept of ‘polycentricity,’ a multi-centred, multi-layered system of decision-making (Polanyi, 1951), as discussed in Section 5.6 below. The significant capacity of non-market, social relationships and institutions to foster knowledge discovery, as argued by Wainwright and O’Neill amongst others (Burczak, 2007; Gamble, 1996; Shearmur, 1996), gives cause for questioning the strength of the Hayekian focus on coordination through markets.11 The conclusion these authors draw from this potential coordinative role of non-market institutions is that, as Theodore Burczak (2007) puts it, Hayek’s market liberal proposals fail to “withstand the scrutiny of his own epistemological perspective.” Yet the contributions of Burczak, Gamble, O’Neill and Wainwright do not address the wider question of how the governance arrangements through which the plans and processes of different firms and organisations might be coordinated to attain policy goals. While Wainwright (1994) recognises the need for an account of the potential for coordination through non-market organisation, her work does not in itself directly address this problem of coordination within governance. Hayek’s articulation of this challenge might indeed be market-centric in underestimating the capacity of non-market institutions to foster the development and discovery of

10 This is typified in Hayek’s famous article ‘The Use of Knowledge in Society’ where, as discussed in Chapter 3, he uses examples of various forms of entrepreneurship to highlight that economic knowledge is often tacit in character such as the shipper and the arbitrageur. 11 Langlois (1992), whose work is situated within the Austrian tradition, had earlier highlighted the potential for an Austrian analysis of social and governmental organisations. This potential seems to have since remained largely untapped.

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knowledge.12 Yet, the fundamental question that he raises, about how coordination can be achieved between the various organisations and individuals involved in governance, remains pertinent. The Austrian tradition itself offers conceptual resources for engaging with this question. As Section 5.5 explores, contributions in democratic theory, some of which draw from Austrian scholarship, suggest that democracy might be understood as a coordinative process. As discussed in Section 5.6, the concepts of entrepreneurship and innovation are of integral importance for understanding such potential coordination through governance.

5.4

Democratic Coordination

There is a sense in which democratic activities such as public debates and elections seem distinct from the processes of policy delivery through governance networks. Still, there are vital interconnections between them. As Sørensen and Torfing (2009, 2018) put it, representative democracy can ‘anchor’ the democratic legitimacy of networks. Democratic debates shape the policy goals that are often sought through networks, thus having a role in their coordinative functions. Furthermore, democratic theorists’ accounts of the coordinative role of decision processes beyond the market offer insights that might be applied to the policy process more broadly. Amongst democratic theorists, the Hayekian thesis advocating an extensive role for markets and questioning the capacity of democracy to fulfil a coordinative role has been the subject of relatively little direct discussion (Benson, 2018). However, a number of recent contributions in democratic theory do emphasise and explore the potential epistemological functions of democratic processes, given that knowledge is 12 Note that Hayek’s understanding of coordination through markets is not as reductionist as suggested by Wainwright in particular. Wainwright overlooks how Hayek’s conception of market coordination does at least allow a place for the communication and discovery of knowledge by economic actors within the firm, even though, as she points out, his work lacks discussion of this important social dimension of coordination. Hayek does tend to emphasise that it is the plans of the many individuals across society that are coordinated through markets (e.g. Hayek, 1945, pp. 83–89). However, this clearly does allow for the possibility of multiple individuals formulating and delivering plans together through direct communication and cooperation. Hence, in Law, Legislation and Liberty, Hayek (1973, p. 46) states that “(t)he family, the farm, the firm, the corporation and the various associations, and all the public institutions including government, are organizations which in turn are integrated into a more comprehensive spontaneous order.”.

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dispersed across society (Anderson, 2006; Bohman, 2006; Landemore, 2013; Ober, 2008). Elizabeth Anderson (2006) offers a Deweyian understanding of democratic processes as fostering ongoing learning through experimentation amongst the actors involved with their diverse forms of knowledge. James Bohman (2006) similarly highlights the potential for democracy to address epistemological challenges by drawing from such a plurality of perspectives that reflect contrasting circumstances and practical knowledge. For Josiah Ober (2008), such epistemic functions of democracy, including knowledge aggregation, coordination and codification, bear some conceptual resemblance to the coordinative functions of markets.13 Helene Landemore (2013) emphasises how “collective intelligence” can emerge from democratic processes that are able to draw from a plurality of epistemic perspectives. Building upon such contributions, Michael Fuerstein (2008) articulates the question of the capacity of democratic politics to coordinate and draw from distinct fields of knowledge as a core challenge for governance. He refers especially strongly to the challenge of complexity as highlighted by Hayek. Prior to the final decision on policy options, he points out, is the challenge of agenda-setting where policymakers must narrow down the multitude of policy problems and alternatives that they will address. Charles Lindblom’s much earlier work, somewhat similarly and with particular depth, suggests the capacity of democracy to foster coordination. His emphasis upon knowledge gathering and discovery as integral to coordination is especially reminiscent of the Hayekian perspective, even though he makes very little direct reference to Hayek (Greenwood, 2016). Like contemporary governance perspectives, Lindblom emphasises the range of different actors involved in the political process. He is concerned with both political debate and the processes through which policy goals are translated into practice. Rather like Hayek, Lindblom’s understanding of political processes is a notable shift away from the centralised, hierarchical view of policymaking (Lindblom, 1959, 1965). His account of the “partisan mutual adjustments” (PMA) (Lindblom, 1965) that shape political and policy processes is reminiscent of the adjustments, that Leon Walras referred to as ‘tâtonnement,’ through which 13 Ober’s discussions draw particularly from a case study of participatory democracy in Ancient Athens. While recognising the significance differences between democracy and markets, he comments that participatory democracy behaves more like a market than a planning board (Ober, 2008, p. 18).

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markets respond to shifts in demand and supply. PMA, which involves actors continually adjusting their choices to those of each other, is a process that captures the knowledge and values of a range of different actors who have relevant, albeit not comprehensive, knowledge of policy problems, enabling them to learn from each other’s knowledge and expertise (Lindblom, 1965). Lindblom’s concept of PMA is applicable to understanding processes of policy delivery, as well as the democratic processes that lead to policy formation. Policymakers sometimes adjust their position in response to the shortcomings highlighted by those affected by the policy. Those values that are widely shared, Lindblom argues, will tend to carry more weight during the PMA process (Lindblom, 1965, pp. 242–243). Lindblom suggests that in many contexts PMA will outperform centralised approaches in terms of achieving coordination (Lindblom, 1965, pp. 137–152). Lindblom makes clear that the perspectives of different actors interacting within PMA will inevitably often reflect their interests, as well as their wider values. To give an obvious example, firms lobby for changes that accord with their commercial interests. Hence, there are important motivational and incentives-related drivers within the PMA process, as well as epistemological functions being fulfilled. Different actors articulating and mutually adjusting these interests, as well as their normative values and goals, Lindblom makes clear, can fulfil a coordinative role. Decision processes will to an extent reflect a range of stakeholder demands before a final decision is taken. Even where interests differ, they might still discover policy measures on which they can mutually agree (Lindblom, 1965, p. 241). Some scholarship in the Bloomington and Austrian traditions has suggested the potential for democratic, political institutions to fulfil a coordinative role. The Ostroms’ work does not centre very explicitly upon coordination, at least in the specific sense understood by the Austrians. However, they have a close concern with how institutional arrangements can foster cooperation and problem solving. Vincent’s work highlights the epistemological challenges involved in institutional adaptation (Ostrom, 1993), and how they can be addressed through political processes, especially in the context of a federal system (Ostrom, 1991). His overarching discussions highlight the need for further, more detailed, empirically orientated studies on such a role for democratic politics, which might be understood as potentially coordinative. As further explained in Chapter 6, Elinor carried out extensive, detailed empirical case studies of governance

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in a range of contexts, including urban governance and most famously in environmental and resource management. However, her primary focus in these studies is upon the motivational rather than the epistemological dimension, especially relating to questions of trust and incentives. Some scholarship in the Austrian tradition and even the work of Hayek himself suggests the potential for politics and democracy to be understood as fulfilling a coordinative role that is somewhat analogous to the Hayekian account of market coordination. An explicit suggestion of this potential is made by Michael Wohlgemuth (2002a, 2002b).14 Wohlgemuth comments that while neoclassical economic analysis has been applied to political analysis by public choice theorists, the need for a parallel, yet contrasting, Austrian theory of politics remains open (Wohlgemuth, 2002a). His discussion suggests that central concepts in the Austrian understanding of market processes such as epistemic limits, uncertainty, entrepreneurship and spontaneous order can also be applied to understand political processes (Wohlgemuth, 2002a, 2002b, p. 223). Politics, like the market, he suggests, can be understood as a process of discovery (Wohlgemuth, 2002b). From an Austrian standpoint, there are clearly important limits to how far an analogy can be drawn between democratic and market processes. Consumption of the goods provided by governments of any kind, he argues, is forced (Wohlgemuth, 2002a, p. 225), and they are subject to a monopolistic form of provision. Yet, he suggests, Austrian understandings of the epistemological limitations of individuals, the mutability of their preferences, as well as the importance of knowledge discovery and entrepreneurship in the face of uncertainty, are of pertinence for analysing the political sphere. Such an Austrian perspective towards politics and democracy as processes of opinion formation and discovery would, he emphasises, differ markedly from the standard public choice treatment of politics as a process of aggregating given preferences (Wohlgemuth, 2002a, p. 227). Another key contribution in this regard is that of Gus DiZerega, whose work in political theory, although not specifically situated in the 14 A similar point is made, though more implicitly, by Samuel De Canio (2014). He points out that elections and markets share some analogous features, involving competition for profits and votes respectively, while emphasising the epistemic problems faced by electoral processes in particular as a way of determining resource allocation. More recently, Aligica et al. (2019) refer to the potential for Hayekian concepts to be applied to understanding the non-market sphere, though their primary focus is upon the Ostroms, as discussed in Chapter 6.

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Austrian tradition, highlights in Hayekian terms the potential for democracy to perform a coordinative role in the face of complexity. Democracy, he argues, is a distributed process that facilitates coordination between groups and individuals who are each seeking to pursue their goals and projects. Like the market, he writes, democracy is a dynamic process involving the “mutual adaptations of all participants responding to negative and positive feedback generated by the ensemble of actions by all participants” (DiZerega, 2001, p. 764). Hence, civil society might be understood as fostering “spontaneous orders” in an analogous way to markets (DiZerega, 2011). Such potential is also suggested by Hayek and Vincent Ostrom’s heterodox accounts of the challenge of coordination, explored by this book. Hayek’s work suggests this potential analogy between democracy and markets as processes of coordination and discovery. He was rather ambivalent about democracy that, he argued, should ultimately be judged by its results (Hayek, 1960). Public choice arguments of the kind highlighted by Wohlgemuth are present in Hayek’s critical assessments of modern democracy (Hayek, 1979). With his emphasis on the complexity and pluralism of society, Hayek suggests democratic government only really works where there is real agreement of a majority (Hayek, 1939, p. 205). Nonetheless, Hayek does extend his consequentialist, epistemological argument for market liberties to a defence of political liberty. His case for democratic rights such as freedom of speech and association is somewhat reminiscent of his theory of the market process. Like the market, democratic rights accommodate a plurality of perspectives, offering protection against the ‘coercive, monopolistic, and exclusive’ (Hayek, 1960) will of the majority: The ideal of democracy rests on the belief that the view which will direct government emerges from an independent and spontaneous process. It requires, therefore, the existence of a large sphere independent of majority control in which the opinions of the individuals are formed (Hayek, 1960). Democratic rights, he argues, enable alternative viewpoints to develop. Hayek concurs with De Tocqueville’s view that it is “the only effective method of educating the majority” (Hayek, 1960). He comments that “it is only because the majority opinion will always be opposed by some that our knowledge and understanding progress” (Hayek, 1960). This is because:

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“In the process by which opinion is formed, it is very probable that, by the time any view becomes a majority view, it is no longer the best view: somebody will already have advanced beyond the point which the majority have reached. It is because we do not yet know which of the many competing new opinions will prove itself the best that we wait until it has gained sufficient support… New views must appear somewhere before they can become majority views” (Hayek, 1960).

Hayek refers to the need to “encourage the interpersonal process of the exchange of opinion from which better knowledge can be expected to emerge” (Hayek, 1978). Democracy, he suggests, does not necessarily yield truth at a given point in time but is a process of discovery (Hayek, 1960, p. 175). From the perspective of Wohlgemuth and DiZerega with their suggestion of an Austrian theory of politics, Hayek’s account of the process of political exchange could be taken further. In an analogous way to the prices generated by markets, the insights and arguments offered by participants in democratic debate might be viewed as performing a guidance function, capturing the contours of choice facing policymakers. As posited by Di Zerega and Lindblom in particular, politics and policymaking can serve as ways of addressing the challenge of coordination with its fundamental epistemological dimension. This suggestion of the potential coordinative role of democratic politics is perhaps more strongly evident in Vincent Ostrom’s treatment of the role of political processes in addressing contested collective challenges. He refers to the possibility of deliberately organising the “structures and processes of government” so that they “facilitate the processing of conflicts in an effort to achieve conflict resolution.” “In such an approach”, he continues, “efforts would be organized to elucidate information, consider alternatives, and facilitate innovations as means for resolving conflict” (Ostrom, 1990, p. 46). A process of different stakeholders articulating their views and interests, considering the “patterns of interdependency” between them, he holds, can help to clarify the structure of problems, thus potentially helping to achieve “more constructive” resolutions (ibid.).

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These contributions thus suggest that there is scope to draw from heterodox understandings of coordination challenges to assess a range of different institutional arrangements and non-market processes. Some of the contributions discussed above, such as those of DiZerega and Wohlgemuth, focus on the potential for democratic politics to foster coordination. In general though, classical liberal scholarship drawing from heterodox traditions to engage with questions of institutional robustness tends to lack an explicit acknowledgement of this possibility of coordination through politics. More attention is paid by the classical liberal tradition to how heterodox understandings of coordination can be used to assess processes of institutional adaptation, which are not themselves reducible to market exchange. This reflects the close attention that the Ostroms and the Bloomington School gave to such institutional analysis, which is of fundamental importance for understanding contemporary governance. Following Lindblom and departing somewhat from the focus of classical liberals, we might also view the pluralistic processes that shape policy delivery, a further, vital part of governance, as a form of coordination. Hence, there are a range of contributions exploring the potential for coordination beyond the market. These are grounded in heterodox political economy yet not all wedded to classical liberal views, suggesting how a variety of institutional arrangements beyond the market can foster coordination. Section 5.5 explores this possibility further, with reference to the concept of entrepreneurship.

5.5

Policy Entrepreneurship

As discussed in Chapter 3, innovation is of integral importance to achieving ongoing coordination in the context of socio-economic change, as is strongly emphasised by the Austrian conception of the market process. Just as innovation is vital to the production of goods and services, so it is to policymaking. Indeed, literatures on recently emerging forms of governance emphasise the variety of institutional arrangements and policy tools through which policy actors seek to steer markets. An insightful emphasis upon the importance of entrepreneurship as a driver of innovation and responsiveness to change is a hallmark of the Austrian School (Kirzner, 1978) and is also evident in the Bloomington tradition (Ostrom, 2005). The Austrians stress the central importance of the

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concept to processes of coordination. ‘Entrepreneurship’ is a key example of a concept that, while articulated by the Austrians through their account of market coordination, can be detached from this context and applied to understanding the role of non-market actors in the policy process. Away from the Austrian tradition, various authors in policy studies, including within the Bloomington tradition, have highlighted the potential for public and third sector actors, to adopt an entrepreneurial role in initiating policy change (Alvord et al., 2004, p. 262; Klein et al., 2010; Mintrom & Norman, 2009; Oakerson & Parks, 1988). Especially influential has been the work of John Kingdon, highlighting the role of policy entrepreneurs in linking potential policy solutions to problems (Kingdon, 2014), “softening up” different publics, stakeholder and policy communities for policy proposals (Kingdon, 2014) and then taking advantage of windows of opportunity for promoting them. Various other authors have similarly emphasised the importance of such political entrepreneurship. Richard Wagner (2007) discusses the significance of the entrepreneurial initiation of projects within politics, which involves establishing and developing connections between groups, taking advantage in shifting constellations of special interests. Jocelyn Crowley (2003) emphasises the importance of time in understanding these impacts of entrepreneurship, which can take decades to achieve. These studies explore how successful entrepreneurship can often require a range of skills in negotiation, including the capacity to establish connections (Kingdon, 2014), negotiate, use rhetoric (Crowley, 2003) and be persistent (Crowley, 2003; Kingdon, 2014). For Michael Mintrom and Phillipa Norman, the study of the interactions between policy entrepreneurs and their specific policy contexts is a key area with need for further research (Mintrom & Norman, 2009). In highlighting the role of entrepreneurship in shaping processes of institutional adaptation and policy delivery, these contributions suggest the potential for heterodox conceptions of entrepreneurship to inform our understanding of forms of coordination beyond the market. An Austrian conceptualisation of entrepreneurship can complement these contributions. Hayek himself does not explore this possibility of viewing non-market actors, including politicians and policy actors, as potential entrepreneurs.15 More strongly than Hayek, the work of Joseph 15 In contrast with his view of entrepreneurial expertise in the economic sphere, Hayek sees the role of the politician as being to reflect established opinion rather than to engage in the development of innovative ideas (Hayek, 1960). Indeed, Hayek tended to view

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Schumpeter and Israel Kirzner on entrepreneurship, also educated in the Austrian tradition, does point to this possibility. The conception of entrepreneurship presented by both authors is presented in abstract terms that are not specific to market-based activity (Shockley & Frank, 2011), as has been recognised within the public entrepreneurship literature (Shockley & Frank, 2011; Swedberg, 2006, 2011). Each highlights different features of entrepreneurial activity (Martin & Thomas, 2013). Kirzner develops a ‘cognitive’ theory,’ defining entrepreneurship as an alertness to, and recognition and discovery of, opportunities. Schumpeter by contrast has a behavioural focus (Martin and Thomas, 2013) famously defining entrepreneurship as the discovery of new economic combinations (Schumpeter, 1934, pp. 65–71),16 hence focusing on the outcomes of entrepreneurship as a bold, creative activity. Entrepreneurship in this sense, he emphasises can happen in a range of contexts, not just capitalist market economies. Entrepreneurs in the non-market sphere can be understood as fostering coordination in the Hayekian sense just like those operating in the market realm. Their role, as Schumpeter’s discussion highlights, is to seek appropriate means for translating generally defined goals into practice. Just as an Austrian conception of coordination can be used to understand the functions of democratic politics, so an Austrian treatment of entrepreneurship can provide insights into the role of politicians and policymakers. Schumpeter famously advocates a highly elitist brand of democracy in which the role of the public, viewed as largely irrational,17 politicians as an impediment to, rather than a facilitator of, coordination. For example, he writes: “The successful politician owes his power to the fact that he moves within the accepted framework of thought, that he thinks and talks conventionally. It would be almost a contradiction in terms for a politician to be a leader in the field of ideas” (Hayek, 1960). 16 Schumpeter’s The Theory of Economic Development, published in German in 1911 and English in 1934, included a chapter devoted to social change. Schumpeter (1934, p. 86) understood the entrepreneur as engaging in creative construction, a generative activity focused on new combinations, in both social and economic realms. 17 Schumpeter views most citizens as “infantile,” “primitive” and “irrational” (Schumpeter, 1954, p. 262). He comments that the public are capable of exercising rational judgement in their own private affairs such as their business dealings and personal lives. Indeed, voters can display a certain ‘definiteness of volition and rationality’ even in relation to some political matters, such as certain issues in local or even national politics that have a particular impact upon their own self-interest (Schumpeter, 1954, p. 260). However, in relation to most issues that arise in national and international politics, Schumpeter

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is confined to the occasional election of leaders. However, his discussion of politics suggests that his conception of entrepreneurship might be applied to understand the political sphere. Schumpeter highlights important parallels between democracy and markets as competitive mechanisms for the fulfilment of social ends, raising the possibility, at least in principle, of representatives in the political sphere performing the same kind of functions that Hayek highlights are performed by market entrepreneurs. Just as market entrepreneurs are driven by the profit motive to seek new ways of meeting consumer demands, competitive elections spur politicians in an ongoing search for means of translating the objectives of the public into practice through their decision-making.18 Schumpeter is concerned with the need for political representatives to address the challenge of complexity by selecting and prioritising certain policy issues before formulating legislative proposals for addressing them (Schumpeter, 1954). This ability to act as a generalist, drawing from the knowledge of a range of different specialists, is an important skill in itself. As discussed in Chapter 4, the challenge for politicians and policymakers is to establish goals that can command a broad degree of agreement and allow for a suitable degree of flexibility in how they are translated into practice. Establishing such goals requires entrepreneurial activity, navigating and bringing to the fore for stakeholders to consider, difficult choices involving uncertainties and complex trade-offs. Owing to his sceptical view of public opinion, Schumpeter is pessimistic about how far such an ideal of political representation can be realised in practice. He offers a warning, in which there are echoes of Hayek, about the dangers of the public becoming over-reliant upon politicians. The political market, he suggests, provides politicians with an incentive, in their presentation of policy proposals, to neglect the economic

writes, the public’s “sense of reality is completely lost,” resulting in a “reduced sense of responsibility” and “the absence of effective volition” (Schumpeter, 1954, p. 261). Hence, Schumpeter’s proposed model of the political process is one largely driven by political leaders, upon whom any form of collective action is dependent. He argues that we should drop the idea of ‘government by the people’ and ‘substitute for it government approved by the people’ (Schumpeter, 1954, p. 246). Numerous critics have since strongly objected to this (Held, 1996, pp. 193–5). 18 In articulating this line of thinking, Schumpeter (Schumpeter, 1954) emphasises that the “competitive struggle for the people’s vote” (Schumpeter, 1954) can serve as an important mechanism for achieving this reconciliation. Just as businessmen deal in oil, he remarks, politicians deal in votes (Schumpeter, 1954).

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trade-offs inherent in policy choices and to instead present policy in the most normatively appealing way. The susceptibility of the public to being misled can cause a disconnection between the values elucidated by politicians and the concrete policies that they implement. As with Hayek, there are grounds for challenging this pessimistic conclusion about the capacity of the public to engage with complex issues. This also overlooks the significant role of the range of actors that governance literatures highlight are involved in the policy process. Nonetheless, Schumpeter’s work is important in indicating how entrepreneurship can be understood as a way of promoting coordination in the face of complex, changing economic dimensions of choice through political as well as market processes (Greenwood, 2010, pp. 781–783). The policy entrepreneurship literature highlights the significance of the concept in process terms. As Schumpeter and Kirzner’s work makes evident, entrepreneurship as a political economy concept emphasises the substantive benefits of the innovation initiated by entrepreneurs, thus demanding outcome-orientated analysis (Shockley & Frank, 2011). Lindblom’s discussion of political leadership in pluralistic liberal democracies, although not articulated in terms of ‘entrepreneurship,’ offers insights that resonate with this Schumpeterian treatment of the concept. In the context of PMA, he writes, political leaders, through the process of political competition, can discover and promote policies that reconcile “disparate citizen preferences and common interests that will appeal to at least a plurality of voting citizens” (Lindblom, 1965). This is suggestive of the politics-markets analogy that he raises elsewhere, including in his account of the pluralistic processes of adjustment that policymaking involves. Entrepreneurial political actors can thus be understood as capturing and enabling the discovery of knowledge in a way that is analogous to the functions of markets. Exploration of this potential for non-market processes, including democratic politics, to address coordination challenges is of central importance for understanding governance and taking a balanced view of how the task of first order coordination is approached.

5.6

Summary

Starting from the normative case for governance as a process for shaping market outcomes, this chapter has discussed how non-market, political institutions and processes might be understood as fostering such

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coordination. As discussed with reference to Sen, the task of defining norms itself needs to be understood as a social process, closely linked with processes of policy delivery, through which different normative perspectives are drawn together. Austrian concepts and insights, especially Hayek’s own contribution, can be employed to understand this potential. Although this is not fully acknowledged by Hayek himself, such a line of argument has been identified by a range of authors from both within and outside the Austrian tradition. Their various contributions suggest that, somewhat analogously to markets, political debates and policymaking, through the processes of adjustment, collaboration and indeed competition that they involve, can be ways of capturing relevant knowledge in the face of complex trade-offs and choices, fostering policy innovation, entrepreneurship and learning. There are a range of organisational forms and institutional processes outside of the market that can be understood as enabling coordination. Cooperation within the firm, as well as civil society, while being shaped and motivated by markets, also involves nonmarket interactions to a significant degree. Political and policy processes are non-market in form. The concept of entrepreneurship is applicable to understanding the role of key actors in fostering innovation in political and policy contexts. Although an understanding of this coordinative potential of political and policy processes is suggested by some writings in the Austrian tradition, it is relatively unacknowledged in recent classical liberal scholarship. The suggestion that non-market, political processes can potentially foster coordination remains a conjecture that requires further, empirically orientated investigation. This potential for non-market processes of coordination, largely neglected by Mises and Hayek, also brings the second order, ‘meta-level’ question for governance to the fore, concerning the wider institutional arrangements through which first order tasks are addressed. Chapter 6 turns to this second order question. Just as Chapters 3–5 formulate questions about the relative strengths and weaknesses of market and non-market processes that require empirically orientated exploration, Chapter 6 also highlights the contingencies involved in addressing questions of second order coordination. The potential strengths and limitations of market and non-market in addressing the second order task are set out, again highlighting questions that might guide empirically orientated analysis.

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CHAPTER 6

Scales of Governance

6.1

Introduction

Classical liberal contributions in political economy that draw from both the Austrian and Bloomington traditions have proclaimed their openness to coordination being achieved through a range of possible institutional processes (Aligica et al., 2019; Pennington, 2013, p. 453). However, the potential discussed in Chapter 5 for non-market, political institutions to foster coordination is not explored as fully as it might be by such authors. Indeed, clear acknowledgement of this possibility is often lacking. This area of classical liberal scholarship does provide important grounds though for questioning how far coordination through politics is necessary. As this chapter explores, such recent classical liberal contributions emphasise the scope for decentralised processes of institutional adaptation to achieve ‘second order’ or ‘meta-level’ forms of coordination, which might, at least to some degree, offset the need for coordination through formal democratic processes. The previous chapters, focusing on the question of first order coordination, have explored how both market and non-market processes can be understood as potentially fulfilling a coordinative role. The need was highlighted for a comparative, empirically orientated approach to assessing the most suitable balance between market and non-market institutions. This chapter, turning to the task of second order coordination, emphasises that achieving an effective balance between political processes, on the one © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_6

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hand, and decentralised, competitive processes of institutional selection, on the other, involves similar contingencies, further in need of empirically orientated investigation. The challenge of achieving coordination in first order terms, as set out in previous chapters, is manifest and indeed integral to the field of policy analysis and evaluation. Questions of second order coordination are central to reflections on governance, which concern the wider institutional context for addressing such decisions. The second order task certainly resonates in contemporary understandings of governance as ‘steering.’ Literatures introducing this notion, as discussed in Chapter 2, view governance as a process through which a range of actors shape market outcomes over time, recognising that decision-making may not directly determine specific outcomes. Such contributions, often emphasising how governance takes the form of networks characterised by fluid, dynamically changing inter-relationships between public, private and third sectors, are often orientated towards addressing second order tasks. This is especially evident where questions about ‘meta-governance’ are raised. Clearly, the need to analyse second order processes, through which the role and operation of markets are settled in first order terms, is integral to governance evaluation. The potential, explored in Chapter 5, for non-market institutions and democratic politics to enable coordination is applicable to coordination in the second order as well as first order sense. Processes of knowledge discovery outside of the market can shape the effectiveness of second order decisions. The term ‘second order coordination’, as defined by Knight and Johnson and distinguished from first order coordination, is a relatively recent one. Nonetheless, a range of contributions in political thought can be viewed as reflecting a concern with coordination in second order terms.1 As Knight and Johnson make clear, various literatures in political theory offer insights into the relative merits of a range of different types of non-market institutional processes in terms of achieving second order coordination. Knight and Johnson themselves argue that the scope

1 An early example is the famous comment attributed to Adam Smith by Dugald

Stewart: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things” (Smith, 1795, p. Section IV; civ). See also Kennedy (2005, pp. 215–218) for some interpretational comment on this quote attributed to Smith.

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and operation of markets is most suitably settled through democratic political processes. Other key contributions in political philosophy have highlighted the importance of constitutional frameworks, which might supplement and delineate the role and operation of democratic politics (Buchanan, 1975; Rawls, 1972). Buchanan’s work, situated in the public choice tradition, is a key example of constitutional political economy proposals that can be viewed as a framework for enabling second order coordination. Buchanan cautions against the role of the state extending too far (Buchanan, 1975). He emphasises the potential for many collective goods, or ‘club goods,’ such as recreational and sports facilities, to be provided by private sector actors through processes of exchange (Buchanan, 1965).2 Buchanan also stresses the need for a constitutional settlement to some questions concerning the scope of public goods provision by the state. Such a settlement is needed, he holds, given the large numbers of people with an interest in the provision of such goods and hence the high transaction costs of seeking to achieve agreement between them about the suitable level of provision (Buchanan, 1975, p. 37). It is beyond our scope here to explore more fully this debate about how constitutional frameworks and political processes might address the specific challenges of second order coordination. Rather, the focus of this chapter is to explore further the nature of the second order challenge, with reference to authors who are sceptical about political or constitutional solutions to the second order task. This sceptical stance emphasises that epistemological challenges of the kind involved in first order coordinative tasks also arise in relation to the second order challenge. From this starting point, Buchanan’s approach to defining a classical liberal constitution from rational-choice assumptions can be questioned. Although Buchanan’s work is influenced by Austrian theory, his presentation of a

2 ‘Club goods,’ as defined by Buchanan, are not purely public. They are excludable but non-rivalrous (or only rivalrous past some congestion threshold, hence their use might be optimally shared by a group of users). Examples include community projects, neighbourhood schemes, community sports clubs and residents associations (McNutt, 1999, p. 928). Swimming pools are one such example given by Buchanan. Aside from especially privileged parts of the population who might choose to purchase a private swimming pool, Buchanan points out, use of swimming pools will be most efficiently allocated through a certain number of people paying collectively to have shared use of the facility (Adams & McCormick, 1987, p. 196; Buchanan, 1965). Such clubs can take a variety of institutional forms, being either privately or publicly owned (Sandler & Tschirhart, 1980, p. 1497).

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contractarian approach to constitutional design does not very fully explore the implications of the knowledge problems highlighted by this tradition. In terms of Buchanan’s framework, these knowledge problems arise, not only in establishing specifically which goods could be classed as collective but also in relation to the second order task of establishing institutional arrangements for effectively securing their delivery (Pennington, 2015, p. 481). From a heterodox perspective, the uncertainties that characterise this latter second order task would be significant, perhaps even heightened, compared with challenges of first order coordination. Some heterodox contributions, in a classical liberal vein, provide grounds for challenging Knight and Johnson’s view that democracy must take priority in second order terms. Classical liberals suggest that decentralised institutional adaptation, driven by competitive, market-like processes of institutional selection, offers significant potential to address the second order challenge. In relation to the first order task, as discussed in Chapter 3, markets seem indispensable. This is the starting premise for Knight and Johnson whose case for the priority of democracy relates specifically to second order coordination. It would appear rather counterintuitive and certainly in need of further explanation to suggest that processes of exchange and market-like competition themselves might address the second order task. After all, coordination in this sense must involve addressing the limitations of markets in first order terms, concerning issues such as inequalities and externalities. Yet, a substantial body of work has emerged from the Austrian and Bloomington traditions strongly emphasising that decentralised processes of adjustment and competition can foster second order coordination. Whether or not Knight and Johnson are referred to explicitly, the second order challenge is often the subject of direct attention in this literature. Aligica et al. (2019), while not referring to this in the terms set out by Knight and Johnson, discuss the importance of institutions dynamically adapting in the face of complex, shifting problems.3 Such adaptation, they stress, takes place through processes of experimentation away from the political sphere. The classical liberal contributions of Pennington respond to Knight and Johnson’s thesis more directly (Pennington, 2016, 2017). Pennington’s specific claim is that market-like processes of institutional competition and

3 See also Aligica and Tarko (2013).

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selection can be the most effective way of ensuring that first order coordination problems are addressed through a suitable process and at the most appropriate scale (Pennington, 2008, 2013, 2017). Individuals having a right to enter and exit institutional arrangements, Pennington stresses, can spur institutional comparison and competition, driving adaptation and innovation in the face of complex problems. This vision in the classical liberal tradition draws particularly from the Bloomington School.4 Compared with Hayek, the Ostroms, through their conception of ‘polycentricity,’ address the second order task more directly, though their writing pre-dates Knight and Johnson’s presentation of the first order/second order distinction. Polycentricity is defined as a system of “many centers of decision making that are formally independent of each other” (Ostrom et al., 1961, p. 831). The Ostroms emphasise that a ‘polycentric’ system is especially well suited for such a process of institutional evolution to take place. Further articulating the Bloomington School case for polycentricity, Paul Dragos Aligica and Vlad Tarko (2012, p. 251) write: “Polycentricity emerges as a nonhierarchical, institutional and cultural framework that makes possible the coexistence of multiple centres of decision making with different objectives and values, and that sets up the stage for an evolutionary competition between the complementary ideas and methods of those different decision centers.” In comparison with centralised, hierarchical state decisionmaking, such polycentricity within governance, the Ostroms emphasise, is especially robust and well suited to evolution and adaptation in the face of complexity (Aligica & Boettke, 2009; Aligica et al., 2019). Hence, their work raises a series of distinctive hypotheses about the effectiveness of decentralised processes of institutional adaptation compared with state-led, hierarchical decision-making. Classical liberal scholarship on second order coordination, it is argued here, is best viewed as formulating an a priori conceptualisation of key hypotheses for further exploration rather than necessarily settling the debate in favour of such decentralised processes in all situations. Classical liberal responses to the Knight and Johnson thesis do highlight the

4 See also Paniagua and Rayamajhee (2022) for a discussion of the implications of the Bloomington School perspective on institutional adaptation for tackling global challenges such as the COVID-19 pandemic. Their account closely resembles that of classical liberal authors such as Pennington, though they do not explicitly refer to the Knight and Johnson term of ‘second order coordination.’

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contingency and context dependency of the question of the most suitable institutional arrangements for shaping the role and scope of markets. In keeping with this approach and a recognition of the entangled nature of public, private and third sector inter-relationships (Wagner, 2016) as stressed by governance literatures, this chapter sets out the potential for both democratic, political and market-like competitive processes to address the second order challenge. Addressing this potential approach to governance evaluation, it is further argued, requires a close focus on their epistemological as well as motivational dimensions. The previous three chapters have centred upon the work of Hayek, whose writings have an extended, sustained focus upon the question of first order coordination. The reflections on the second order challenge in this chapter draw from a range of contributions in heterodox political economy beyond Hayek’s work where the second order question is addressed more directly and fully, particularly the Bloomington School. Section 6.2 highlights the scope for questioning Hayek’s response to the second order challenge, which would seem to contain significant ambiguity and has been subject to some contrasting interpretations. As reviewed in Section 6.3, a range of contributions in a classical liberal vein suggest how processes of negotiation and adaptation driven by private property rights owners can fulfil second order as well as first order coordinative functions. Section 6.4 explores the contributions of the Bloomington School which offer an especially direct engagement with the challenge of second order coordination. As is discussed, there is at least some difference of emphasis between Bloomington scholarship, particularly Vincent Ostrom, and Hayekian classical liberalism on the question of the role of democratic politics in establishing and maintaining a framework for polycentric governance. As Section 6.5 sets out, both the Coasean and Bloomington contributions are of vital importance for understanding contemporary classical liberal responses to the second order task. This section centres upon the work of Mark Pennington, whose contributions address this challenge explicitly in the terms set out by Knight and Johnson. Pennington’s critique of the Knight and Johnson ‘priority of democracy’ thesis emphasises the scope for institutions to be shaped through a decentralised, competitive and evolutionary process that takes place away from the sphere of democratic politics. This argument, it is emphasised, is best viewed as opening important questions for further exploration through empirical research analysing the effectiveness of governance arrangements in enabling coordination.

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Section 6.6 summarises the chapter to emphasise the need and potential for development of a research agenda guided by these questions.

6.2 The Challenge of Second Order Coordination: Moving Beyond Hayek The work of Hayek himself contains some contrasting lines of thought relating to the second order challenge. Taking his various discussions together, there are some tensions, arguably even conflicts, in his position. Clearly, Hayek would not concur with Knight and Johnson’s case for assigning priority to democracy in second order terms. As explained in Chapter 5, his discussions do allow room conceptually for understanding democracy as capable of performing coordinative functions. However, this potential understanding of democracy is not fully developed. In relation to second order coordination, Hayek considers it necessary to establish a constitutional framework through which the question of the scope and operation of markets might be addressed over time. This constitution would limit the scope of majoritarian decision-making in relation to such first order tasks. In The Road to Serfdom and The Constitution of Liberty, Hayek expressed admiration for the German ‘Rechsstaat ,’ a system of statute-based law, involving a set of formal, consistently applied constitutional and legal principles (Stringham & Zywicki, 2011, pp. 292– 923). In Law, Legislation and Liberty (Hayek, 1979, pp. 112–113), Hayek proposes that an assembly of legal experts should be established to define and oversee the constitutional framework for classical liberal society. This approach to the second order task makes little reference to democracy. Apparently somewhat in contrast with this emphasis upon centrally established legal frameworks, this later book also discusses the importance of the institutional conditions for spontaneous order evolving in a decentralised way (Hayek, 1973; see Servant, 2018). The need is emphasised for decentralised institutional adaptation, given the complex, locally situated character of economies. The libertarians Edward Stringham and Todd Zywicki (2011) suggest that this represents a shift in Hayek’s thinking towards a view of institutional formation more in keeping with Hayek’s own insights into the limitations of centralised state decision-making. However, Hayek’s response to the second order challenge ultimately hinges upon his proposals for formal constitutional arrangements that are conducive to such institutional evolution taking place (Martin & Wenzel, 2020; Servant, 2018).

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This proposal for what Stringham and Zywicki (2011, p. 291) refer to as “centrally provided law” in Hayek’s work has been questioned in light of Hayek’s own emphasis upon the epistemological challenges involved in addressing coordination problems through centralised institutions (Gamble, 1996; Kukathas, 1989; Pennington, 2015, pp. 471–472).5 It might, as Servant (2018) suggests, be possible to reconcile these two strands of thought in Hayek’s work.6 As discussed in Chapter 5, Hayek’s work alludes to the possibility of processes of learning and adaptation taking place in the political sphere. He similarly seems to accommodate a process of adaptation and adjustment being exercised by judges in how they formulate and operationalise centrally defined statutes as a framework for fostering the spontaneous operation of markets (See e.g. Hayek, 1973, p. 102; Servant, 2018).7 As Vanberg posits, Hayek stresses both the need for a constitutional framework of rules within which markets operate, while also the need for these constitutional rules to be sensitive to the culture and tradition, as well as subject to adjustment over time (Vanberg, 1994, pp. 121–124). The point remains that the judges for whom this task is reserved in Hayek’s model would seem to face significant epistemological challenges of the kind that face all centralised decision-makers, as Hayek himself formulated (Pennington, 2015, p. 471). In leaving open this line of criticism, Hayek’s proposals, in the face of the second order challenge, at best leave open the need for further development. Contemporary classical liberal proposals are clearer and more direct than that of Hayek in questioning how far centrally defined legal frameworks are necessary. Somewhat in contrast with Hayek’s proposals for centrally defined constitutional law, they place stronger, more sustained emphasis upon the potential for the property rights systems that shape the operation of markets to evolve through a decentralised process of institutional adaptation. Certainly, there is scope for this classical liberal approach to draw not only from Hayek’s first order case for markets but also his critique of rational constructivist approaches to institutional design (Pennington, 2015). However, more recent scholarship does also 5 These commentaries are highlighted by Servant (2018, p. 354 n4). See also Gray (1980), Brittan (1980), Kukathas (1989) and Buchanan (2008). 6 See also Vanberg (1994). 7 As O’Driscoll and Rizzo explain (1985, p. 39), in Hayek’s view, “there are

two important ways for knowledge to be communicated: through prices and through institutions.”

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draw from a range of other contributions in economic and institutionalist analysis. As Section 6.3 sets out, Coasean institutional economics has been an important inspiration in this respect. As Section 6.4 then explores, the more heterodox Bloomington School further and more directly engages with the second order institutional task.

6.3 Private Property Rights and the Coase-Inspired Response Classical liberal perspectives towards the second order task hinge upon an advocacy of private property rights. Recent contributions draw especially from Coase and his critique of Pigou’s Neoclassical welfare economics. As discussed in Chapter 2, Coase emphasises how negative external effects, which might include various forms of pollution or other negative impacts on human health and well-being, can be addressed through negotiation between the affected parties. In relation to positive externalities, the Coasean approach suggests that processes of competition between firms and various other forms of collective organisation beyond the central state can spur the provision of at least some kinds of public goods, without the need for state intervention. Such decentralised processes that re-shape property rights arrangements can be viewed as concurrently fostering coordination in both the second and first order sense. For, not only do they directly address first order allocative problems but as further discussed below they also constitute a process through which the second order task is addressed. The ‘Coase Theorem’ might seem to provide at least an a priori case for second order coordination being addressed through decentralised processes of bargaining between property rights holders. Certainly, Coase’s theoretical insight strongly influenced advocates of market-based solutions to challenges of externalities and public goods provision, with Harold Demsetz (1967)8 and George Stigler (1975)9 being notable examples. However, as discussed in Chapter 2, the main point of Coase’s theorem was to emphasise that the Neoclassical starting assumption of zero transaction costs is entirely unrealistic. In the real world, the negotiations involved in defining and exercising property rights inevitably involve 8 See Campbell (2016) and Frischmann (2007) for commentaries. 9 Here, Stigler proposes competition in regulatory enforcement.

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transaction costs. Hence, the second order question about the effectiveness of political institutions compared with the decentralised adjustment of property rights is a contingent one. The parties involved in such negotiations, as in Coase’s example of two neighbouring households seeking to address the negative impacts of pollution caused by one of them, hold their preferences privately. Coase recognised that the question of the relative effectiveness of institutions for enabling parties to reach agreement is context dependent and inevitably involves some uncertainty. The Coase Theorem may indeed offer a caution against state intervention stretching too far, given the potential for externalities to be addressed through the decentralised formation of property rights solutions. However, Coase’s main point was to emphasise the contingency of the question and the need for comparative, empirically orientated analysis of different legal and regulatory frameworks, including a focus on the extent of the transaction costs they entail (Cole, 2014; Frischmann, 2007; Frischmann & Marciano, 2015). Coase’s work precedes Knight and Johnson’s introduction of the first order/second order distinction. Nonetheless, his emphasis on the potential for addressing externalities through decentralised negotiations between private property-holders can be taken as offering a case for second order coordination through what the Ostroms call ‘selfgovernance’ (Aligica, 2018; Ostrom, 2010b). The Coasean approach has certainly been used in this way in several studies exploring a range of empirical contexts where the classical liberal tradition resonates. Bruce Benson (1989) traces the evolutionary process through which, from the medieval period onwards, merchants developed and established their own legal rules of trade independently of government.10 In a case study with a more recent focus, Robert Ellickson (1991) analyses how neighbouring farmers in California achieve cooperation in the management of their cattle in a non-hierarchical way through a system of informal rules. Peter Leeson (2008) sets out the vital significance of private forms of contract enforcement and arbitration as means of settling international trade disputes. Stringham (2015) offers a collection of case studies of ‘private governance’ in a range of spheres where private sector actors have established and enforced their own legal arrangements. The case studies

10 Greif (2006) reaches a similar conclusion in a study of trading rules and systems in the Mediterranean between the ninth and twelfth centuries.

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include seventeenth-century stock markets in Amsterdam, the contemporary regulation of online financial transactions and policing in California at the turn of the twentieth century after the gold rush. In the evolutionary perspective in these contributions towards how legal rules are formed, there are echoes of Hayek’s discussion of institutional evolution. While such case studies are of inherent interest, their presentation leaves open the question of how widely such principles of self-governance might be applied. To provide a convincing case for a more fully ‘private’ system of governance, advocates of self-governance would need to present their proposals in the context of the full scale of externality problems across the wide range of issues relating to sustainable development. Free market environmentalism (FME), as introduced in Chapter 2, addresses more directly a wider range of ecological externality issues. The main emphasis of FME is upon expounding the first order strengths of private property rights and markets and the weaknesses of government intervention in fostering the sustainable stewardship of ecological resources. This focus of FME writings on first order questions is rather like that of Hayek himself. There is a tendency to not explicitly address the wider issue of second order coordination as formulated by Knight and Johnson. The FME perspective does have implications though for how the second order task might be approached. The strong, albeit largely implicit, thrust of FME is that the second order task can be addressed through decentralised processes of negotiation between private property rights holders, without the need for state intervention. As classical liberals recognise, the overall framework of the legal system within which such negotiations take place would, in some respects at least, need to be established and maintained by the state. However, on this vision, specific, locally situated problems of ecological stewardship can be managed without the need for state implementation of regulations and interventions. FME scholarship has highlighted the need for property rights to adapt to different contexts, emphasising that the costs and benefits of defining property rights will vary for different environmental resources and socio-economic contexts (Anderson & Hill, 1975, 2004). Given this approach, FME scholars advocate the benefits of common law as a system for defining and implementing property rights in which judgements are based upon judicial precedent. Under common law, they emphasise, the law evolves in a way that takes account of past decisions, while being responsive to the circumstances particular to each case (Anderson & Hill, 2004; Hasnas, 2009). Here there are echoes of Hayek’s discussion of the

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evolutionary character of the common law system, which emphasised the locally situated and context dependent nature of legal rules. However, FME does not fully or even explicitly address the second order task. As further discussed in Section 6.4, the question of second order coordination is the subject of more direct attention from the Bloomington School, whose work also gives close consideration to the nature and extent of various externality issues, especially in relation to the governance of natural resources and ecosystems.

6.4

Institutional Pluralism and Polycentricity

The Bloomington School approach to institutional analysis can be viewed as complementing Coase-inspired insights into the potential for private property rights to serve as drivers of coordination in both first and second order terms. These traditions share significant common conceptual ground (McGinnis, 2021). Recent classical liberal reflections on the second order question have certainly drawn from Bloomington School as well as Coasean approaches (Aligica et al., 2019; Pennington, 2013). As discussed above, Coase was open to a range of institutional possibilities for fostering coordination in the second order sense. A central point of his work was to emphasise the need for comparative evaluation of this range of possible processes for addressing externality issues. Such a recognition of the contingencies involved in assessing institutional effectiveness is similarly present in the Bloomington School approach. Of course, the Ostroms’ work, like Coase, pre-dates Knight and Johnson’s presentation of the distinction between first and second order coordination. However, the distinction is used below to position the Ostroms’ contributions in relation to more recent literature. A starting point for the Ostroms’ discussions of how collective problems can be most effectively addressed is a strong appreciation of the difficulties of anticipating solutions to complex problems. Factors such as geographical context and the locally specific character of resource use problems across different communities, they emphasise, have vital implications for the suitability of institutional arrangements (Lemke & Lofthouse, 2021). This is evident in Elinor Ostrom’s famous work Governing the Commons which includes a range of case studies of ecosystem management (Ostrom, 1991), as well as the further subsequent fieldwork that she initiated internationally. Relevant knowledge for addressing collective problems, therefore, takes varying forms, being held across the

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different locally situated actors involved. The Bloomington School’s findings, drawing from these case studies of commons problems, point to the need to allow for the expression of a diversity of preferences amongst communities. This is highlighted by Vincent Ostrom’s engagements with democratic theory (Ostrom, 1973, pp. 62–68; Ostrom et al., 1961). In the context of the complexity of collective problems, shaped by local specificities, the Ostroms’ work highlights the importance of the question of the scale at which institutional arrangements are formed. The term governance is used throughout their work to refer to a range of possible institutional configurations for shaping the functioning of markets across a variety of different scales. Much of their work highlights the potential of local-scale institutional arrangements to address collective problems, while also highlighting that the most suitable institutional scale will vary according to the nature of the problem concerned (Ostrom, 1972, 1999). The Ostroms’ starting point for evaluating alternative forms of governance, that has parallels with the Austrian critique of central planning, is that a complete analysis of the full range of possible institutional rules for solving a particular commons problem is impossible (Ostrom, 2009b). In strongly emphasising the need to understand the processes through which institutions evolve and adapt in response to varying, changing problems (Tarko, 2017, p. 11), their approach to analysing governance has a strong ‘second order’ focus. The Ostroms’ understanding of institutional adaptation is articulated through their case for polycentric governance. In polycentric systems, they emphasise, overlapping institutional jurisdictions can adapt in response to the complexity of collective goods problems across varying geographical scales. This emphasis on the potential offered by multi-scale governance contrasts somewhat from Austrian scepticism about the capacity of political authorities to respond effectively to complex questions of resource allocation and use. As Roberta Herzberg puts it in a commentary on Vincent Ostrom’s work: “Polycentric forms imply finding the right level for addressing diverse social problems without the need for a one size fits all solution. Not all problems must be addressed by a single central government. Rather, we organise the solution at the lowest level appropriate to the successful resolution of the problem” (Herzberg, 2005, pp. 193–194). Recognition of the scale and implications of potential externalities is especially prominent in the Bloomington School approach, in contrast with the Austrian tradition where these issues are the subject of far less discussion. The Ostroms’ analysis of the potential for self-governance in

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property rights regimes does resonate with contributions in the more explicitly classical liberal vein discussed above. For example, Elinor cites the case of lobster fishers in Turkey collaborating entirely independently of the state, to establish a set of rules and practices to ensure that they do not exceed the sustainable yield. Coastal lagoons are leased to fishing cooperatives, to which fishers must belong in order to harvest fish (Berkes, 1986, cited in Schlager & Ostrom, 1992). In relation to the second order task, the Ostroms stress the importance of public goods that cannot be provided through the market alone.11 They state their focus as being upon ‘public economies’ (Ostrom & Ostrom, 1965), concerning the provision of goods and services consumed by communities collectively. However, the Ostroms’ approach to externality and public goods problems, being grounded in the detailed study of a wide range of collective action problems, addressing ecological management and metropolitan governance in particular, differs in emphasis from Coase-inspired authors such as free market environmentalists whose primary emphasis is upon the coordinative capacity of markets.12 The Bloomington School approach to analysing public economies and second order questions in terms of polycentricity can be traced back to a paper on metropolitan governance co-authored by Vincent Ostrom and colleagues (Ostrom et al., 1961). Some extensive early work in which Elinor and Vincent collaborated shared this focus upon US metropolitan governance. Their assessment of local urban police services challenged the assumption, predominant amongst policy analysts, that policy effectiveness could be maximised through centralised coordination and consolidation. Services, they observed, were delivered by different authorities across the city whose jurisdictions overlapped and between whom there were elements of both cooperation and competition. Nonetheless, they were able, as Tarko (2017, p. 23) puts it, to “take each other into account in competitive undertakings or have recourse to central mechanisms to resolve conflicts.” Since then, Elinor and Vincent each contributed in different ways to the case for polycentricity through distinct, though complementary, avenues of research. In first order terms, 11 Ostrom and Ostrom (1977, p. 81) state that: “Market institutions will fail to supply satisfactory levels of public goods and services.” 12 As Aligica et al., (2019, p. 10) put it, there is a “certain communitarian sensibility” in Elinor Ostrom’s work in particular. This can be distinguished from Coasean economics with its more conventional assumption of individuals motivated by self-interest.

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their respective contributions each suggest the need for a blend of market and non-market decision-making. In relation to the second order question of the process through which this blend is adjusted, the work of both Elinor and Vincent suggests there can be a significant role of decentralised institutional evolution and adaptation, alongside political institutions, as further discussed below. Elinor’s Nobel prize-winning, extensive range of local and regional level case studies of what she terms ‘common pool resources’ (CPRs), is well known and widely cited, especially in the field of environmental governance (Forsyth & Johnson, 2014). Whereas pure public goods are defined in terms of non-rivalry, the resources provided by CPRs, which can be natural or made-made, are finite and it is possible to reach the limit of their use, hence an element of rivalry in their use can arise. In relation to the second defining feature of public goods, non-excludability, a CPR “is sufficiently large as to make it costly (but not impossible) to exclude potential beneficiaries from obtaining benefits from its use” (Ostrom, 1990, p. 30). Where CPRs are sustainably provided at local level, this can be viewed as a form of local public good (Ostrom, 1990). Elinor’s empirical work explores a multitude of examples internationally of different ways in which CPR users, such as those involved in different types of agriculture, design, develop, implement and enforce various types of rules and practices to coordinate such CPR provision (Ostrom, 1990). Her findings provide substantial empirical support for the Bloomington School case for institutional pluralism and polycentricity. Evident throughout her work is the coordinative role of institutional adaptation in a second order sense, with local actors devising and adjusting decision processes in response to complex, changing circumstances (Martin & Thomas, 2013: 24). Elinor Ostrom’s work assessing processes of institutional adaptation in a range of contexts includes a particular focus upon the incentives dimension of coordination challenges. Her findings challenge the conclusion of conventional public choice scholarship, as reflected in Garrett Hardin’s famous ‘tragedy of the commons’ allegory, that attempts to collectively manage ecological commons in the interests of their users would succumb to ‘free rider’ problems, spiralling downwards towards unsustainable outcomes. Elinor’s findings highlight how local communities engage in decentralised processes, in which formal and informal rules and practices develop and evolve. Such community activity promotes trust and cooperation. Individuals, she concludes, have an inclination and capability to gain “a reputation for being trustworthy and reciprocate

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others’ efforts to cooperate with their own cooperation” (Ostrom, 2010a, p. 551). In her discussion of the complexity of CPR problems, Elinor does also refer to the epistemological dimension of coordination problems (e.g. Ostrom, 1990, pp. 33–34, 193). Her work highlights the importance of devising solutions that are sensitive to local knowledge and context. These motivational and epistemological considerations lead Elinor to emphasise that bottom-up processes of institutional formation and adaptation tend to be more robust (Lemke & Lofthouse, 2021). Vincent’s work retained an ongoing focus on US federalism and the nationwide challenge of coordinating public economies across different states and urban areas. He emphasises the need for governance across multiple scales, given the significant variation in the suitable scale at which collective goods and services are delivered (Ostrom, 1973, 1991). In this respect, his work anticipates contemporary perspectives on governance. Such a polycentric system, Vincent envisages, requires a federal legal framework that places limits on the capacity of the central state to intervene in locally situated institutional arrangements (Boettke & Coyne, 2005, pp. 156–157), enabling public service providers to engage in ongoing processes of adjustment of the scale of their operations and their inter-relationship with each other (Ostrom, 1999). In expounding this approach, which can be understood as a way of enabling both first and second order coordination, Vincent’s work exhibits strong recognition of the epistemological problems involved in institutional adaptation and the importance of shared community understandings in this context (Ostrom, 1993, 1997, pp. 114–116). As the Ostroms indicate, a key feature of a polycentric system is that the scale and pattern of public services provision is determined through an ongoing, decentralised process of institutional adaptation and adjustment, in part driven by supply-side competition (Ostrom & Ostrom, 1977, pp. 98–99). In relation to the first order task, Vincent accommodates a role for both states and markets in public goods provision. He emphasises that non-state organisations and private firms, as well as the state, can potentially have a role in such provision, anticipating the subsequent rise of various forms of public–private partnership (Ostrom, 1973; Ostrom & Ostrom, 1977; Ostrom et al., 1961). In terms of the second order task, he envisages such first order questions being resolved through an ongoing process of institutional adaptation and adjustment that to a significant degree takes place beyond the realm of formal democratic politics (Aligica, 2018). He makes clear that the polycentric system for

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public goods provision that he envisages is not a market (Ostrom, 1999). However, Vincent does describe the decentralised, evolutionary processes of institutional coordination in a polycentric public economy as “marketlike” (Ostrom & Ostrom, 1977). Hence, in contrast with hierarchical, instrumentalist approaches to coordination, Such a process of public goods delivery might be characterised as a form of spontaneous order (Aligica & Tarko, 2012, p. 246). An important part of Vincent’s vision was his work with Charles Tiebout on the so-called Tiebout model of competition between local jurisdictions driven by the idea of citizens ‘foot voting,’ leaving one jurisdiction for another according to their individual preferences (Ostrom et al., 1961). As discussed further in Section 6.5, more recent classical liberals have further explored this possibility of a decentralised, market-like process of institutional selection as a driver of second order coordination. Significant work, closely aligned with the Bloomington School tradition, emphasises the importance of institutional entrepreneurship as a driver of such processes of second order adaptation. Such entrepreneurship, it is stressed, addresses the shortcomings of existing institutional arrangements such as systems of property rights (Leeson & Boettke, 2009). This involves the advocacy and driving of rule changes that enable first order coordination challenges to be more effectively addressed (Aligica et al., 2019, pp. 109, 205). A similar point has been made elsewhere in public choice scholarship, notably in studies of the US congressional system emphasising the significant role of “political entrepreneurs” in the ongoing evolution of institutions (Martin & Thomas, 2013). When facing difficulties in sought policy changes, Martin and Thomas show, these entrepreneurs can advocate and sometimes achieve rule changes at the margin that are of considerable cumulative significance. As some commentators have explained (Aligica & Boettke, 2009, pp. 1–2), these contributions on institutional and political entrepreneurship within different fields suggest potential for the Bloomington perspective on institutional evolution to be extended beyond the range of empirical areas that the Ostroms explore. While the Ostroms’ work highlights the potential role of decentralised processes of institutional adaptation, they do not entirely rule out the significance of more centralised, politically driven approaches

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to second order coordination.13 Elinor’s work towards the end of her career, in turning to consider the problem of climate change, allows that international governance frameworks and policies, such as the European Union Emissions Trading Scheme, could have an important role in addressing the challenge of climate change mitigation (Ostrom, 2009a). The externalities arising from greenhouse gas emissions apply to the global population and the benefits of climate stability clearly take the form of a global public good. However, regarding governance at the global scale, Elinor’s strong emphasis is to warn against over-reliance upon global agreements being robustly established. She draws out the implications of her body of work on local-scale CPR management for debates about climate change governance. Elinor challenges the conventional rational-choice-based theory of collective action that the scale of governance should match that of the externality being addressed (Ostrom, 2010a). According to this theory, attempts to reduce greenhouse gas emissions through decision-making across lower geographical scales would fail because actors at these lower scales have an incentive not to adopt or implement such regional or local level policies, instead ‘free riding’ on the collective efforts of others. By contrast, Elinor emphasises that, in spite of the global character of this externality problem, potentially effective solutions can emerge from the local and regional scale. Compared with policy measures at a global level, such approaches, she suggests, would tend to be more responsive to varying geographical and socio-economic contexts. Supported by her extensive range of empirical findings, she holds that because communication between resource users is most feasible at local scales, these scales will tend to be more effective than global institutions in fostering the social capital and cooperation required to deliver collective goods (Pennington, 2013, p. 459). A bottom-up, polycentric process in which multiple such communities develop collective local-scale responses to larger scale commons problems such as climate change, she suggests, could prove more effective than waiting for solutions to be agreed and established at a global level (Cole, 2015). The question remains open though as to whether such local and regional efforts will sufficiently secure climate stability as a global public good. Ultimately, Elinor’s work provides a framework for assessing the relative 13 Lemke and Lofthouse (2021, pp. 118–121) point out that the Ostroms’ work leaves open a potential role for central government, working together with a range of governmental and third sector actors.

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potential strengths and limitations of different scales of governance for tackling such a global commons problem. Even though the Ostroms’ work offers such close, conceptually rich engagement with questions of governance effectiveness, their contributions have been the subject of relatively little discussion in the political science and public administration literatures on network governance. A notable exception is the recent work of Andrew Jordan and colleagues (Jordan et al., 2018) that explores how far international climate change governance might be understood in terms of polycentricity. However, the focus of this work, reflecting that of political science more generally, is to assess polycentricity as a concept for characterising ‘actually existing’ contemporary governance, rather than using Bloomington conceptual tools to evaluate governance effectiveness. It is in political economy that a considerable body of scholarship in the classical liberal tradition, with key contributions from Pennington and Boettke amongst others, has drawn from the Ostroms’ distinctive account of how, in a polycentric system, decentralised processes of institutional change can serve as a second order coordinative process (Pennington, 2013; Aligica et al., 2019). These contributions state their openness, as we find in the Bloomington tradition, regarding vital questions about the relative effectiveness of different governance arrangements across varying contexts and scales. Section 6.5 argues that, when one starts from the heterodox foundations provided by Bloomington scholarship, there remains a need to fully recognise the implications of this openness, which needs to include openness to conclusions that might challenge the specific proposals that classical liberal scholarship typically advocates.

6.5

Institutional Exit Rights and Competition

There is a large body of public choice and legal scholarship exploring Tiebout’s famous hypothesis concerning ‘foot voting’ and jurisdictional competition as a driver of institutional and policy change. Much of this research, as with Vincent Ostrom’s work, focuses on the US federal system, seeking to assess the impact and implications of patterns of migration between states. Studies focusing on specific areas of legislation and policy have found evidence of such competition bringing benefits, in areas including corporate law (Winter, 1977), womens’ economic rights (Lemke, 2016) and expenditure on public schools (Cebula &

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Nair-Reichert, 2012).14 However, other analyses seeking to measure the impact of Tiebout competition as a driver of public service delivery have often been rather equivocal in their conclusions (Baicker et al., 2012; Boadway & Tremblay, 2012; Kay & Marsh, 2007). As this literature emphasises, the impact of Tiebout competition needs to be viewed in the context of a range of institutional and social factors. These include features of the political environment such as levels of accountability and interest group influence; the amount of information available to citizens about public goods provision in different locations; cultural factors that shape citizens’ choices about where to live, as well as levels of entrepreneurship in the public sector (Bratton & McCahery, 1997; Epple & Zelenitz, 1981; Saltz & Capener, 2016). Some contributions providing a normative case for jurisdictional competition are rooted in heterodox traditions, which can be contrasted with the Neoclassical assumptions of Tiebout.15 Stansel (2012) advocates jurisdictional competition on explicitly Austrian grounds.16 Whereas Tiebout assumes public sector competitors to act upon perfect information, Stansel explains, the Austrian approach emphasises how such competition spurs innovation and knowledge discovery (Stansel, 2012, pp. 248–249). Amongst recent classical liberal scholarship offering such a normative case, Mark Pennington’s challenge to the Knight and Johnson thesis concerning the second order question is especially thoroughgoing and direct (Pennington, 2017). While Pennington draws inspiration from the Bloomington School (Pennington, 2008, 2013), his especially strong emphasis on the ‘right to exit’ as a driver of institutional competition and evolution is somewhat in contrast with the Ostroms. Pennington’s challenge to the proposal for democracy to take priority in second order terms is distinctively Hayekian. Indeed, given that, as discussed 14 Where studies support such a conclusion this is often qualified and in some cases there is significant disagreement about the robustness of the conclusions drawn. See, for example, the debates about the impact of migration and competition between states upon public schools in the USA (Hoxby, 2000, 2007; Rothstein, 2007). 15 Stansel (2012) points out that Tiebout’s model assumes competing public sector actors to be acting upon perfect information, while Austrian theory is founded on a recognition of individuals’ epistemic limitations, emphasising their ongoing need for processes of knowledge discovery. 16 Peter Leeson (2011) also provides a case for competing forms of decentralised governance that draws from Hayek and the free market environmentalists, as well as James Buchanan’s conception of ‘club goods.’

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in Section 6.2 above, Pennington is critical of Hayek’s proposals for a centrally defined constitutional framework for classical liberalism, his position might even be viewed as more Hayekian than that of Hayek himself. In an argument analogous to Hayek’s first order critique of central planning and in a strongly classical liberal vein, Pennington is sceptical about the capacity of a single, centralised state to define an institutional blueprint for ensuring first order coordination through markets. Pennington builds upon the Hayekian, evolutionary view of institutional adjustment offered by Coase-inspired challengers of legal centralism to provide a more explicit, systematic case for institutional selection and competition as fostering second order coordination. Ultimately though, as explained further below, Pennington’s conjectures, like Aligica and Tarko (2019), are best read as offering important research questions that leave open significant scope for empirically orientated investigation. Compared with the Ostroms, Pennington places a stronger, still more explicit emphasis on the epistemological dimension of the challenge of second order coordination.17 In direct response to Knight and Johnson, Pennington’s contention is that decentralised, market-like processes of institutional competition and adaptation, or a “market in institutions” (Pennington, 2017), can be more effective than political democracy in second order terms. A process of ongoing, concurrent institutional experimentation, Pennington suggests, could more effectively foster institutional adaptation to local conditions than structures established centrally by democratic political processes (Pennington, 2017).18 Pennington develops this argument in a fashion that parallels the Hayekian approach to first order coordination. Attempts to achieve second order coordination through political democracy, he suggests, would be plagued by the kind of problems highlighted by the Virginia School public choice theory concerning the public’s lack of knowledge about political and policy options, combined with a lack of motivation to gain such knowledge. He also argues that central decision-makers seeking to anticipate the impacts of different governance arrangements in second order terms, simultaneously addressing a variety of first order coordination problems, would face profound knowledge problems (Pennington, 2017). 17 This is in contrast with Peter Leeson (2011) who proposes a similar polycentric model to that of Pennington, while justifying his proposals in terms of standard motivational, rather than epistemological arguments. 18 This argument is also evident in Pennington (2008), as well as Leeson (2011).

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Pennington’s classical liberal vision of decentralised institutional adaptation notably does not rule out the possibility that centralised decisionmaking across larger scales might in some instances be the most effective way of achieving first order coordination (Pennington, 2016, p. 531). Rather, his point is that such centralised coordination is likely to be most effective when it is found, through a decentralised process of institutional experimentation, that such centralisation can reduce transaction costs. With reference to the Ostroms’ work on polycentricity, Pennington suggests that governance institutions across larger geographical scales are most effectively established through a bottom-up process of institutional evolution in which parties ‘contract up’ to higher scales of governance where they find there is scope for this to facilitate achieving policy goals (Pennington, 2013, p. 461).19 “(The) extent to which centralization is preferable,” he argues, “should itself be determined via a process of contractual exchange where people retain the right to exit arrangements they deem less satisfactory and where there is open entry for suppliers of new institutions” (Pennington, 2017, p. 6). Such a decentralised process of second order coordination, he argues, can be expected to be more effective than the top-down imposition of institutional arrangements by hierarchical state structures, whether at national or international scale. Pennington’s prior work had referred to some key areas of environmental governance where international arrangements might be suitably established in this way in order to reduce transaction costs, such as fisheries management or sustainability standards for the built environment (Pennington, 2008). However, Pennington adopts a generally sceptical position about the effectiveness of state-led interventions at national and international levels. Pennington’s conceptualisation of a decentralised, market-like process of second order institutional evolution, with its emphasis on the importance of innovation and knowledge discovery in the context of complexity and change, bears some similarities with Hayek’s account of the market process. As discussed in Chapter 3, the many decisions of individual

19 Pennington refers to both Vincent (McGinnis, 1999) and the following quotation from Elinor: “It is our speculation that starting from smaller units and building upward is more likely to lead to better solutions than trying to create effective smaller scale units within already constituted larger units” (Ostrom & Parks, 1999, p. 300, cited in Pennington, 2013, p. 461).

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economic actors to opt in or out of purchases are a driver of market coordination. Similarly, the choices of individuals to exit institutions that they consider unsatisfactory and join those that they consider to be effective in promoting values and goals they share can be vitally important drivers of institutional evolution. Individuals undertaking such ‘foot voting,’ he comments, would have a greater incentive to inform themselves about the consequences of their purchasing or locational decisions than under elections, where the chance of the individual influencing the outcome is minute (Pennington, 2017, p. 15). In making this argument, he draws from the evidence offered by public choice theory concerning the importance of such individual exit rights as a driver of institutional evolution (Kurrild-Klitgaard, 2010). As an illustrative example, Pennington emphasises the potentially vital coordinative role of exit rights in the planning of residential communities. Many residential developments, he points out, involve some form of common property arrangements20 for the provision of collective goods for residents, such as convenient services or recreational areas. The right of exit for any homeowner within such developments, he suggests, can foster incentives for the developers and managers of such housing to ensure the quality and suitability of such public goods (Pennington, 2015, p. 481).21 Pennington develops this case for decentralised processes of institutional adaptation with mindfulness of the classic public choice arguments of the Virginia School that challenge the case for seeking such large-scale interventions by means of a political process (Pennington, 2013). As the jurisdictional scale of governmental institutions increases, he argues, the incentive for citizens to engage with political decisions and hold leaders to account decreases. This means a reduced incentive to acquire information about decisions being taken and to hold decision-makers to account through various forms of political activity and participation in elections. As a reflection of these views about how second order coordination might be most effectively achieved, Pennington offers some criticism of Elinor Ostrom’s discussions of climate change governance introduced

20 This might be, for example, through some form of cooperative or alternatively through a housing association. 21 Leeson (2011, p. 304) makes a similar point about the advantages of ‘clubs,’ as defined by Buchanan, as a form of providing collective goods for a group, in comparison with governments.

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above. He suggests that in accommodating a role for centralised international policy structures for tackling climate change, Ostrom might be making an unnecessary concession. He expresses Hayekian epistemic concerns that the negative unintended effects of such centralised policies could be especially harmful to economic efficiency. In response it could be argued that, with climate stability ultimately being a global public good, a strong case can be made for global forms of governance having a vital role in tackling this externality problem, potentially alongside the local and regional forms of governance that Ostrom suggests are especially effective. Aside from these questions of large scale, even global, public goods, Pennington’s work raises the question of whether the right to exit could replace democratic politics as a driver of second order coordination. It should be noted here that, as indicated above, the kind of centralised second order state decision-making that Pennington compares to his envisaged process of decentralised institutional adaptation is hierarchical in form. The potential, as explored in Chapter 5, for such central political decisions to be guided through a coordinative political process, drawing from the insights of a range of stakeholders, is not explored. Pennington’s focus is upon outlining his vision of decentralised second order coordination. With more attention to how Elinor rather than Vincent Ostrom addresses the second order task, Pennington comments on how she gives insufficient consideration to exit rights as such a driver (Pennington, 2013, p. 460).22 Elinor is of course aware of the potential significance of exit rights, though she tends not to incorporate the possibility of individuals exiting institutional arrangements into her models of collective action (Kurrild-Klitgaard, 2010, p. 344). There would seem to be some important underlying reasons motivating the Ostroms’ limited attention to exit rights and their case for democratic politics as shaping institutional frameworks for polycentricity. As further discussed below, the potential of exit rights as a driver of second order coordination, as well as being

22 Vincent’s discussion of the importance of political democracy in establishing a frame-

work through which multiple polycentric institutions and rules can adapt to changing problems is the subject of little discussion from Pennington. The critique of political democracy developed by Pennington is significantly different from that of Vincent Ostrom in terms of emphasis, as is made clear by Pennington’s critique of Elinor’s lack of emphasis on the importance of exit rights.

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difficult to model (Kurrild-Klitgaard, 2010, p. 344), involves significant contingencies, like questions of institutional effectiveness more generally. One important response to the classical liberal argument for exit rights as the primary driver of second order coordination is that, as highlighted in the law and economics literature on jurisdictional competition (Bratton & McCahery, 1997, p. 234), exercising such rights can often carry significant costs for individuals. In a market economy, the capacity of individuals and families to meet these costs will of course be unequally distributed (Davidson & Foster, 2013), as emphasised by Grumbach and Michener (2022) in a study of the US federal system. The significance of these costs is acknowledged by classical liberals (e.g. Leeson, 2011, p. 304). One key case in point is the work of Ilya Somin, a leading contemporary advocate of the advantages of foot voting compared with democratic politics. After presenting a range of public choice arguments in favour of foot voting, Somin acknowledges that the costs of foot voting can be a significant deterrent, limiting the proportion of individuals prepared to exercise exit rights through foot voting. The direct costs of re-location, he notes, could include the transaction costs involved in selling a property, purchasing a new one, as well as the costs of moving possessions and accessing new services in the local area (Somin, 2020). Given that individuals often have close social, cultural, linguistic and emotional attachments to their local area, such exit costs, Somin accepts, might extend beyond direct transaction costs. Such costs cannot, or at least not straightforwardly, be captured in monetary terms. The embeddedness of individuals in culture and place was an important theme in the Ostroms’ work. This is perhaps especially true of Elinor, given the extensive, international range of local case studies she carried out. It would seem this was reflected in the Ostroms refraining from emphasising how exit rights can drive institutional change. This complex, potentially closely inter-related range of exit costs, the importance of which is even acknowledged by Somin as a classical liberal advocate of foot voting, gives cause for questioning the force of the right to exit as articulated by Pennington as a driver of second order coordination through institutional competition. Given that a significant proportion of individuals might be unable or reluctant to move to different institutional jurisdictions due to the costs,

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these citizens might instead choose to concentrate on actively promoting institutional improvement through democratic politics.23 Somin, drawing from the work of Bruno Frey (2001), makes the important point that some types of institutional jurisdiction might be defined so that entry and exit from them do not require foot voting in the physical sense of leaving one geographical locale for another. Jurisdictional powers might be separable from ownership of, or authority over, a territory. Frey provides a range of examples of such jurisdictions that are independent of states, from the international court of justice to sports governance organisations such as the International Federation of Association Football (FIFA) from the power to enforce legal contracts to religious institutions such as the Catholic Church (Frey, 2001, p. 164). This important point is reminiscent of Vincent Ostrom’s suggestion that, even when remaining based in a particular local area, citizens still might have choices between multiple public service providers within that area. This demonstrates that competition in public service provision is possible for some goods without users of those services having to physically exit from a particular locale. Although Frey’s observations are important, there are a range of public goods, for example public infrastructure or environmental regulations, that are location-specific, hence can only be of benefit to those users living within a certain area. This point again highlights the varied character of collective goods and hence the contingencies involved in effectively addressing the second order as well as first order task. Of course, just as the range of public goods provided might influence individual choices about where to live, so might the contrasting amounts of taxation that affect such levels of public provision. Hence, it is possible that Tiebout competition between local jurisdictions could lead to a ‘race to the bottom,’ culminating in an overall under-production of welfare services or environmental protection relative to the level which might otherwise be negotiated between citizens and a political authority operating at a larger geographical scale (Inman & Rubinfeld, 2014). Given these various factors, the question of the institutional arrangements that will result from decentralised, competitive second order processes involves significant contingencies. Pennington’s work acknowledges this, 23 Paul Dragos Aligica provides such a reading of the Ostroms’ work, commenting that, in Hirschman’s terms, they consider both exit and voice to have a role (Aligica, 2018, p. 27).

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though he does not discuss the full range of such factors at length. Some authors responding to the Hayekian thesis (Shearmur, 1996; Vanberg, 1986)24 have pointed out that a role for centralised government might emerge through a decentralised process of second order coordination that is more substantive than Hayekian classical liberals would themselves propose. Pennington accommodates this possibility, given that some collective goods and externality problems arise across large geographical scales. However, he does not fully acknowledge that such a process of institutional adaptation might result in forms of first order non-market coordination of a kind not envisaged by classical liberal models of a relatively minimal state. Furthermore, his contributions leave open the need to acknowledge the possibility that centrally defined institutions and interventions might in, some circumstances, be the most effective way of attaining policy goals.

6.6

Democracy and the Second Order Task

In emphasising the potential for bottom-up, evolutionary forms of coordination, the Bloomington School case for polycentric institutional arrangements has significant parallels with the Hayekian account of the ‘spontaneous order’ fostered by markets. In comparison with Hayek’s classical liberalism though, the Ostroms affirm more strongly the importance of democratic politics in establishing a framework for polycentric governance, especially Vincent Ostrom given his extended focus upon wider scale coordination problems and the importance of a national constitutional framework with reference to the US federal system particularly. In cautioning against over-reliance upon the centralised state to foster second order coordination, emphasising the potential for decentralised institutional evolution, Vincent’s case for polycentric governance occupies significant common ground with Hayek. The role of the state, Vincent emphasises, is to establish an overarching system of rules 24 This possibility is highlighted by Jeremy Shearmur’s reflections upon Hayek’s classical liberal proposals (Shearmur, 1996). Shearmur suggests a possible liberal ‘meta utopia’ involving a process of institutional evolution driven by the right of individuals to exit those institutions and states for any reason of their choosing. Such a process, he envisages, can be expected to result in states and communities with a plurality of systems of rights, public services and welfare provision (Shearmur, 1996). According to this vision, some citizens might choose to live in communities with more substantive forms of democratic politics and state welfare provision than is envisaged by Hayek’s classical liberalism.

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(Ostrom, 1999), within an “enforceable system of constitutional law” (Ostrom, 1984) that enables such evolution to take place. A key purpose of such a legal framework is to adjudicate where disputes might arise between different spheres of jurisdiction (Ostrom et al., 1961). “Polycentric systems,” he suggests, cannot be expected to “emerge spontaneously” (Ostrom, 1991) and “require deliberateness in their creation, operation and maintenance over time” (Ostrom, 1991). Compared with Hayek, Vincent envisages a more substantial role for democratic politics in establishing and sustaining such a legal framework, with the public being actively involved at different scales of governance (Ostrom, 1973, 1984; Ostrom et al., 1961).25 He emphasises that establishing and maintaining such a constitutional framework is a political challenge, recognising the knowledge problems involved in constitutional design (Ostrom, 1973, 1997) which must be actively addressed through an ongoing process of learning (Ostrom, 1984).26 Vincent’s stress upon this being a political challenge, that needs to be addressed as such, contrasts somewhat with the Hayekian classical liberal position of recent authors such as Pennington whose work draws from the Bloomington as well as Austrian Schools. Pennington’s work does not fully consider the potential suggested by Vincent Ostrom’s contributions for understanding democratic politics as a coordinative process. This opens up the need

25 Vincent proposes that the “Golden Rule,” a general, fundamental egalitarian norm involving the equal treatment for all, must serve as the basis for such constitutional frameworks (Ostrom, 1997, p. 273). From this normative starting point, he refers to the importance of the shared understandings and norms that communities establish, which serve as a vital foundation for effective legal constitutions (Ostrom, 1997). 26 It would seem that Vincent might share some common ground with Lindblom in his view of how such learning takes place. With his discussion of polycentricity focusing on setting out the general inter-relationship between constitutional law, institutional jurisdictions and democratic politics, Vincent does not provide the kind of detailed account of the policy process that we find in authors such as Charles Lindblom and Aaron Wildavsky. Richard Wagner’s commentary points to an analogy that can be drawn between Vincent’s treatment of political and market processes. Politics can be understood in terms of ‘catallaxy,’ a term which can refer to various kinds of “interactions,” not just market exchange (Wagner, 2005, p. 180). As Wagner (2005, p. 180) puts it: “Political outcomes belong to the realm of catallaxy and not to that of choice. To be sure, catallaxy is generally regarded as a synonym for exchange, but it can also be used as a synonym for interaction.” This treatment of such exchange seems reminiscent of Lindblom’s conception of partisan mutual adjustment.

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for governance evaluation that is open to the full range of contingencies involved in assessing political processes and decentralised institutional adaptation as alternative ways of achieving second order coordination.

6.7

Governance and Coordination: A Research Agenda

In reflecting on the second order task, there is a case for democratic politics having a more substantive role than market liberals envisage in shaping the institutional framework through which first order tasks are addressed. In contrast with his voluminous treatment of problems of first order coordination, the second order task is not so clearly addressed by Hayek and indeed seems to be sidestepped somewhat by his proposals for a minimal state in classical liberalism. As subsequent scholars in the Hayekian tradition have recognised, Hayek’s perspective on decentralised evolutionary processes of institutional change is pertinent to the second order challenge. It is left to more recent scholars such as Pennington to formulate more fully in Hayekian terms the second order challenge for governance and how it might be addressed. As an alternative to democratic politics, these important recent classical liberal contributions highlight the potential for second order coordination to be promoted through decentralised processes of institutional competition and evolution (Aligica et al., 2019; Pennington, 2017). These contributions, while positioning themselves in the classical liberal tradition, are best viewed as conceptualising coordination challenges, opening up questions for further, empirically orientated investigation rather than definitively settling them. As further discussed in Chapter 7, the questions prompted by such heterodox classical liberal contributions concerning the epistemological and motivational dimension of first and second order coordination challenges can serve as a framework for closer engagement with vital evaluative questions about how governance arrangements respond to complex, cross-cutting contemporary policy problems.

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CHAPTER 7

Evaluating Coordinative Effectiveness

7.1

Introduction

The heterodox conceptual approaches explored in previous chapters take a critical perspective towards the capacity of governance processes to shape market outcomes, highlighting the coordination challenges this involves. However, as set out in Chapter 4, there remain normative grounds for governance understood as a process concerned with steering markets towards broadly defined goals, while recognising that there will be limits to how far policymakers can determine outcomes. The limitations of markets with respect to inequalities and externalities are of core importance to this case for governance. As suggested in Chapters 4–6, this case can be articulated in terms of the concepts of heterodox political economy. There is a wide spectrum of possible institutional configurations and policy approaches through which this challenge of steering might, in principle, be approached. These range from hierarchical forms of nonmarket decision-making operating largely independently of markets, to myriad arrangements in which markets are closely entangled with the nonmarket processes through which rules for their operation are formed, to the more strongly market-orientated proposals of classical liberals. Various policy instruments can be chosen, often combined, to form a ‘policy mix,’ through which governance can seek to steer towards policy goals

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across different scales and sectors. Problems of markets such as inequalities and externalities can become manifest in different ways across various contexts and scales. Hence there would seem to be strong reasons to expect multi-scale, hybrid arrangements, of the kind explored by contemporary governance literatures,1 to be a relatively effective way of fostering coordination. However, recognising the complexities of the challenge does not in itself resolve the question of the suitability of specific institutional arrangements and policy strategies formed through different scales of governance. As is emphasised by the Bloomington School, questions of the effectiveness of this range of institutions in the face of contrasting problems inevitably involve significant contingencies and context dependencies (Aligica et al., 2019). Governance evaluation requires empirically orientated research that considers the effectiveness of a range of potential institutional configurations and policy approaches in terms of fostering coordination. Drawing from the insights of heterodox political economy explored thus far, this chapter proposes a methodological approach for evaluating the coordinative effectiveness of governance arrangements. This understanding of coordination challenges within governance, it is explained, is distinct from established treatments of coordination and related concepts in political science and public administration, as reviewed in Section 7.2 below. Coordination is widely agreed to concern process, as is reflected in the heterodox treatment of the concept. The question of how far coordination is being achieved is about the inter-relationship between multiple decisions. However, heterodox political economy approaches to assessing how far coordination has been attained, in contrast with methodologies in political science and public administration, ultimately requires close attention to outcomes. On this heterodox understanding, coordination is related to ‘effectiveness.’ Both concepts are concerned with identifying the most suitable means for attaining sought ends. Whereas ‘effectiveness’ might be assessed with reference to single decisions, coordination is more explicitly concerned with having to balance multiple decisions (Lindblom, 1965, p. 154). Some political economists of pivotal importance to the classical liberal tradition, James Buchanan and Elinor Ostrom being key examples, have 1 As explained in Chapter 6, this is the conclusion reached by the Ostroms, who develop their conception of polycentricity primarily with reference to tackling externality problems and the delivery of city-scale public goods.

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considered their role to be that of analysing and evaluating the institutional processes through which decisions are taken, rather than seeking to directly evaluate the outcomes of these processes in substantive terms.2 However, understanding how far coordination is being achieved, especially as articulated by Hayek, as set out in Chapters 3 and 4, demands attention to outcomes. Hayek’s contributions serve to highlight this need for an outcome orientation, even though his own discussions of the coordination problems facing policymakers do not amount to extensive examples of such outcome-orientated research.3 This understanding of coordination adopted here, with its focus on outcomes, contrasts with the entirely process-focused approaches to analysing coordination within governance that predominate in political science and related fields. As this chapter and the next set out further, an outcome-orientated approach to understanding coordination challenges can inform and enrich such analyses of institutional processes. Section 7.3 considers the normative foundations upon which such evaluative analysis might rest. With both ‘coordination’ and ‘effectiveness’ being concerned with ensuring that suitable means are realised for achieving policy goals, or ‘ends,’ the question arises of whose ‘ends’ should serve as the normative criteria for assessing outcomes. The understanding of ‘coordination’ adopted here, perhaps in contrast with some uses of ‘effectiveness,’ recognises that ends cannot be treated simply as ‘given.’ Rather they are subject to continual change, especially in the face of uncertainty and the ongoing processes through which means for attaining these ends might be discovered. Furthermore, debates about governance and policy effectiveness will often reflect deep differences in the normative values underpinning evaluation. The contestability of its underpinning norms means that evaluative research cannot be reduced to the question of how coordination problems are addressed, just as policy evaluation cannot be reduced to questions of effectiveness. However, in so far as normative common ground can be established about broad values that might serve as a basis for such evaluation, assessment of the challenges of coordination involved in selecting means for translating these

2 This point was emphasised especially strongly by Buchanan (1975, p. 6). 3 As indicated in Chapter 3, his reflections on the problems of government interventions

in areas such as housing and natural resource management, for example, are relatively brief.

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ends into practice is of integral, vital importance to governance evaluation (Greenwood, 2016, p. 37). As Chapter 4 discusses in depth, the frequently inextricable inter-relationships in policy debates between ends and means entail that an understanding of actors’ views about coordinating policy delivery will often be necessary to fully understand the normative ends that actors articulate. Section 7.4 reviews how, in engaging with governance evaluation, there is potential to draw from the distinctive insights of heterodox political economy discussed in previous chapters. On the heterodox understanding adopted here, coordination challenges for governance involve two dimensions. First is the well-recognised motivational dimension, that demands a close focus on the incentives of the actors involved. Second, closely interconnected with motivational issues and of fundamental importance, is the epistemological dimension, the significance of which has been especially highlighted by the preceding chapters. This concerns the need for actors to acquire and be enabled to act upon knowledge concerning the past and potential future impacts of decisions. In contemporary societies, as the Austrians highlight, this epistemological challenge arises in the context of complexity. A vital starting point to understanding coordination challenges, it is argued below, is to give close attention to how actors engage with and respond to the complex choices and trade-offs facing decision-makers seeking to realise goals in this context. Actors’ views of the complexities involved in translating goals into practice inevitably vary, reflecting contrasting understandings, as well as differing values. As has been widely documented, evaluative approaches in the early years of policy analysis and evaluation research relied heavily on the quantitative techniques of operations research and cost–benefit analysis based upon the assumptions of Neoclassical economics (Fleishman, 1990; Tribe, 1972). These fields have since seen significant departures from such methodological approaches. Interpretivism has had significant influence in policy analysis, emphasising the contested values and ambiguity that inevitably characterise actors’ understanding of policy objectives (Fischer et al., 1993; Hawkesworth, 1988). A similar recognition of this is now evident in evaluation research (Bardach & Patashnik, 2019; Rossi et al., 1993). Qualitative analysis of such understandings is widely agreed as a necessary basis for evaluation (Vedung, 1997, p. 72). To evaluate governance processes in terms of fostering coordination, as defined here, requires, as heterodox approaches suggest, research that is directly

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orientated towards assessing outcomes, while being sensitive to the significance of multiple, qualitatively distinct criteria. A similar point has been made by critics of the Neoclassical tradition, with its strongly mathematical orientation, from authors such as David Colander (2001) and Mark Blaug (2007). They call for a re-orientation of economics towards qualitative analysis that is sensitive to the complexities and uncertainties involved in understanding causal factors that shape outcomes. Rather than simply focusing on single policies or programmes though, the aim of the approach proposed here is to consider the wider context of governance processes and the inter-relationships between the effects of multiple policies. Section 7.5 discusses the methods through which this can be achieved.

7.2 Assessing Coordination Within Governance: Established Approaches The challenge of fostering coordination, along with a set of related concepts, including ‘holistic,’ ‘joined up’ and ‘collaborative’ governance, has been a close focus for research in political science and related fields. As context for presenting the distinctive methodology proposed in this chapter, this section reviews these established approaches to understanding the challenges of coordination involved in formulating and delivering policy. Some authors even define governance in terms of coordination (Mayntz, 1993a; Howlett & Ramesh, 2016, p. 302; Kekez et al., 2018, p. 245). In so far as network governance literatures do engage with evaluative questions, the concept of coordination tends to have a prominent role. In recent times, the complexity of policy challenges is considered to have increased, with the impacts of policy strategies increasingly cutting across traditionally defined policy sectors (Head & Alford, 2015; Peters, 2006). Hence, achieving ‘coordination’ between the multiple organisations and actors involved in policy processes can be viewed as an especially significant as well as pronounced challenge. 7.2.1

Defining Coordination

The term coordination, while being a central concern across various literatures on governance including some of the discussions of network governance, has been used in various ways (Peters, 2006). As put by Lindblom (1965, p. 22) at a time when policy analysis was only recently

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established as a research field, coordination is a somewhat “elusive” concept. There is wide agreement that coordination is a process and one that is generally concerned with ensuring that organisations’ strategies and actions take each other into account in some way. Yet there are a variety of more specific ways in which coordination, as a type of process, might be defined. The observation of Klein et al. (1987) that such precision in the meaning of coordination as a type of process is rare remains pertinent. Across political science, public administration and organisational studies, reflecting the ‘process focus’ of these disciplines introduced in Chapter 2, various process-based criteria have been established for assessing whether coordination has been achieved across a range of governance contexts. Such different definitions and criteria, along with the contrasting governance contexts where the concept of coordination is deployed, are reviewed further below. With these approaches tending to focus on coordination as a process, it is argued, literatures on coordination within governance leave open the need for the kind of outcome-orientated approach advocated here. Historically, how to foster coordination has been a longstanding, even if not always explicit, concern in political science analyses of statesociety relations and public administration. Amongst pluralist scholarship in political science, a concern with coordination was evident in Dahl’s work (Robert Dahl, 1961, pp. 115; 120; 130; 187–191) and is especially prominent in Lindblom’s understanding of policy processes in a democratic polity (Greenwood, 2016). Some of the earliest scholarship where coordination was explicitly used to evaluate decision-making across networks was in inter-organisational studies. The focus of this field, perhaps even by definition, concerns how to achieve coordination between multiple organisations and actors. The challenge of coordination has long been a matter of concern in public administration research (Hanf & Scharpf, 1978; Perri 6 et al., 2002; Provan & Milward, 1995; Wilson, 1989), with the term being primarily concerned with organisations and actors working ‘horizontally’ across multiple traditionally defined policy sectors. Coordination in this horizontal, cross-sectoral sense has been referred to as a principal ‘philosopher’s stone’ in the analysis of good public administration (Peters, 2006, p. 115).

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Coordination and Inter-Organisational Theory

In inter-organisational theory, where, as introduced in Chapter 2, the central focus is upon the inter-dependence of organisations and the concept of coordination is of such central importance, coordination is often understood in terms of the exchange of resources. Yet, as Charles Mulford and David Rogers (1982, p. 16) point out, resource exchange is not necessarily sufficient for achieving coordination. Organisations might exchange resources for reasons of mutual self-interest, while still working towards their own specific purposes rather than collective goals. In interorganisational theory, there are also different views about the specific kind of process through which coordination is achieved. Some contributions to inter-organisational theory treat coordination as synonymous with ‘cooperation’ (Aitken et al., 1975; Black & Kase, 1963; O’Toole, 1972). This is in contrast with those who treat coordination and cooperation as distinct types of process. The approach of authors such as Robert Morris (1963) and Paul White (1974) is that, while cooperation can be an informal process, coordination involves formal decision-making structures and establishing more long-lasting policy goals. Alternatively, coordination might be understood in more abstract terms and achievable through a range of specific kinds of process. For example, Robert Warren (1974), rather like Lindblom, defines coordination as a process of realising aggregate goals that would not be set and accomplished otherwise, through a process of mutual adjustment. Coordination in this sense, Warren argues, might be achieved not only through processes of cooperation but also through contestation between actors. 7.2.3

Vertical and Horizontal Coordination

In political science and public administration, studies of interorganisational relationships have often recognised their distributed, or ‘horizontal’ character, in contrast with perhaps more traditional assumptions about the hierarchical or ‘vertical’ nature of state decision-making (Peters, 2006). Various assumptions are made about the institutional or organisational context within which coordination is taking place, depending on the field of study. As commented upon by authors focusing on different fields, such as national-level policy analysis (Lindblom, 1959) or social and urban policy delivery (Chisholm, 1989; Klein et al., 1987), the concept of coordination has in the past been associated

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with attempts, through hierarchical organisation, to establish a rational, systematic approach to achieving commonly held policy objectives on the basis of centrally available information. Lindblom (1959) famously refers to this as the ‘rational comprehensive’ model. This is reflected in some early treatments of the concept, for example in inter-organisational studies (White, 1974; Morgan & Brownstein, 1986) and environmental policy integration (Underdal, 1980). Subsequent discussions of coordination across public administration and a range of related fields offer less centralised alternatives to such a hierarchical view. Recognising the importance of coordination in the ‘horizontal’ sense, studies of governance and policy networks have explored the capacity for more distributed, decentralised institutional arrangements and processes of coordination (Chisholm, 1989; Hanf & Scharpf, 1978; Landau, 1980), a focus that has since become predominant. Several other concepts, similar to such cross-sectoral, horizontal coordination, are now present across a range of literatures, including ‘joined up’ or ‘holistic’ governance, collaboration, policy integration and coherence.4 Taken together, these literatures each offer important concepts and insights for understanding governance, while leaving open the need to establish a clear framework for evaluating governance and policymaking in the face of complexity. 7.2.4

Process Criteria for Coordination

Across these fields exploring horizontal inter-relationships, various possible criteria have been suggested for assessing how far governance and policy processes are achieving coordination in a procedural sense. Specific characteristics of decision-making processes are explored. A key distinction is between negative and positive coordination (Scharpf, 2000). Negative coordination means avoiding direct conflicts between programmes, while positive coordination is “a more active stance” of ensuring that, in substantive terms, programmes “work together” and “support each other” (Peters, 2006), which might be referred to as involving ‘coherence’ between multiple decisions. Some authors have sought to develop further categorisations of types or degrees of cooperation and coordination, according to the extent to which governmental

4 See Tosun and Lang (2017) for an overview.

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departments or actors work together. For example, Hudson et al. (1999), with a focus on public service delivery, define ten components of collaborative endeavour, ranging from the recognition of the need to collaborate, to establishing purpose and building trust, through to settling upon a clear route or “pathway” towards the attainment of joint goals. The work of Les Metcalfe (Metcalfe, 1994) on EU governance provides a typology of different degrees of horizontal coordination, defined in entirely procedural terms, ranging from where ministries take decisions independently to the establishment of central priorities and government strategies. 7.2.5

Dynamic Coordination

These process-orientated treatments of coordination offer important typologies. However, in further reflections in the public administration literature on the meaning of coordination, limitations of a processorientated approach are evident. An important cautionary note for such proposed typologies of coordinative processes is offered by Guy Peters, who questions whether coordination between multiple decisions can be taken to be synonymous with consistency. According to such a treatment of coordination, he comments, failure to achieve coordination is when the actions of two organisations entail one or more of the following: (i) Performance of the same task (redundancy); (ii) no organisation performs a necessary task (lacunae); or (iii) policies with the same clients (including the entire society as the clients) have different goals and requirements (incoherence) (Peters, 1998). Yet, as Peters points out in a later discussion of coordination, a process involving redundancy, or even lacunae, might yield benefits. On his view, which resonates with that of the Ostroms, these phenomena might be viewed as a necessary part of the process of searching for and experimenting with new means of achieving policy goals. As Peters puts it, “There may be some circumstances in which complexity and incoherent approaches are functional, rather than dysfunctional, for both government and the governed” (Guy Peters, 2006).5 To use the terms of Catherine Alter and Jerald Hage (1993), this is coordination in a ‘dynamic’ sense, that they contrast with ‘static’ coordination where decisions taken by different actors are mutually consistent. Where chosen options might involve a degree of variation and ‘inconsistency,’

5 See also Peters (Peters, 2015).

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even inefficiency, dynamic coordination, they suggest, might still lead to better long-term outcomes. This perspective resonates with the Austrian understanding of coordination as a dynamic process involving continual experimentation and innovation. Any attempt to settle the question of which of these types of process counts as coordination involves a fundamental challenge. As Peters (2015, p. 24) recognises in an extensive recent review of the literature on policy coordination, evaluating policy in terms of coordination ultimately requires consideration of outcomes. This resonates with Hayek’s understanding of coordination which also demands consideration of outcomes. These difficulties involved in operationalising coordination as an evaluative criterion reflect the limitations of any attempt to evaluate governance and policymaking solely in terms of a set of procedural characteristics. For, the nature of processes in themselves do not inform us about their substantive impacts. As Johan de Briujn and Arthur Ringeling put it, “process norms in no way guarantee that the outcome will satisfy the ideal of ‘good policy.’” Indeed, they suggest, a close focus on “process norms” such as consensus-seeking could be counter-productive, leading to “sluggish decision-making which is not results-oriented” (de Bruijn & Ringeling, 1997, p. 158). 7.2.6

Coordination and Related Concepts

There is research on a range of concepts closely related to coordination that also take a process-orientated approach to policy evaluation (Tosun & Lang, 2017). Here again, there is a need for more outcome-orientated evaluative research. This includes work on ‘holistic’ or ‘joined-up’ governance, where the primary focus has been on social policy (Ling, 2002; Perri 6 et al., 2002) and studies of policy integration, which have tended to concentrate on environmental and climate change policy (Lafferty & Hovden, 2003; Nilsson & Eckerberg, 2007; Jordan & Lenschow, 2010). Holistic or joined up governance refers to different organisations involved in policy delivery aligning their activities towards the more effective attainment of common policy goals (Ling, 2002; Perri 6 et al., 2002). The ways in which these literatures define policy integration and holistic governance focus on process criteria, such as the extent to which common goals are adopted, collaborative ways of working developed and resources shared (Ling, 2002; Perri 6 et al., 2002). The literature on joined up governance, for example, has formulated typologies of different

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procedural arrangements aiming to promote horizontal coordination or integration across different political authorities and government departments. Such initiatives have been developed across a range of policy areas, including urban policy, drugs misuse, education and social work. These include features such as the formation of merged structures, joint teams, shared goals, budgets and performance indicators (Ling, 2002). Policy integration, as defined in the environmental policy literature, is generally concerned with how far environmental objectives are integrated in procedural terms across a full range of economic and social policy areas.6 Compared with the holistic governance literature, studies of policy integration make less explicit reference to governance. However, there is clear recognition of the importance of managing and balancing multiple, cross-cutting areas of policy that involve multiple stakeholders. These are key themes in the literature on governance. This process focus is commented upon in some contributions to these literatures which highlight the need for further work evaluating outcomes of efforts to achieve such joined-up or integrated approaches (Jordan & Lenschow, 2010; Tosun & Lang, 2017). Coordination might indeed, as Guillermo Cejudo and Cynthia Michel (2017) suggest, be most suitably viewed as a type of process involving the establishment of rules and exchange of information. Yet, any such process, however clearly specific criteria are met for the functioning of this process, cannot be assured of achieving sought outcomes.7 Ultimately, as is the central focus of the approach proposed here, outcomes, previously attained or expected, serve as the grounds for evaluating governance. These treatments of coordination in political science, public administration and related fields are summarised in Table 7.1 below. The table illustrates the contrast between these process-orientated approaches and the outcome-orientated treatments of coordination in political economy further discussed in Section 7.4 below.

6 Authors in the EPI literature articulate differently the weight they expect to be placed upon environmental goals, reflecting their contrasting normative priorities (Jordan & Lenschow, 2010). 7 While Cejudo and Michel implicitly acknowledge this, suggesting that ultimately there is a need to evaluate how far policy is ‘integrated’ in the face of complex problems, they stop short of proposing that governance and policy are evaluated in terms of outcomes.

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Table 7.1 Process- and outcome-orientated treatments of coordination Disciplinary approach

Political science/ public administration

Heterodox political economy (Austrian and Bloomington Schools)

Analytical focus

Decision-making processes

Key concepts

Collaboration Joined-up governance Holistic governance Policy integration

Understanding of coordination Dimensional focus

Shared goals, communication, consistency Motivational (incentives, bargaining/negotiation; resource exchange; trust, collaboration) Chisholm (1989) Metcalfe (1994) Scharpf (1997) Perri 6 et al. (2002) Jordan and Lenschow (2010)

Inter-relationships between decision-making processes and outcomes Coordination (Also: uncertainty, economic calculation, innovation, entrepreneurship) Dynamic process; mutual adjustments Epistemological and motivational (including complexity, unintended consequences, uncertainty) Hayek (1944, 1945) Lindblom (1965) Lavoie (1985) Boettke and Leeson (2004) Pennington (2010)

Examples of key authors and publications

7.2.7

Implementation and Outcomes

In contrast with the process-orientated approaches in political science and related fields discussed above, implementation research, as introduced in Chapter 2, is one field that has had an especially prominent outcome orientation, engaging with evaluative questions about the effectiveness of different kinds of implementation process. Ever since Pressman and Wildavsky’s seminal contribution (Pressman & Wildavsky, 1973), the field has served to highlight the importance of micro-level analysis (Schofield, 2001). However, given the aim of evaluating governance in the sense addressed here, there are important limitations to the scope of implementation studies, as has been commented upon by scholars within the field. Firstly, there are limits to how far the findings and insights of implementation theory have fed back into recommendations for policy design, with the primary focus having been upon developing explanatory theories (O’Toole, 1986). Secondly, the main corpus of implementation theory

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has tended not to examine the ambiguities and potential contestation involved in what constitutes a ‘successful’ outcome. This is highlighted by Yanow’s interpretivist approach which highlights the different ways in which the language and symbols of policy might be understood by the actors involved in their translation into practice (Yanow, 1993). While there may be agreed measures of policy effectiveness in some areas, such as the measurement of job creation and infrastructure delivery in Pressman and Wildavsky’s Oakland case study, such measurements can be subject to disagreement, reflecting the possibility of a focus on particular goals having negative, unintended consequences due to their not being balanced with other objectives. This normative question of how to balance the range of criteria in terms of which we might evaluate policy raises the challenge of selecting and designing policy instruments suitable for addressing the given problem. This challenge of ‘policy design’ (Linder & Peters, 1987), a crucial factor in policy success, has been beyond the scope of implementation studies. Wider questions concerning the institutional context shaping policy formation and delivery, as well as the inter-relationships between multiple policies, or ‘policy mixes’, also lie largely outside of the scope of implementation research. 7.2.8

Networks and Coordination

As set out in Chapter 2, research on governance and networks in political science and public administration still leaves very much open the question of the criteria and methodologies to be used for evaluating the effectiveness of such institutions. The central focus of much of the research is upon the motivational dimension of coordination challenges. Varying emphasis is placed on rational choice and sociological understandings of motivation. As explained above, research in inter-organisational studies was an important early influence in the literature on governance networks. Here, a starting premise was the resource dependency of actors and this field of research focused upon how to incentivise resource exchange, defining coordination in these terms.8 The central question that has since emerged in this field, focusing on the motivational dimension, is 8 Organisational studies, a sociological field of research, can be traced to the pivotal early work of Chester Barnard, which focuses upon the motivational challenges facing organisations as they seek to achieve their goals. Somewhat mirroring the response of sociological institutionalism to rational choice theory, Barnard’s work responded to rationalist

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how far organisations overcome their immediate self-interest to identify and achieve mutual gains through building trust, even developing common goals that transcend narrow self-interest. The primary focus of early public administration scholarship on understanding coordination was on ways of overcoming conflicting interests of political actors (e.g. Hanf & Scharpf, 1978), hence continuing this motivational focus. Having been influenced by inter-organisational theory, the Max Planck school emphasises the potential of negotiation and bargaining processes within networks to produce collective outcomes that overcome conflicts between the narrow self-interest of individual actors, fostering communication, trust and a willingness to compromise (Kenis & Schneider, 1991; Mayntz, 1993b). This approach supersedes previous models based upon ‘exchange’ and ‘strategic interaction’ (Börzel, 1998). Subsequent work on policy networks has often shared such a motivational focus, being concerned primarily with establishing the motives and incentives for organisations to work together towards common goals (Klein et al., 1987) or how organisations in networks can achieve joint action, given their different interests (Klijn, 1997, pp. 31–32). The approach proposed here, with its epistemological orientation, can complement and enrich these established approaches, which typically focus upon the motivational dimension of governance challenges and questions relating to incentives. The second wave of network governance research, as explained in Chapter One, is more strongly orientated towards addressing evaluative questions. There is greater recognition of the complexity of contemporary policy challenges and that these are subject to a range of contested understandings. Notably, Torfing et al. (2012) recognise the ongoing significance of political contestation and conflicts over political power. However, discussion of the motivational elements of coordination challenges is still significantly more prominent in the literature than the epistemological dimension. Contributions from the Rotterdam and Roskilde schools emphasise the potential for network arrangements to foster trust (Koppenjan & Klijn, 2004, pp. 83–97), addressing conflicts of interest of the kind highlighted by public choice theory. This includes how to foster incentives for resource-sharing and the establishment of common goals and trust (Klijn, 1996; Kickert & Koppenjan, 1997; Provan & Kenis, 2007; Kenis & Provan, 2009; Klijn & Koppenjan, 2012). As discussed principal-agent models of organisational behaviour. He emphasised the vital importance of organisational leadership, which can foster shared norms and goals.

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in Chapter 2, Sørensen and Torfing highlight important process-related questions concerning the ‘democratic anchorage’ of networks. However, the implications of uncertainties and limits to knowledge are not explored so fully in the cases explored by this literature. Torfing et al. (2012, p. 172) do include the concept of coordination in their process-related criteria for evaluating networks, though do not set out the meaning of the term in detail and their criteria do not consider governance outcomes. In their recent, second generation work on network governance research, Klijn and Koppenjan (2016) suggest that, in order to evaluate networks, researchers need to engage with the contrasting ways in which stakeholders understand the ‘substantive’ complexities involved in contemporary policy challenges in order to identify potential solutions. Nonetheless, the focus of their proposed evaluative approach remains on processes of governance. While this therefore suggests the need for a more outcome-orientated approach, the question of how to achieve this in methodological terms remains open.

7.3

Foundations for Evaluation

As discussed above, evaluation of governance in terms of coordination as defined here necessarily involves considering how far goals sought have been, or can be expected to be, attained. Achieving such an outcome orientation requires us to turn to the conceptual tools and insights of heterodox traditions in political economy. The foundations for such evaluation must necessarily concern the norms and goals that governance actors are seeking to achieve. The concept of coordination itself could be concerned with the attainment of any particular goal, from the individual liberty prioritised by classical liberals to those goals, of the kind discussed in Chapter 4, that entail the need to substantively shape market outcomes, such as environmental sustainability or social justice. Coordination as a concept is closely related to effectiveness but is more explicitly concerned with the relationship between multiple decisions. These goals will be contested and reflect continual changing socioeconomic contexts. Understandings of how far goals have been achieved will be similarly open to varying interpretations. Wide recognition of this contestability and susceptibility to change reflects the significant influence of interpretivism in the social sciences generally, as well as in governance and policy

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research in particular (Fischer & Forester, 1993; Bevir and Rhodes (2003) and ProQuest (Firm), 2003; Innes & Booher, 2003).9 In emphasising the contestability of the starting assumptions upon which knowledge is founded, the ontological and epistemological standpoints of interpretivism have shaped contemporary understandings of the foundations of governance and policy research (Bevir & Blakely, 2018). With its emphasis upon the inevitably contested, fluctuating and often ambiguous character of the values and understandings shaping assessments of governance and policy, interpretivist scholarship has tended to avoid presenting directly evaluative conclusions. Certainly, there is a concern to avoid presenting policy evaluations as complete and definitive. The focus is upon analysing and comparing the assumptions upon which these understandings, often referred to as ‘discourses’ or ‘framings,’ are based. The approach of ‘frame analysis’ was developed by Martin Rein and Donald Schön (Rein & Schön, 1994), specifically in relation to understanding policy problems. Reflecting an interpretivist standpoint, they define framings as a set of beliefs, understandings and aspirations, incorporating values and becoming manifest through actions (Wagenaar, 2011, pp. 82–83). The approach, which they apply to a range of policy problems, involves detailed interrogation of the framings of different stakeholders. For example, they analyse three different framings of the problem of homelessness in Massacheusetts, comparing the ‘social welfare’ framing of advocacy groups, the ‘social control’ framing of public agencies and the ‘market’ framing (Rein & Schön, 1994).10 An explanatory purpose was an important motivation in the development of frame analysis. For Rein, whose early work pioneered the approach, a key aim was to understand why policy problems can so often be intractable and the tendency for actors’ understandings to be resistant to change (Wagenaar, 2011, p. 85). However, while critical analysis of framings can uncover their underpinning assumptions, frame analysis does not seem to offer a 9 See also Koppenjan and Termeer (1997) on the framings of actors within networks. 10 The advocacy groups emphasise that housing is a legal entitlement, whereas the

public agencies emphasise the need for governmental discretion in the allocation of housing. Both framings are in contrast with the view that housing markets offer a way of addressing homelessness. Scholars have deployed frame analysis in relation to a range of policy areas and contexts. For example, Fletcher (2009) compares different characterisations of how US climate policy was framed during the second Bush presidency. In analysing how Indian housing policy is framed, Khaire and Jha (2022) identify bias towards home ownership.

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vantage point from which frames might be evaluated (Wagenaar, 2011, p. 90). It is such direct evaluation that is widely viewed as the task of policy analysis. As Bovens et al. (2009, p. 328) put it, the contemporary policy analyst seemingly faces a choice between the Scylla of positivism and Charybdis of relativism. Interpretivist approaches would seem to fall within the latter category, being acutely aware of the pitfalls of seeking to establish definitive evaluative conclusions. However, some key interpretivist contributors, such as Frank Fischer and John Dryzek, have highlighted the need for closer engagement with evaluative questions (Dryzek, 1982; Fischer, 1995). An early contribution from Martin Rein (1978, pp. 153–159) had made the related suggestion that there is potential for interpretivist approaches to more closely consider policy outcomes. Such a focus has tended to remain lacking. An approach is proposed here to establishing the normative grounds for governance evaluation that is akin to that set out by Fischer (2009), whose work is especially concerned with achieving more direct engagement with evaluative questions. For Fischer, the role of the policy analyst is to “probe” policy actors’ factual knowledge in establishing the grounds for analysis, exploring the norms and contested assumptions that inevitably shape understandings. This approach, being sensitive to how framings are shaped by complex contexts and actors’ contrasting norms that shape them, Fischer (2003, pp. 181–202) suggests, can be viewed as more rigorous, even scientific, than positivist approaches. Fischer’s aim is not to suggest that complete consensus on evaluative criteria can be reached. Rather, his emphasis is that there is, to some degree, potential for synthesising contrasting normative perspectives. Such shared normative ground, in which broadly defined goals command wide support, can serve as the foundation for policy evaluation (Fischer et al., 2007: 227–28). Also recognising the need for evaluative research that avoids the vulnerabilities of positivism, John Dryzek similarly suggests that evaluation might be founded upon widely shared, even if not universally agreed, values, identified through a process of comparison and dialogue (Dryzek, 1982). As these authors suggest, such an approach would seem to be quite consistent with an interpretivist philosophy while avoiding the pitfalls of relativism. Recognition of the contestability of values does not preclude them from serving as the basis for evaluative research. As argued in Chapter 4, in so far as norms are at least widely shared, they can become accepted as providing grounds for evaluation.

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Such an approach is widely adopted in evaluation research. Though, as Rossi et al. explain, there is a need for the evaluator to explicate these normative foundations reflectively: “In our judgement, then, the responsibility of the evaluator is not to take one of the many perspectives as the legitimate one but, rather, to be clear about the perspective from which a particular evaluation is being undertaken while explicitly giving recognition to the existence of other perspectives” (Rossi et al., 1993, p. 969).

There are a range of key, widely shared values that might serve as such grounds for outcome-orientated governance evaluation, even though there may be potential for them to be subject to contrasting interpretations. As reviewed in Chapter 4, these range from enabling individual opportunity and economic competitiveness to promoting public health and ecological sustainability. Such policy goals offer the potential to command a significant degree of support, especially when treated as grounds for shaping outcomes, rather than assumed to be fully determining their pattern.11 This again suggests the value of a ‘steering’ approach which allows for a significant degree of flexibility in how goals are translated into practice across different geographical and social contexts. A focus upon assessing the ‘coordinative effectiveness’ of governance in terms of achieving such steering, as detailed further below, can complement and enrich established interpretivist approaches.

7.4

Coordination, Complexity and Outcomes

To fully evaluate governance in terms of coordination, we can turn to the distinction between first and second order coordination that has emerged from public choice theory, as discussed in previous chapters. The task of first order coordination concerns substantive allocative questions about the use of society’s resources. Pivotal to the question of how to achieve first order coordination is the relative balance and inter-relationship between markets and non-market institutions and processes, as was the focus, for example, in debates about the effectiveness of socialist planning. The second order task concerns the processes through which such first order questions are addressed. Is the balance and relationship between 11 See Chapter 4 where this argument is fully explained.

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market and non-market decision-making to be handled through a political process? Or might there be some form of competitive, decentralised institutional selection process through which such first order questions are settled? Another way of expressing this second order question is to ask at what scales political decisions should be taken and institutional arrangements established for dealing with first order questions. As reviewed in Chapter 6, the Ostroms favoured polycentric arrangements, in which the scale of institutional arrangements adapts according to the scale of the governance problem concerned. To attempt to achieve outcome-orientated governance evaluation, addressing both first and second order tasks, is ambitious. As was evident in Elinor Ostrom’s numerous case studies, which had a first order focus on the interactions between individuals in addressing substantive problems of resource allocation, the complexities of each policy challenge need to be explored with sensitivity to context. Such ambition might no doubt prompt scepticism about the feasibility of deploying such an approach. Elinor encountered such scepticism when developing her research programme (Tarko, 2017, p. 2). It should be noted though that the focus of the approach proposed here contrasts somewhat with the micro-level analyses of individual behaviour carried out by Ostrom. The approach is more orientated to addressing macro-level questions concerning governance and policy strategy and how these seek to shape market outcomes more broadly. An especially close focus on the epistemological dimension of governance challenges contrasts with, though might potentially complement, the IAD model developed by Ostrom, applications of which have tended to have a strongly motivational focus. As reviewed in Chapter 6, second order coordination has become the subject of recent discussion relatively recently within public choice and heterodox literatures. These contributions, in highlighting the question of how to shape the role of markets in fostering coordination, all suggest the need for further research exploring the outcomes of different forms of second order coordination in empirical terms. Such a programme must of course draw from prior studies, including the extensive, pioneering work of the Ostroms. The epistemological focus proposed offers further important lines of investigation, exploration of which can supplement and enrich the Bloomington approach to second order institutional analysis. The methodology proposed here for evaluating coordinative effectiveness is based upon qualitative analysis of the contrasting perspectives of stakeholders, as is common practice in evaluation research. Indeed, the

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aim of evaluation research is very closely related to the understanding of coordination deployed here. Alan Clarke defines evaluation as “the effectiveness with which existing knowledge is used to inform and guide practical action” (Clarke & Dawson, 1999, p. 35). Such an evaluative approach incorporates recognition of the contested values and ambiguity that inevitably characterise actors’ understanding of policy objectives (Meltzer & Schwartz, 2019).12 The outcome orientation of the approach is conducive, like evaluation research, to drawing from the insights offered by different academic disciplines.13 The starting point for the approach is to assess how coordination challenges in the first order, substantive sense are addressed. This focus demands detailed attention to how actors understand and respond to the ongoing choices and trade-offs, inter-related in complex ways, that are involved in attaining their goals.14 While not expressed exactly in these terms, recognition of the close, mutually defining and continually shifting inter-relationships between ends and means, later became evident in the literature on policy analysis. The point is made by Wildavsky (e.g. 1966, pp. 299–300) and especially strongly by Lindblom (1959, p. 81, 1965, p. 146)15 in their critiques of rationalist models of policy analysis. This critique, widely influential in the field, has been echoed by some more recent governance theorists (De Bruijn & Ten Heuvelhof, 1997, p. 121; Klijn, 1997, p. 7). Hayek’s articulation of the point is especially pronounced, as he emphasises the profundity of the potential negative, unforeseen consequences that can arise in the context of such complexity from even the most well-intentioned policy interventions. As discussed in Chapter 3, his insights into such coordination problems demand detailed empirically orientated analysis. 12 This is in contrast with economics-based quantitative methods that had early prominence in evaluation research (Rossi et al., 1993; Berk & Rossi, 1998; Davidson, 2004). The field now widely avoids the presumption of a single definitive measure of the success of a policy programme. 13 For example, House (1993, pp. 73–90) comments on how evaluation research can draw together insights from different disciplines. 14 As discussed in Chapters 3 and 4, Austrian theory provides vital insights into the significance of these trade-offs and choices and how they are shaped by complexity. 15 Lindblom starts from a similar understanding of complexity to that of Hayek, emphasising the closely intertwined, dialectical inter-relationships between the plurality of ends across society and the vast array of possible means through which they might be attained (Lindblom, 1959: 81; Lindblom, 1965: 146).

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On such an understanding, achieving first order coordination must involve enabling actors to take account of relevant knowledge about the inter-relationships between their decisions. Coordination problems occur when actors take decisions without access to such relevant knowledge, which can result in problems of unintended consequences16 . A wide selection of illustrative examples of such impacts could be given here, relating to different policy areas and involving various policy goals and instruments. These impacts of governance and policy might include failure to anticipate social outcomes that are widely deemed unfair, causing negative social or environmental externalities such as various kinds of pollution and associated ecological damage and human health risks, promoting suboptimal technologies in terms of achieving sustainability, or insufficient provision of public goods relating to a range of values such as security, education, communication and so forth. The fundamental epistemological dimension of coordination challenges concerns how to promote the availability of relevant knowledge that will enable the avoidance, or at least the mitigation, of such negative impacts. Such an epistemological focus can complement and enrich standard approaches in political science that have tended to focus on the motivational dimension of processes of policy delivery. The attention to the inter-relationships between multiple decisions also means that the approach offers a way for evaluation research to turn to the wider institutional contexts of governance that shape policymaking. As explained above, analysis of stakeholder framings serves as the basis for the evaluative approach. The Austrians provide a conception of three closely intertwined layers of the complexity involved in first order coordination problems in terms of which such analysis can be organised. As set out in Chapter 3, the Austrians develop this conception of complexity through their articulation of the nature of economic decision-making, or ‘calculation.’ These layers, referred to here as value pluralism, technicalscientific and economic complexity, (Greenwood, 2007) are evident in any given policy problem as further explained below. Mapping and comparing different actors’ knowledge and understandings of these three layers, it is proposed, can serve as a vital starting point for evaluating policy and governance in first order terms. Such a focus can offer in-depth insights

16 This conception of coordination is briefly introduced in Chapter 2 and elucidated in more detail in Chapter 3.

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into the contours of coordination problems and the complexities that characterise them. Before further explaining the relevance of the three forms of complexity for policy problems, let us reiterate them. These were articulated by the Austrians with reference to the problems of production planning during the inter-war period, though they remain applicable to understanding contemporary governance and policy. The first of the three layers of complexity concerns the plurality of normative values and preferences, or ‘ends,’ motivating individuals across society. Technical-scientific complexity, by contrast, concerns the cause-effect inter-relationships that determine the possible range of goods and services that could be produced—i.e. the quantities of goods and services that could be produced with a given set of technologies. To refer back to the context within which the Austrians defined the concept, an example of technicalscientific complexity would be the question that faced Soviet planners of how much of a certain product a factory could produce with a set of inputs and technology. The notion of technology here is broad, encompassing the production of a full range of possible services, as well as manufactured goods. ‘Technologies’ include, for example, different forms of care for treating health conditions, alternative means of promoting ecological sustainability, ways of promoting person-centred welfare services, or fostering sought educational outcomes. Hence ‘technical scientific’ is not meant here in the narrow sense to refer only to the domain of the natural sciences. Assessing the possible ‘technical-scientific’ means of producing goods and services also requires consideration of evidence from the social sciences about their potential impacts. As the Austrians highlight, technical-scientific questions, even understood in this broad sense, can be distinguished from economic questions about which technologies, factor inputs or production targets, should be adopted, assuming a given set of overall needs or ‘ends’ of society. These are defined here as ‘economic’ questions. The term ‘economic’ is also used here in a broad sense, being concerned with the full breadth of costs and benefits of decisions, including consideration of values, such as social or ecological values, that might be incommensurable, hence not directly comparable to other values in terms of a single, quantitative metric. Actors’ technical-scientific understandings reflect their contestable, often normatively laden, perspectives and understandings. The normative and epistemological differences between actors’ understandings are often

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heightened by the uncertainties characterising technical-scientific questions. The contested, subjective character of technical-scientific knowledge has been highlighted by scholars adopting a broadly interpretivist or ‘post-positivist’ approach (Fischer, 1993; Wynne, 1997). For example, on the questions of the impacts of pesticides on human health, scientific research carried out by a researcher strongly committed to ecological values can be expected to reach different conclusions to studies funded by companies manufacturing pesticides. There is a further sense, though, in which economic choices are inherently normative whereas technical-scientific questions are not. Technical-scientific propositions are concerned with the causal relations that affect the range of possible outcomes. Hence, establishing how far they are true or false requires consideration of evidence. They are questions of fact. Economic choices, by contrast, are concerned with evaluating the range of outcomes that are considered possible in a technical-scientific sense. Individuals’ economic decisions directly and inevitably reflect their normative values. Policy decisions inevitably involve addressing economic dimensions of choice that are intertwined with both value pluralism and technicalscientific complexity. For, policy inevitably shapes the range of technicalscientific possibilities available to society, having implications for how far individuals are able to attain the various range of ends that motivate them. Let us illustrate the common, inextricable connections of value pluralism, economic and technical-scientific complexity that are so evident in many policy problems. Take the pesticide example again and the question for policymakers of whether to allow a pesticide to be licensed for agricultural use. There is a technical-scientific dimension to this question, given that the need to gauge the likely effect of allowing use of the pesticide on ecosystems and crop productivity requires consideration of the scientific evidence about the causal relations that determine these impacts. Yet the question of whether to permit use of the pesticide is not an entirely technical-scientific one. In so far as technical-scientific knowledge about expected impacts is established, the expected costs and benefits of these impacts need to be assessed. Evaluation of policy options in terms of the balance of these expected costs and benefits, undertaken by any given policy actor, is necessarily a normative question and cannot be reduced solely to technical-scientific analysis. The analyst evaluating options must reflect upon their own values and preferences, potentially along with their perceptions of the values and preferences of others. The formation of such policy involves economic choices in the sense defined here, concerning the

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evaluation of different possible means for seeking to achieve these ends. Establishing the extent of the expected benefits and costs requires consideration of both technical-scientific evidence concerning their possible impacts, as well as economic assessment of the different possible strategies and methods through which the policy might be delivered. Knowledge concerning these three layers of complexity is inevitably subject to a degree of uncertainty and ambiguity, contrasting interpretation and indeed contestation. There is cause for adopting an interpretivist approach for evaluating the effectiveness of governance and policy in the face of such complexity. A qualitative, interpretivist approach might explore the differences in how far various, qualitatively distinct, often incommensurable and contested values motivate individuals across society. These values have an indeterminacy in that they do not clearly lead to any single, specific choice of means for translating them into practice.17 Valuing ‘ecological sustainability’ does not, for example, provide a definitive answer to the question of whether we should become vegan. It is possible to define a conception of ecological sustainability that incorporates some level of consumption of meat or dairy products. The ambiguity of abstractly defined normative goals also means that they cannot, in themselves, serve as a definitive guide to how we might prioritise and balance them with each other. In other words, there are limits to how far the values alone can guide us in addressing the economic contours of choice involved in translating them into practice. Hence, we might place value on the universal provision of health care but this does not in itself enable us to resolve the question of how far a society should agree to limit the provision of relatively expensive health interventions that society does not have the resources available to provide for all patients for whom they might be of some benefit. Fully operationalising our normative goals requires us to engage with such choices, which are necessarily economic in the broad sense defined here. Achieving a comprehensive, outcome-orientated approach to governance evaluation requires careful, detailed analysis of the economic contours of choice facing policymakers. Given its fundamental importance, economic complexity inevitably emerges in outcome-orientated, qualitative policy evaluation of the kind set out by numerous policy analysis textbooks. However, such qualitative policy analysis sits rather

17 This point is explained in Chapter 4.

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separately from the academic disciplines of political science and public administration, where, as discussed in Chapter 2 and Section 7.2 above, outcome-orientated evaluation is not such a central focus18 . As discussed above, frame analysis is one interpretivist approach that has been discussed and deployed in political science and policy studies journals, albeit not as extensively as might be expected (Wagenaar, 2011, p. 85). Sometimes frame analysis is used to conceptualise how policy is resistant to change. Even when judged in explanatory terms, such a line of analysis, by assuming an inherent policy inertia, might be argued to underestimate the potential for policy to be shaped by dynamically changing circumstances. Aside from this, frame analysis as a methodology can be viewed as very suitable for the kind of evaluative research proposed here, especially considering that the approach is conducive to achieving close attention to detail. The detailed focus on analysing actors’ understandings of the shifting contours of economic complexity, as set out above, offers significant potential to complement and enrich established interpretive methodologies. In terms of their approach and insights concerning the assessment of governance effectiveness, the heterodox perspectives adopted here share significant common ground with the field of evaluation research. As introduced in Chapter 2, this field, in contrast with the focus of political science and public administration, is directly concerned with achieving outcome-orientated evaluation. In evaluation research, the complexities involved in assessing outcomes and understanding the causal factors that shape them, are well recognised. In this context, the question of how to measure outcomes is addressed with care and caution (Davidson, 2004, Chapter 5). Like evaluation research, heterodox approaches also highlight the importance of understanding the perspectives of a wide range of individuals. The Austrian perspective in particular suggests the need for a close focus upon individuals’ understandings of the choices and trade-offs involved in translating policy goals into practice. Just as a wealthy, private entrepreneur who finances a new firm might have vital, distinctive insights into market opportunities, so could an employee receiving relatively low pay whose work providing goods and services for consumers requires discretion and responsiveness to customer demand. In this respect, a

18 This is explained in Chapter 2.

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variety of forms of locally or sector-specific ‘expertise’ are of vital significance for addressing coordination challenges. In relation to policymaking, the expertise of those responsible for policy delivery is of significance, as well as that of policy analysts and decision-makers. This is highlighted by Michael Lipsky’s famous analysis of the role of ‘street level bureaucrats,’ a term he used to refer to the locally situated actors, such as social workers, teachers or police, who are involved in policy delivery (Lipsky, 1980). Their tacit forms of knowledge co-evolve alongside the information and insights that identify and codify complex economic inter-relationships. In this context of various locally situated and vocationally specific, often tacit, forms of knowledge, a broad conception of entrepreneurship is needed. Drawing from Schumpeter and Kirzner, recent discussions of this concept highlight how individuals from the public and third sector as well as private sector can serve a vital role of identifying the future potential opportunities for innovation19 . This suggests an important need for research to focus on identifying and analysing how various forms of innovation, expertise and entrepreneurship respond to and dynamically shape the economic contours of choice faced by economic actors. For the purposes of governance and policy evaluation, such a comparative mapping of actors’ understandings of complex coordination challenges can serve as a starting point for assessing the nature and extent of unforeseen negative impacts of policy. From the perspective of heterodox political economy, such analysis of stakeholder perspectives, as Aligica et al. (2019, p. 124) comment, needs to be sensitive to the “imperfect rationality, incomplete information and potential opportunism” that characterise stakeholder framings. This kind of stakeholder analysis, they add, is well-suited to considering the “diversity of beliefs, values, identities, preferences and endowments” (Aligica et al., 2019, p. 125). Close attention to complex economic dimensions of choice, as brought into focus by the Austrian School, can also complement and indeed enrich frame analysis as a methodological approach. Stakeholder analysis also offers the potential to explore how these perspectives interact with and are shaped by institutional contexts, a line of analysis that heterodox political economy highlights as being of vital importance (Aligica et al., 2019, p. 125). 19 The Austrian conception of entrepreneurship is introduced in Chapter 3 (Section 3.3). Applications of this conception of entrepreneurship to understanding non-market coordination processes, including in policymaking, are explored in Section 5.6.

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Such a recognition of the plurality of perspectives towards governance and policy challenges is vital. As heterodox political economists and indeed some interpretivists recognise, this does not preclude the possibility of evaluative research. Where a significant number of individuals, either those responsible for policy delivery or more generally those affected by policy, offer similar insights into policy impacts, this can serve as a basis for policy evaluation. Where broad agreement about these impacts suggests that policy decisions are not effective in fostering sought outcomes, this can prompt exploration and analysis of how this might have been caused by the governance processes through which policy was formed. Again, this can be informed by a range of stakeholder insights. Key texts in evaluation research explore the challenges involved in tracing the causal factors that affect policy outcomes and the associated danger that policies will give rise to unintended negative side effects (Rossi et al., 1993, p. 553; Davidson, 2004). In their influential work outlining a ‘critical realist’ approach, Ray Pawson and Nick Tilly (1997) stress the contextual factors that affect the impacts of policy interventions, including the understandings, commitment and resources of those actors responsible for their delivery. To understand the causal inter-relationships between policies, programmes and outcomes, they emphasise, there is a need for qualitative analysis of how the range of stakeholders involved in any given policy process approach the problem concerned and of their perceptions of policy interventions and their consequences. Such analysis can focus on a series of questions, with the aim of tracing the causal effects. Did the negative impacts occur because one or more individuals involved in a decision either lacked or paid insufficient attention to relevant knowledge concerning the expected outcome? If so, then we can refer to this as a ‘knowledge problem.’ Identifying knowledge problems in turn prompts questions about their causes. Can causes of the knowledge problem be traced to aspects of the governance process through which the policy was formulated and delivered? Alternatively, might the cause of the problem be attributed to the scale of governance at which decisions are taken? Of defining importance for the challenge of steering is ensuring that governance decisions take place at a scale suitable for effectively identifying and delivering the public good or policy objective concerned, while ensuring that actors involved in this delivery are enabled to act upon their locally situated, often tacit, knowledge. Alternatively, specific institutional or cultural factors might explain

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the problem. These could include the way in which evidence or information is provided for decision-makers or the processes through which individuals are appointed to decision-making posts. Policy impacts that are widely agreed to be negative do not necessarily reflect knowledge problems. They could reflect factors such as governments having political motivations that are not supported by the wider population, perhaps due to a democratic deficit of some kind. There may be a shortage of governmental resources to support the kind of policy that is widely demanded across society. Even where the negative impact does reflect a coordination problem, this might have a motivational rather than epistemological cause. There could be a strong evidence base to suggest the effectiveness of a policy but that governance arrangements have not effectively established suitable incentive structures for policy delivery. There are a range of ways in which governance arrangements might cause such motivational problems. These might include systems of performance monitoring or financial reward for actors involved in policy delivery. This raises the question of the methods we might use to identify such possible epistemological or motivational causes in particular cases. By definition, compared with the evaluation of decisions in first order terms, evaluation in terms of second order coordination, is more processorientated. Nonetheless, evaluating institutions in second order terms could be similarly based upon such a mapping and interrogation of stakeholder perspectives. Such second order analysis, being concerned with the wider institutional contexts that shape policy, must necessarily involve larger, macro-scale comparisons. As well as reflecting upon the effectiveness of policy in terms of substantive impacts, many stakeholders inevitably reflect upon the effectiveness of the wider institutional arrangements that shape the processes through which such substantive policy decisions are taken. Such reflections can yield evaluative insights, though, in comparison with the analysis of first order coordination, fully justifying evaluative second order conclusions might be especially challenging. Vincent Ostrom recognised this in referring to the difficulties involved in researching polycentricity. He comments that the notion of polycentricity, i.e. the presence of multiple tiers and spheres of governance and policy, creates a profound challenge for research. For it is difficult to know what to look for and to discern regularities in such complicated governance contexts (Ostrom, 1972, p. 20). Identifying first order coordination achievements and problems can potentially serve as a basis for assessing the effectiveness of institutional arrangements in second order

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terms. Comparing outcomes to what might have been achieved in an entirely different counterfactual set of second order arrangements would seem especially challenging. However, this is not a reason to refrain from attempting to draw such inferences. Section 7.5 now turns to methods which might be applied to such assessment of governance and policymaking. As mentioned above, the methods are first introduced with reference to first order coordination, though are potentially applicable to assessment in second order terms.

7.5

Methods

Having set out a conceptual focus for assessing governance effectiveness in fostering coordination, we now turn to the question of the research methods that deployment of the approach might entail. The starting point for the proposed approach, as indicated above, is to map and compare how a range of stakeholders understand first order coordination challenges and the governance and policy processes through which they might be most effectively addressed. Stakeholder perspectives will inevitably reflect the uncertainty and contestation characterising coordination problems, along with the often normatively laden nature of the knowledges that shape them. The need for a qualitative approach arises from the ambiguities within actors’ goals and understandings, coupled with uncertainty and normative contestation. Stakeholder discourses will often be shaped by quantitative information but cannot be reduced to it. In general terms, as discussed above, this is a widely adopted approach in evaluation research. It might be said that it is less the qualitative methods proposed here that are the distinctive feature of the proposed approach and more the analytical lens that motivates their deployment. As set out in previous chapters though, a heterodox perspective demands qualitative evaluative analysis that gives especially close attention to analysing the inter-relationships between stakeholders’ normative values and their perspectives towards the economic and technical-scientific questions that shape the coordination problem concerned. As indicated above, the subjective character of the values and understandings within stakeholder discourses reflect individuals’ specific areas of knowledge, locally situated circumstances and experiences. This has vital implications for the kinds of sources and observations required to analyse them. As is of course well recognised in policy analysis, there is a clear need to explore stakeholder perspectives beyond the discourses evident in

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official policy documents. Official policy discourses might not explain, or even recognise, the underlying motivations and specific implications and impacts of a policy. Debates amongst stakeholders, that are often highly contested, may have shaped policy in ways that official policy documents do not acknowledge. Beyond the debates that directly influence policy, a range of people working with or affected by policies might have locally specific knowledge and experience that is not captured by mainstream discourse. Stakeholders’ discourses are manifest in their publications, conference and seminar contributions, speeches, press releases and general conversation. On this latter point, interactive conversations with stakeholders through interviewing are an especially powerful way of exploring their views (Duke, 2002). Semi-structured interviews provide researchers the opportunity to set questions pertinent to their areas of interest while also allowing the interviewee an opportunity to highlight factual and normative dimensions of a policy problem that they view as significant, which might not have been fully foreseen by the researcher. It is not the purpose here to provide a complete guide to conducting semi-structured interviews, a need that has been addressed by numerous texts about qualitative interviewing. These prior contributions emphasise that broad, open questions are a suitable way of encouraging participants to articulate their perspective, highlighting the importance of researchers being open to the relevance of responses which are of a kind they might not have anticipated (Brinkmann, 2013; Wengraf, 2001). This might be achieved, for example, through asking interviewees to assess the strengths, weaknesses, opportunities and threats within a given area of governance or policy. Such a ‘SWOT’ analysis is a widely used technique in business management but is cited far less frequently, if ever, as a research method for governance and policy evaluation. This approach was used in the two case studies discussed in Chapter 8, to provide an open way of yielding insights into the norms that motivate stakeholders and their understanding of the economic and technical-scientific layers of coordination problems. The conception of coordination challenges presented here highlights the importance for such analysis to be especially in-depth and detailed, to capture as fully as possible the nature and significance of the impacts of coordination problems that governance processes may face. As explained above, coordination problems in governance and policy can be understood to have epistemological causes where actors involved are found to either lack or neglect relevant knowledge. Relevance here can be

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assessed according to whether, if the knowledge were made available to the person, this would have caused them to act differently. To take the pesticide example introduced earlier, it might be that a policymaker did not have access to some technical-scientific evidence concerning the possible harmful effects of the pesticide. If they had been aware of this evidence, they might have made a different policy decision. The primary aim of research with a focus on the epistemological dimension of coordination problems is to identify such gaps in stakeholders’ knowledge and understandings. These gaps might take the form of a lack of awareness of the significance of normative values. They might involve a lack of understanding of the economic contours of choice facing themselves or others. Or there might be a lack of technical-scientific knowledge. Identifying relevant knowledge that may be under-emphasised or missing from individual actors’ perspectives requires a detailed comparative mapping of a range of stakeholder views. Any one single perspective, including that of the researcher, will inevitably be limited, however expert that person may be in relation to the policy problem concerned. Such limitations are especially significant in complex governance and policymaking contexts. Researchers must carefully explore stakeholder views, with close attention to detail and an openness to unanticipated insights. There is a longstanding recognition of the importance for qualitative researchers of being open to a full range of views and observations, avoiding presumptions about the specific perspectives they will encounter (Hammersley, 2013; Silverman, 2013). This certainly applies to achieving balanced assessment of governance effectiveness, where there is an especially important need to be open to stakeholders expressing both praise and criticism of governance and policy and to gain an understanding of the reasons for their view. Such openness is vital to comparing stakeholder discourses, to assess the nature and significance of any epistemic oversights as fully as possible. The researcher will need to collate and organise the data gathered from such sources in a way that allows them to map out key areas of common ground and difference between stakeholders’ perspectives. As explained above, the proposed approach is for such a mapping to give close attention to stakeholders’ understandings of the technical, economic and normative dimensions of the decisions involved in governance and policymaking. Such a mapping will allow the researcher to identify how far stakeholders consider policy choices to be aligned with the goals that they are intended to achieve, offering insights into where there might be actual

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or potential unintended consequences. For the reasons explained above, establishing how far such unforeseen impacts are considered to have occurred is integral to evaluating ‘coordinative effectiveness’. The nature and significance of these consequences occurring within current governance and policy arrangements can then be compared with those which might be expected under alternative arrangements. Such comparisons can be articulated in qualitative terms, as indicated further in the case studies below. The extent to which such alternatives have been tried in other places or historical contexts will of course vary. In this respect there is inevitably a speculative element to any such evaluation, as recognised by authors such as Colander (2001) and Blaug (2007). Although definitive truth might be beyond reach, evaluative analysis does not depend upon certainty in the strong sense, as argued by evaluation researchers such as Jane Davidson (2004). Evidence can be gathered to develop reasonable conclusions about causal inter-relationships, while recognising the inevitable element of uncertainty that must caveat any conclusions. In this respect, the approach proposed here adopts an ontological and epistemological understanding that is well established in fields such as interpretivist analysis, evaluation research and heterodox economics. The distinctive, primary focus is upon identifying the nature and significance of any epistemic oversights within governance and policymaking. This serves as a starting point for evaluating the governance processes that might have caused such coordination problems. If the significance of some relevant knowledge has not been fully appreciated within the decision-making process, then there is a need to trace the causes of this. At what stage of the decision-making did any failure to sufficiently communicate the knowledge occur and why? What were the specific interests and motivations of those people who had a role in this problem of communication? A focus on these questions leads to insights into the process-related factors that might have caused the problems of unintended consequences concerned. In this respect, the outcome-orientated approach proposed here, applicable to evaluating coordinative effectiveness in both first and second order terms, can complement and enrich process-focused analysis. This is illustrated further in Chapter 8, through the presentation of two case studies.

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Koppenjan, J. F. M., & Klijn, E.-H. (2004). Managing uncertainties in networks. Routledge. Koppenjan, J., & Termeer, C. J. A. M. (1997). Managing perceptions in networks. In W. J. M. Kickert, E.-H. Klijn, & J. Koppenjan (Eds.), Managing complex networks: Strategies for the public sector (pp. 79–97). Sage Publications. Lafferty, W. M., & Hovden, E. (2003). Environmental policy integration: Towards an analytical framework, Environmental Politics, 12(3), p. 1. Landau, M. (1980). Redundancy in public transit: Vol 1: On the idea of an integrated transit system. University of California. Lavoie, D. (1985). Rivalry and central planning. Cambridge University Press. Lindblom, C. E. (1959). The science of muddling through. Public Administration Review, 19, 79–88. Lindblom, C. E. (1965). The intelligence of democracy: Decision making through mutual adjustment. Linder, S. H., & Peters, B. G. (1987). A design perspective on policy implementation: The fallacies of misplaced prescription. Review of Policy Research, 6(3), 459–475. Ling, T. (2002). Delivering joined–up government in the UK: Dimensions, issues and problems, Public Administration, 80(4), 615–642. Lipsky, N. (1980). Street-level bureaucracy. Dilemmas of the Individual in Public Services. Mayntz, R. (1993a). Governing failures and the problem of governability: Some comments on a theoretical paradigm In J. Kooiman (Ed.), Modern governance (pp. 9–20). Sage. Mayntz, R. (1993b). Modernization and the logic of interorganizational networks. Knowledge and Policy, 6(1), 3–16. Meltzer, R., & Schwartz, A. F. (2019). Policy analysis as problem solving: A flexible and evidence-based framework. Routledge. Metcalfe, L. (1994). International policy co-ordination and public management reform. International Review of Administrative Sciences, 60(2), 271–290. Morgan, G. (1986). Images of organization. Sage Publications. Morris, R. (1963). Basic factors in planning for the coordination of health services—Part II. American Journal of Public Health and the Nations Health, 53(3), 462–472. Mulford, C. L., & Rogers, D. L. (1982). Definitions and models. In Rogers, D. L. and Whetten, D. A. (Eds.), Interorganizational coordination: Theory, research, and implementation. Iowa State University Press. Nilsson, M., & Eckerberg, K. (2007). Environmental policy integration in practice: Shaping institutions for learning. Earthscan. O’Toole, L. J. (1972). The Cleveland rehabilitation complex: A study of interagency coordination. Vocational Guidance and Rehabilitation Services.

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O’Toole, L. J. (1986). Policy recommendations for multi-actor implementation: An assessment of the field. Journal of Public Policy, 6(2), 181–210. Ostrom, V. (1972). Polycentricity. In Annual meeting of the American Political Science Association, Sept 5–9. Worksop working paper series, workshop in political theory and policy analysis. Pawson, R., 1948 & Tilley, N. (1997). Realistic evaluation. Sage. Pennington, M. (2010). Robust political economy: Classical liberalism and the future of public policy. Edward Elgar. Perri, et al. (2002). Towards holistic governance: The new reform agenda. Palgrave. Peters, B. G. (1998). Managing horizontal government: The politics of coordination. Public Administration, 76(2), 295–311. Peters, B. G. (2006). Concepts and theories of horizontal policy management. In B. G.Peters & J. Pierre (Eds.), Handbook of public policy (pp. 115–138). Sage. Peters, B. G. (2015). Pursuing horizontal management: The politics of public sector coordination SE—Studies in government and public policy. University Press of Kansas. Pressman, J., & Wildavsky, A. (1973). Implementation: How great expectations in Washington are dashed in Oakland. University of California press. Provan, K. G., & Kenis, P. (2007). Modes of network governance: Structure, management, and effectiveness. Journal of Public Administration Research and Theory, 18(2), 229–252. Provan, K. G., & Milward, H. B. (1995). A preliminary theory of interorganizational network effectiveness: A comparative study of four community mental health systems. Administrative Science Quarterly, 40(1), 1–33. Rein, M. (1978). Social science and public policy. Penguin. Rein, M., & Schön, D. A. (1994). Frame reflection: Toward the resolution of intractable policy controversies. Basic Books. Rossi, P. H., Lipsey, M. W., & Freeman, H. E. (1993). Evaluation: A systematic approach (7th ed.). Sage. Scharpf, F. W. (1997). Games real actors play: Actor-centered institutionalism in policy research. Westview Press. Scharpf, F. W. (2000). Institutions in comparative policy research. Comparative Political Studies, 33(6–7), 762–790. Schofield, J. (2001). Time for a revival? Public Policy Implementation: A Review of the Literature and an Agenda for Future Research, 3(3), 245–263. Silverman, D., 1943- (2013). Doing qualitative research. Sage Publications Ltd. Tarko, V. (2017). Elinor Ostrom: An intellectual biography. Rowman & Littlefield International. Torfing, J., et al. (2012). Interactive governance: Advancing the paradigm. Oxford University Press.

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Tosun, J., & Lang, A. (2017). Policy integration: Mapping the different concepts. Policy Studies, 38(6), 553–570. Tribe, L. H. (1972). Policy science: Analysis or ideology?, Philosophy & Public Affairs, 2(1), 66–110. Underdal, A. (1980). Integrated marine policy: What? Why? How? Marine Policy, 4(3), 159–169. Vedung, E. (1997). Public policy and program evaluation. Transaction Publishers. Wagenaar, H. (2011). Meaning in action: Interpretation and dialogue in policy analysis. Sharpe. Warren, R. L., Rose, S. M. & Bergunder, A. F. (1974). The structure of urban reform: Community decision organizations in stability and change. Lexington Books. Wengraf, T. (2001). Qualitative research interviewing: Biographic narrative and semi-structured methods. Sage. White, P. E. (1974). Intra-and Inter-organizational studies: Do they require separate conceptualizations? Administration & Society, 6(1), 107–152. Wildavsky, A. (1966). The political economy of efficiency: Cost-benefit analysis, systems analysis, and program budgeting. University of California Press. Wilson, J. Q. (1989). Bureaucracy: What government agencies do and why they do it. Basic Books. Wynne, B. (1997). May the sheep safely graze? A reflexive view of the expert-lay divide. In Lash B. Wynne, B. S. S. (Ed.), Risk, environment and modernity: Towards a new ecology (pp. 44–83). Sage. Yanow, D. (1993). The communication of policy meanings: Implementation as interpretation and text, Policy Sciences, 26(1), 41–61.

CHAPTER 8

Case Studies

8.1

Introduction

The approach to evaluating coordinative effectiveness set out in Chapter 7 is applicable across a broad range of governance contexts and policy areas. To illustrate application of this approach and the kind of evaluative conclusions that it yields, this chapter presents two case studies carried out in the UK. In presenting the two cases, the aim is not to reach definitive conclusions concerning the institutional proposals of classical liberals. In both cases the findings do, however, suggest the need for the state to adopt a more substantive role in shaping market outcomes than would generally be countenanced by the classical liberal tradition. Such findings do offer a counter-balance to the conclusions, that tend to be supportive of classical liberalism, reached by the range of insightful policyfocused studies that draw closely from Hayekian epistemological concerns in their approach (Haeffele & van der Horst, 2018; Ikeda & Washington, 2015; Littlechild, 1986; e.g. Hamilton, 2018). This further supports the central argument of this book that classical liberal thought is based on heterodox conceptual foundations that both can and should be separated from specific classical liberal institutional proposals. As further illustrated by these case studies, the distinctive contribution of this approach is to enable balanced, empirical and context-sensitive assessment of the coordinative effectiveness of a broad range of institutional arrangements based on engagement with stakeholders. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_8

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Although the two case studies summarised below were conducted during the last decade, they are not presented here as up to date analyses of the two respective areas of governance and policy covered. Indeed, significant changes in the two areas of UK policy concerned have taken place since the case study research was carried out. Rather, the purpose of the presentation here is to illustrate the kind of findings that can be yielded by the proposed outcome-orientated evaluative approach. While suggesting the need for governance to seek to shape market outcomes, the main purpose of the case studies is to show how the approach enables exploration of the complexities involved in doing so and the effectiveness of governance in fostering coordination in the face of this challenge. Both cases serve to highlight the importance of a consistent, balanced policy framework for steering towards policy goals, that allows local actors a degree of discretion and flexibility in how overarching policy goals are delivered in practice. The significance of and inter-relationships between the epistemological and motivational dimensions of these challenges are explored. The epistemological focus and outcome orientation of the methodological approach deployed is shown to yield richer insights into governance effectiveness than could be achieved by solely process-focused approaches, as suggested in Chapter 7. The two cases address environmental regulation and health service governance, respectively. In each case, exploration of the policy debates highlights the significance of coordination problems in the sense defined here concerning the attainment and balancing of multiple policy goals. The aim of the research was to explore the complexities involved in these policy debates and the effectiveness of governance arrangements in addressing the coordination problems they entailed. The first case study evaluating policy for low and zero carbon (LZC) homes concerns what might be broadly referred to as the regulation of markets for achieving environmental and social sustainability criteria. The second case study, concerning the National Health Service (NHS) in England, involves a more substantive role for non-market institutions in delivering goods and services. In the NHS, not only regulatory frameworks but health services themselves are provided directly through non-market institutions and processes. In both cases, there is a need to balance multiple, qualitatively distinct objectives. In the LZC homes case, these include fostering technological innovation, achieving immediate, measurable CO2 emissions reductions, maintaining economic competitiveness, along with a range of other social and ecological criteria. The NHS case,

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which focuses on diabetes care similarly involves attaining a range of social criteria and medical performance targets in the context of financial constraints. Balancing these objectives is a significant epistemological challenge involving complex economic dimensions of choice and associated uncertainties. Reforms are explored which involve organisational decentralisation and the increased scope of quasi-markets within the delivery of NHS health care as a public service. The case studies presented in Sections7.2 and 7.3 below each start with a brief overview of prior literatures relating to the policy sectors concerned in order to highlight the need for the outcome-orientated focus on coordinative effectiveness deployed. In relation to the specific policy areas covered, the process orientation of much of the governance literature is briefly highlighted. These cases are presented to illustrate the kind of findings that can be yielded by the outcome-orientated approach with an epistemological focus proposed here for evaluating governance. Hence, the aim is not to set out the full, detailed findings of these case studies, which have been presented elsewhere (Greenwood, 2010, 2012; Greenwood & Mills, 2020; Greenwood et al., 2016, 2017; Mills, 2016).

8.2 Policy and Standards for Low and Zero Carbon Homes Climate change is a global externality problem that, as touched upon in Chapter 6, is widely agreed to entail the need for some form of intervention through governance. After the United Nations international process led to the Kyoto Protocol coming into force in 2005, the challenge of climate change mitigation gained prominence in national policy agendas. As signatory to the Protocol, the EU had established relatively high emissions reduction targets. Amongst EU member states, attention turned to how international and national greenhouse gas emissions reduction targets would translate into policy tools for delivering the targets across key sectors. In the UK, policy and standards for new domestic buildings were identified relatively early by the Labour government as a priority area. This was a significant part of the wider challenge of climate change mitigation, given the expectation that around one-third of 2050 homes were still to be built (Greenwood et al., 2016). An especially ambitious

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policy agenda for this sector was developed that aimed to be “world beating” (ARUP, 2009),1 including a target set in December 2006 that all new homes built from 2016 onwards would be ‘zero carbon.’ The challenge of coordination as conceptualised in this book resonated strongly in debates about the zero carbon policy agenda. In Knight and Johnson’s terms, this was a task of first order coordination, concerning the most suitable balance between different kinds of policy tools and markets for achieving sustainability goals. The need was widely accepted for government to establish a suitable policy framework and disagreements concerned what the specific nature of this framework should be. Following the contributions of Elinor Ostrom, as discussed in Chapter 6, some scholarship in the Austrian and public choice traditions has expressed a degree of scepticism about the suitability of seeking to address the external costs of greenhouse gas emissions through governance institutions at the global scale (Anderson & Leal, 2001, Chapter 12; Pennington, 2013). While this is a national-level case study, concerns of public choice theorists and indeed the Hayekian tradition about the potential unintended consequences of regulation did in some respects resonate in debates about the 2016 zero carbon homes target. Achieving the target was widely agreed to involve significant complexity, intersecting with a range of other policy goals relating broadly to the challenge of achieving more sustainable forms of development. This reflects the Hayekian perspective set out in Chapters 3 and 4 of this book, with its insights into the ambiguities of broad policy goals such as sustainability, given the complexities involved in translating them into practice. As further explained below, rather than amounting to a decisive case against regulation, these concerns primarily raise questions about the most suitable type of policy tools for achieving the goals of the LZC homes agenda. The issue of the most appropriate balance between different scales of governance in the delivery of the LZC homes agenda also surfaced. Prior academic research had left open the need for research exploring governance effectiveness in the face of the complexities involved in the LZC homes agenda. Literature on transitions towards low carbon energy systems had highlighted the significance of the question of the coordinating role of the centralised state in fostering such transitions (Kemp et al., 2007; Shove & Walker, 2007; Smith et al., 2005). The question

1 This was the aim stated by Housing Minister, Yvette Cooper.

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of policy effectiveness in promoting the delivery of low and zero carbon homes, or ‘eco homes,’ in the UK had been briefly touched upon (Lovell, 2004; Smith, 2007). As indicated in the discussion below, research on sustainable building design had offered useful stakeholder insights into some of the key difficulties and challenges with the policy tools adopted by the LZC homes agenda, including suggesting some of their unintended consequences. However, there remained a need to develop a more systematic evaluation of this area of governance and policy in terms of balancing and attaining sought outcomes and the epistemological challenges this involves. This entailed the need for close, detailed attention to substantive questions of policy definition and implementation, as well as reflection on the scale and implications of any problems identified. Of central importance to debates about this policy agenda was the question of how to steer towards the target, while allowing the various actors involved in policy delivery a suitable degree of discretion about how exactly to translate them into practice in the context of the complex process of balancing and attaining multiple policy goals. Reflection on this task of first order coordination requires detailed assessment of the policy approaches and tools that had a role in promoting sustainability goals for the housing sector. Recognition of this challenge of steering is evident in the following statement from one of the key policy documents of the aim of achieving a performance and outcome-orientated approach to policy design: “As well as being adaptable to changing circumstances, the policy needs to provide flexibility to meet known circumstances. Government’s preferred approach is, as far as possible, to specify outcomes rather than ways of achieving those outcomes and to avoid prescribing particular technologies. This should help to drive innovation by house builders and their supply chain, allowing industry to use its expertise to explore how to minimise costs, and is consistent with better regulation principles” (DCLG, 2008, p. 24).

As well as central government, policies from local authorities also had a potentially significant role within this agenda, as did industry-defined standards and other voluntary certification schemes. Assessing the effectiveness of this policy agenda in terms of steering towards the zero carbon target, the case study research presented here was carried out in two phases. The first phase assessed policy under

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New Labour from 2007–10 (Greenwood, 2010, 2012),2 while the second phase focused on the evolution of the policy agenda under the Conservative-Liberal Democrat coalition between 2010–15 (Greenwood et al., 2016, 2017).3 During both administrations, the LZC homes policy agenda was led by central government, though the processes through which tools were developed for the agenda involved numerous stakeholders, often with network-based relationships highlighted by governance literatures. In developing the key policy instruments, including building regulations, the definition of the zero carbon target and the tools used to model the energy efficiency of buildings, government were informed by several advisory groups, composed of different industry experts. Some of the key sustainability assessment tools utilised by this policy agenda, notably the Code for Sustainable Homes, were developed by a private company BRE, in consultation with government and wider stakeholders. BRE had previously been a government-funded research body, then named Building Research Establishment. In 2008, an organisation known as Zero Carbon Hub was established, with the role of promoting learning and delivery of the 2016 target across the sector. Consisting of a small core staff, the Hub coordinated a range of projects, co-opting input from a much wider network of industry stakeholders. In relation to the development of policy tools, the Hub gave technical input, while also facilitating wider industry consultations, including the establishment of specialist task groups advising on specific parts of the definition of the zero carbon target and related changes to building regulations. In the context of these various networks, it should however be pointed out that final policy decisions required ministerial approval. The starting point for the analysis was to understand the views of a wide range of stakeholders from across the public, private and third sectors, including those directly involved in the policy process. Interviewees were asked about the effectiveness of current policy strategy and instruments, as well as the possibilities for changes and alternatives to current policy. Numerous industry seminars and conferences, where discussions often related to questions of policy effectiveness, were attended, along with a total of over 100 interviews during the two phases

2 This project was carried out in 2008–10 with funding from the Quintin Hogg Trust. 3 A project funded by RICS Research Trust.

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of the research.4 An extensive range of policy documents, reports and briefings served as a vital basis for the analysis. From this platform, richer insights could be gained from industry discussions and interviews into how the coordinative challenges were perceived by stakeholders. On the question of how far common normative ground could be identified, a key part of the approach set out in Chapter 7, broad agreement was found amongst stakeholders about the normative importance of reducing CO2 emissions from the built environment. This reflected widespread concerns about the negative impacts of climate change, with there being a general view of these impacts as ‘market externalities,’ even though stakeholders would not usually use this terminology. This meant there was a wide degree of support for the principle of establishing strong and clear regulations for LZC homes to achieve the public good of emissions reductions. This leaves open the question of the most suitable balance between public and private sector in shaping regulations, as discussed further below. Nonetheless, the goal of emissions reductions could serve as the normative grounding for the research. The plurality of interests and priorities held by stakeholders meant that they inevitably placed different emphasis upon the goals that intersected with this policy agenda. The exploration of such different stakeholder framings reflected the approach set out in Chapter 7. For example, different views were identified about the most suitable balance between climate change mitigation, affordable and social housing provision, meeting market demand for housing in the context of price rises in many regions, as well as other sustainability goals such as water efficiency. These views suggested the potential for more ‘holistic’ approaches that would more suitably balance different policy goals across these sectors. Furthermore, the focus on a heterodox understanding of coordination offered insights into how these normative perspectives were closely intertwined with different understandings of the complex economic choices and trade-offs involved in the achievement and balancing of multiple policy goals. The question of how to balance a strong commitment to a policy goal, such as climate change mitigation, with mindfulness of the need for regulations and standards that are feasible and viable for industry is pivotal to any area of regulatory policy. LZC homes policy was

4 Phase one included 38 interviews. Phase two included 70 interviews.

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a case in point with the question of viability being the subject of different understandings, as further discussed below. Stakeholders held contrasting views about the prospects for this challenge of coordination being effectively addressed. For some stakeholders, the normative imperative of tackling climate change meant that government establishing strong, mandatory national regulations was the central priority and was feasible. They also stressed that such a strong regulatory approach would drive innovation, hence fostering the viability of the policy goal. The emphasis of others, not quite so normatively charged, questioned the viability of achieving the zero carbon target by 2016, given the profound changes to industry practices and priorities within the housing market that would be required. There was an epistemological dimension to their argument, for concerns were expressed that a strong, national mandatory standard would lack the required sensitivity to different local markets and capacities. Factors were emphasised such as varying local climatic conditions affecting the viability of some on-site LZC technologies such as solar panels. Local housing market conditions, it was pointed out by those with experience of housing development projects in different locales, influence the viability of adopting a range of more costly features of buildings that LZC building designs might incorporate. The need for context-sensitive designs had prompted some debates about the second order question of how far regulations and design standards should be set nationally and how far national policy should accommodate discretion for regional and local authorities to set their own standards. There is of course the further question of the role of the private sector in establishing voluntary standards that might surpass minimum mandatory standards. On the question of the local scale, advocates of an element of local authority discretion often emphasised that, while national regulatory requirements needed to be viable for all developments, non-mandatory tools were especially significant as a more flexible way of driving innovation beyond national regulations in those markets where this was most viable (Greenwood et al., 2017). Discussions prompted by this argument took place within the context of broad agreement upon the need for a mandatory level of building energy efficiency to be defined nationally. For it was widely agreed that allowing for local variation of standards would increase developers’ costs. Disagreements concerned the relative weight

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and exact definition of these national and local standards. Many stakeholders were supportive of allowing for some local authority discretion in setting higher standards and targets beyond the regulatory minimum to foster innovation in those local authorities where this was judged to be most viable. The Code for Sustainable Homes was available for local authorities to use for this purpose. However, as further explained below, others were critical of what they saw as a poorly informed use of the Code, especially its higher levels, which they saw as promoting sub-optimal, sometimes unviable technologies. The overall emphasis of stakeholders upon the benefits of nationallevel consistency were in marked contrast with the findings of the Ostroms’ range of international case studies. The Ostroms’ research focused on the management of common pool resources at a relatively local level. Reflecting the primarily local scope of the coordination problems involved, they emphasised the benefits of stakeholders exercising ‘self-governance’ across such a local scale. By contrast, while built environment professionals recognised that designs for the built environment require sensitivity to context, a majority view across a range of stakeholders supported nationally defined regulations. Central to the LZC homes policy roadmap that was established for delivering the zero carbon target were a series of three changes to building regulations as a mandatory national standard, culminating in the zero carbon standard to be adopted in 2016 (Greenwood, 2010). The first key element of these regulatory changes concerned the energy efficiency standards of the building fabric (known as ‘FEES’).5 At the outset of the LZC homes agenda, there was a suggestion from government that there might be scope for local authority discretion in the setting of some key parts of the FEES. This suggestion was soon met with rather widespread disapproval from a range of stakeholders. Housing developers emphasised their need for a nationally consistent FEES level to ensure that key elements of their designs for new homes that would meet the new standard would be scalable across the country. Achieving new nationwide standards, they stressed, would be challenging itself, let alone having to adapt their designs and business models to accommodate local variations in FEES. Their concerns included the increased transaction costs they might face having to administer their business processes to ensure that locally varying standards were

5 This was within Part L of the building regulations which relates to energy.

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being fulfilled. Foremost amongst the critics of this early policy proposal were the leading UK housing developers who design and build the large majority of homes across the country. Similar concerns were echoed by smaller housebuilders too, given their limited resources, as well as a wider range of consultants across the sector who recognised the need for a certain degree of consistency to ensure the feasibility of the 2016 targets. On the question of the role of the private and non-governmental sectors, while nationally defined mandatory regulations were central to the LZC homes agenda, a range of non-mandatory tools also played a key role in orientating the industry towards sustainability objectives. Questions of coordination as conceptualised by this book were integral to the extensive debates about the relative effectiveness of these two kinds of instrument. As mentioned in Chapter 1, regulatory approaches within contemporary governance have increasingly sought to establish a ‘smart’ mix of mandatory and non-mandatory tools. The availability of nonmandatory tools provides industry with the opportunity to demonstrate their attainment of standards that surpass minimum legal requirements, developing innovative approaches to fostering more sustainable outcomes. This argument was made in the case of the Code, a key tool within the LZC homes agenda. Along with other non-mandatory tools for surpassing the mandatory minimum standards, the Code was expected to be most widely adopted in relatively vibrant local markets for private housing where they would be most viable at an earlier stage in the road to zero carbon. Furthermore, as part of the roadmap to the zero carbon target, sustainability levels as defined by the Code were established as mandatory for social housing (Greenwood et al., 2017). The Code was widely viewed as offering the potential to foster innovation beyond the minimum standards defined by building regulations, hence helping to carve out a route towards the zero carbon target. However, the specific definitions within the Code prompted extensive debates about the effectiveness of the definition of the zero carbon target that it was based upon. In these debates, the complex economic dimensions of choice of the kind highlighted by the Hayekian perspective resonated (Greenwood, 2012). Given the epistemological focus of the evaluative approach, the research closely followed stakeholder framings of these complex trade-offs and choices involved in defining key policy tools and interventions. Reflecting the kind of knowledge problems that can occur, there were several areas where significant evidence was widely agreed to have not been sufficiently considered by policymakers. The

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comment of one interviewee that policy is “not linking together different, complex trade-offs” reflected widespread concerns amongst stakeholders. Some aspects of the policy tools for the LZC homes agenda were often referred to as encouraging a ‘tick box’ approach to achieving sustainability. Of course, as these critics would acknowledge, there is nothing necessarily wrong with a ‘tick box’ approach to sustainability if the criteria being fulfilled and checked through the process do reflect overall policy goals. Coordination problems are however manifest where evidence leads to widespread concern amongst experts that one or more specific criteria defined by the policy tool are not aligned with the sought objectives. In such cases, as further detailed below, fulfilling a specific criterion defined and incentivised by the policy tool leads to unintended, sub-optimal outcomes because the significance of other criteria has been neglected. In the LZC homes agenda, the most prominent and widely discussed case in point was the emphasis of key policy tools, notably the Code, upon the use of ‘on-site’ renewables as a means of achieving zero carbon (Greenwood, 2010; Greenwood et al., 2016; Lowe & Oreszczyn, 2008). On-site renewables are those placed upon the site of the home itself, such as solar panels or micro-wind turbines. The zero carbon homes target was initially defined to require all energy used within the home, including from cooking and appliances, to be generated on the site of the home itself.6 The Code also rewarded the use of on-site renewables and the ‘100% on site’ definition of zero carbon was a requirement for achieving the highest Code level 6. Intuitively, the principle that for a home to be classed as ‘zero carbon,’ energy used within the home should be generated from the site of the home itself might seem to accord with the concept of a ‘zero carbon home.’ However, in the view of a range of stakeholders, local authorities who made mandatory the attainment of high Code levels, which required a high proportion of home energy use to be generated on-site, exhibited a lack of understanding of how to feasibly deliver truly sustainable solutions. The strong early emphasis on on-site LZC technologies can be traced back to the origins of the LZC homes agenda. In 2006 when the agenda was formed, some key stakeholders, most notably WWF who had significant influence in government at the time, supported this principle as a way 6 This definition was published by the Treasury for the purposes of defining which homes would be entitled to Stamp Duty Land Tax relief by virtue of their being a “zero carbon” home (Treasury, 2007).

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of promoting innovation in on-site technologies. However, the specification of the zero carbon target was much criticised by what clearly became a broad majority of stakeholders. Again, the criticisms were made not only by house builders concerned about the costs of achieving the target but also building design experts with a strong commitment to sustainability goals who were concerned about the most viable way of achieving the transition to LZC homes. Their perspective offered important insights into the economic contours of choice involved in delivering zero carbon (Greenwood, 2010, 2012). On-site renewables, they pointed out, were simply not viable for many home sites (UKGBC, 2008)7 and in any case were usually less efficient than off-site renewable generation which benefited from economies of scale. Related to this concern, the zero carbon agenda, particularly the Code, was often criticised for being defined with a rather narrow focus on technological solutions.8 The need was emphasised for much more attention to the social factors that vitally shape the impacts of any given technology. These included the need to promote skills development in the construction sector which were stressed as vital for achieving high-quality LZC homes. Also frequently highlighted was the need to foster understanding amongst the occupants of LZC homes about how their behaviour and lifestyles affect the level of emissions reductions achieved by their home.9 Again, these were concerns that demanded more ‘holistic’ balancing of priorities that cut across different policy domains and government departments, including energy policy, building regulations, skills and training. The question of how to balance the goal of promoting renewables with sensitivity to these social factors

7 The UKGBC report provided evidence that 80% of sites could not achieve 100% on-site zero carbon because of the costs and practical difficulties of on-site renewables, particularly on small developments. As a result, the UKGBC departed from their previous position which supported 100% on-site. Their report concluded that “non private wire, near-site solutions” should count alongside on-site renewables towards achieving carbon compliance (UKGBC, 2008, p. 31). 8 Not only was there a strong emphasis in the Code upon on-site renewables but also upon technologies for achieving water efficiency, such as greywater recycling systems. However, these water efficiency technologies involved significant energy use. This raised the question about whether to encourage their use in parts of the UK such as Wales or the North West where generally there are no problems of water scarcity. 9 Such points concerning the importance of social factors in affecting the outcomes achieved by LZC technologies were highlighted by other academic studies (Gibbs & O’Neill, 2015; Reid & Houston, 2013).

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exemplifies the kind of coordination problems that are highlighted by heterodox political economy and are the focus of the approach proposed here. Understanding the evolution of the zero carbon roadmap after its introduction in 2006 and the coordination problems this agenda entailed requires careful attention to the substantive position of stakeholders towards these complex economic choices and trade-offs involved in defining zero carbon. Their contrasting perspectives highlighted significant uncertainty about the effectiveness of the technologies concerned. Having initially supported and influenced the original ‘100% on site’ formulation of the zero carbon target, WWF changed their view in response to further research that questioned the viability of achieving the target so defined (Greenwood, 2010). The Labour government responded to the criticisms that emerged by modifying the zero carbon target to require a minimum of only 70% on site emissions reductions. This gave scope for up to 30% of the reductions to be achieved by alternative, off-site solutions, which became known as ‘allowable solutions.’ Debates arose about how exactly to measure the additional emissions reductions achieved by such off-site technologies and the challenges of ensuring that the expected performance is fulfilled in practice. Some contrasting views remained apparent. While the ‘70% on site’ definition retained a significant degree of support, some stakeholders were still critical of this definition. This was predominantly a concern of house builders about costs, though some other stakeholders with a more overt commitment to sustainability goals remained unconvinced about the rationale even for this modified target as the most efficient way of achieving zero carbon (Greenwood, 2010, p. 24). Other parts of the policy process prompted further epistemological questions about the relationship between research and policy. Debates about the methodology of the regulatory assessment tool which underpinned the building regulations and the Code involved significant dimensions of complexity. This tool, known as the Standard Assessment Procedure (SAP), was administered by the Department of Energy and Climate Change. The debates concerned how effectively the SAP model, developed during the 1980s and based on a series of standardised, simplifying assumptions,10 predicted the performance of homes in terms of energy 10 These assumptions concerned factors such as number of occupants, heating patterns and room temperatures, given the size of the home concerned.

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efficiency and other factors relating to home comfort (Greenwood, 2010, 2012; Greenwood et al., 2016, 2017).11 Design experts frequently questioned the suitability of the model for assessing building performance according to the increasingly high LZC standards promoted by the zero carbon policy agenda. They stressed that a range of dynamic factors affecting building energy efficiency performance, such as thermal mass, heat gains, airflow, orientation and climatic factors, were not accounted for by the model. These limitations meant that building performance in practice might not meet the sought energy efficiency standard, which was defined and assessed in terms of SAP. Rather than being solely technical, these complexities can be viewed as having significant economic dimensions as defined in Chapter 7, being concerned with balancing multiple, qualitatively distinct priorities. Specialists warned that a number of designers across the sector tended to use SAP as a tool to guide building design. This could give rise to unforeseen negative potential health impacts relating to air quality and overheating. Understanding the substantive complexities involved in balancing the delivery of multiple policy goals across different sectors provided insights into the challenges of ‘joining-up’ different spheres of governance and policymaking. As reviewed in Chapter 7, these challenges, in broad terms, have been the subject of much discussion amongst policymakers and academics (Hood, 2005; Perri & Demos, 1999). In relation to this challenge of balancing, as referred to above, the need for a more “holistic” approach was often referred to. One especially prominent concern was that the energy efficiency of existing homes had been relatively neglected (Greenwood, 2010). There was also, as highlighted in some of the detailed findings explained below, a widespread emphasis from stakeholders on the need for regulatory policy for LZC homes to join up with energy policy. A focus upon such coordination problems in the substantive, outcome-orientated sense proposed here can lead to insights into the effectiveness of policy processes, such as highlighting the need for more ‘joining-up.’ Very commonly referred to was a need, given the widely agreed important role for off-site renewables for achieving zero carbon, for improved coordination between the LZC homes agenda which was led by Department for Communities and Local Government and energy policy that was led by Department for Energy and Climate 11 SAP had first been developed in the 1980s from a study of poorly insulated, energy inefficient homes (AECB, 2009).

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Change. The relatively high cost of on-site and indeed some ‘allowable’ off-site solutions were viewed as entailing a need for a more unified, nationally led transition to more sustainable energy sources. Relating to this, experts often highlighted the vital importance of ‘decarbonisation’ of the electricity grid as part of this transition and for achieving the 2016 zero carbon target. They pointed out that achieving this transition required a wider government strategy beyond the work of Department for Communities and Local Government (DCLG) on building regulations. In addition to these questions about the suitable balance between broad, macro-level objectives, the detailed focus on coordination yielded insights into problems with definition of policy in more specific terms. Again, these are insights that can enrich our assessment of the policy process. One example of this related to the wider challenge of ‘greening’ the electricity grid and how expectations about future progress towards this goal should be incorporated into the models used to assess the CO2 emissions of buildings over time (Greenwood, 2010, 2012). Concerns were widely expressed amongst experts about the unintended consequences for the LZC homes agenda of one of the parameters set for the energy efficiency assessment methodology used within building regulations. This problem, the significance of which was often stressed by designers, can be viewed as a reflection of the division of responsibility between different government departments. The parameter, known as the ‘fuel factor,’ was an adjustment to how the level of CO2 emissions for electric heating was measured to account for the situation faced by those homes that are off the gas grid, hence unable to use gas as an energy source with lower emissions. In the context of these complexities, stakeholders viewed the fuel factor as having established a suitable balance in terms of how the building regulations methodology assessed these fuel types. However, they stressed that use of this factor had an unintended consequence in terms of distorting the incentives in the Code. The fuel factor strongly incentivised use of electrical heating rather than gas for those homes seeking mid-ranking sustainability levels in the Code that were on the gas grid. Referred to by some as a “perverse outcome,” this oversight was widely viewed as a result of different departments being responsible for SAP and the calculation methodology (managed by the Department for Energy and Climate Change—DECC) and building regulations and the Code (DCLG). Many stakeholders emphasised the need for more investment in research and development to inform assessment methodologies and

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testing procedures, thus providing a stronger evidence base for policy. For, as discussed above, stakeholders held a broad range of concerns about the robustness of different LZC technologies and the accuracies of the assumptions about their performance used within SAP. A concern relating to the need for robust evidence was that more accountability was required in how changes to the SAP model and emissions factors are managed. Some interviewees were critical of the relatively informal way in which updates to SAP were managed, commenting on the need for published criteria and evidence to justify the changes made (Greenwood, 2010). Accompanying these significant issues with the availability and use of knowledge within the policy process were concerns about the motivations and interests of key actors involved in the policy process, of just the kind that have long been recognised in political science. Some interviewees who took part in policy committees with DCLG commented on the difficulties of reaching balanced decisions in the key policy committees when industry representatives frequently lobby for their specific interests.12 Some of the problems with the parameters used within the calculation methodology were viewed as reflecting the influence of such active lobbying by some industries, with manufacturers of electric heating technologies being cited as one key example. Such a concern about ‘regulatory capture’ is prominent in public choice theory and indeed the classical liberal tradition. Again, a focus on the substantive problems involved in defining the policy tool concerned was a route to identifying these concerns with the policy process. However, these concerns did not prompt demand for only minimal regulatory standards. Instead, there was an emphasis upon the public benefits of a substantive set of regulations informed by research. Analysis of the work of Zero Carbon Hub offers a further example of where an epistemological focus offers insights into the effectiveness of the policy process. Part of the Hub’s work was to develop recommendations, through their working groups, for the zero carbon policy agenda. The balance of opinion was very favourable towards the consultation processes facilitated by the Zero Carbon Hub. One key contribution of the Hub

12 They commented that this was especially common on those committees where senior civil servants are present. One interviewee commented that their presence meant that different stakeholders have a “direct route to the top.” For one interviewee, this contrasted with technical working groups which (s)he saw as tending to focus on problem solving according to technical criteria.

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was to assess the options for a minimum energy efficiency standard for the building fabric (FEES). Their consultations were widely welcomed by participants as promoting dialogue between a very broad range of stakeholders. The aim was to get as close as possible to a ‘consensus’ amongst them on the appropriate minimum standard. Their recommended level of FEES received wide, even if not universal, support. Several interviewees commented favourably upon the relatively inclusive nature of the process. Their recommendation was incorporated by government into the zero carbon definition and revisions to building regulations leading towards the 2016 target. Some stakeholders alluded to the importance of cross-sectoral working, emphasising the scope for broadening and strengthening the remit of the Hub to consider related policy areas such as planning, non-domestic and existing buildings. Several stakeholders interviewed commented that civil servants were often not especially responsive when they raised specific issues where there was a need for evidence to inform policy. It was suggested by some design experts that the points they were raising were not fully understood by civil servants (Greenwood, 2010). In summary, this case illustrates some important ways in which an epistemological focus on the contrasting ways in which stakeholders understand complex economic dimensions of choice involved in policymaking can enrich more established analytical approaches. This enables exploration of the close inter-relationships between broad normative policy goals and evaluation of specific policy means for translating these ends into practice. In this case, subtle differences are revealed in how stakeholders understand and prioritise the broadly accepted policy goal of climate change mitigation when balanced against other goals, such as the affordability of LZC homes and the need to foster innovation in sectors such as on-site renewables. As illustrated by this case, for example in debates about targets for on-site renewables and the assumptions made in technical debates about building energy efficiency, such a detailed, outcome-orientated focus, drawing from the insights of locally situated stakeholders, can reveal the unforeseen negative impacts of policy. Identifying such negative outcomes enables further exploration of how far this reflects problems with the capacity of governance processes to generate and share required knowledge, or how far this reflects the stakeholder motivations such as the commercial interests of housing developers. Some of the concerns, such as those relating to the balance between onsite and off-site renewables, and other dimensions of sustainability such

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as skills training and reducing water consumption, highlight the need for approaches that are more ‘holistic’ in terms of effectively balancing policy priorities across sectors. Hence, through an epistemological focus, it becomes possible to explore the influence of key stakeholders’ interests and motives, yielding evaluative insights into the policy process. In the LZC homes agenda, both the epistemological and motivational dimensions of governance challenges were both prominent and closely intertwined.

8.3 Governance Reforms in the National Health Service 2012: The Case of Diabetes Care As context for the case study of diabetes care set out below, there is a need to introduce some key features of the National Health Service (NHS) in England. The UK governance of health services involves a much more extensive and substantive role for non-market institutions and processes than in housing, where the role of governance, as discussed above and as in most other countries, is primarily that of establishing a regulatory framework. The evolution of the NHS since its foundation, a primarily state-funded provider of healthcare services, can be viewed as typifying, in a somewhat different way to the LZC homes case above, the kind of multi-scale governance arrangements cutting across the public and private sectors that have been extensively discussed in political science and public administration. Within this governance context, contested questions of first order coordination about the role of and inter-relationship between public and private sectors have had a continued prominence. These first order questions are closely inter-related with those of the most suitable scales of governance for delivering services. There is a sense in which, in the case of the NHS in England, second order processes are rather settled. The suitable balance between different scales of governance and the private sector has generally been established through political decisions taken by central government. As discussed below, such politically led institutional reforms have initiated some important shifts in the roles and inter-relationships between market and non-market allocation in the English NHS, most markedly since the late 1980s. When founded in 1948, the NHS was organised rather hierarchically as a direct provider of a full range of health services. Organisation of the service was based upon the distinction, that remains in place today, between primary care (consisting of general practice) and secondary care

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(hospitals).13 A further part of the service has been public health, where the focus is on the promotion of health and well-being in a holistic, preventative sense. Whether public health should be the responsibility of the NHS at the regional scale or of local government has been the subject of change and debate since the NHS was founded. Overall though, NHS organisation remained subject to relatively little change (Ham & Smith, 2010) until the reforms initiated by successive Conservative governments during the late 1980s and early 1990s. In terms of how we might conceptualise NHS governance arrangements, New Public Management has had significant influence in shaping institutional change both in the NHS and in UK public services more generally since the late 1980s. Whereas NHS management was previously carried out through state-led, bureaucratic forms of organisation, NHS governance now involves a number of different elements, including performance targets and assessment across different governance scales, and contrasting types of market and non-market-based allocative process. NPM reforms marked the start of a shift towards market-like arrangements, as well as decentralisation within some areas of primary and secondary care. While NPM in the UK has influenced both the ‘supply’ and ‘demand’ side of public services, public services such as the NHS have largely retained the principle of services being free to all citizens at the point of use. Government has remained the primary funder of NHS services, though service provision in an increasing number of areas was organised in terms of a split between providers and purchasers of health services that was introduced in 1991. Initially, in the 1980s, services such as cleaning, catering and maintenance were opened up to private provision. In the 1991 reforms, health authorities were given the responsibility, as purchasers, for commissioning care services from NHS providers such as hospitals. The aim was to enhance accountability and efficiency by simplifying organisational functions and stimulating competition between different providers, although at that time providers largely

13 There is also a tertiary sector which provides highly specialised treatments such as neurosurgery, transplants and secure forensic mental health services. Other providers of health services such as dentists and opticians also had links to the NHS, the nature of which have changed over time, for example with previously free dental treatment and eye tests having become chargeable since the NHS was founded.

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remained within the public sector.14 From the early 2000s under New Labour, the ‘purchaser-provider split’ was extended, with a greater range of health services such as certain types of surgery, being opened to private sector provision. Primary Care Trusts (PCTs) were established to take on the commissioning role while some high-performing NHS hospitals were given autonomy in managing their budgets based upon income they generated from service provision through the internal market, under the ‘foundation trust’ scheme.15 Government can be understood as having a steering role in overseeing the allocation of NHS resources across these different parts of the service. NPM also influenced the national policy frameworks that inform processes of resource allocation and service delivery across the service, setting standards and indicating the kind of treatments that should be required and prioritised. These frameworks, initiated by the Labour government, then reformed by the Conservatives, included the broad guidelines defined by the National Institute for Clinical Excellence (NICE) and the establishment of performance league tables for foundation trusts. New Labour established National Service Frameworks, backed up with resources for local implementation, consisting of detailed guidance on pathways for the treatment of particular health conditions such as cancer, coronary heart disease, diabetes and mental illness. The Quality and Outcomes Framework (QOF) was also introduced during 2004, heralding a fundamental change to the financing of general practices in primary care. A large proportion of practice income (between 15 to 20%) would now be dependent on performance across indicators contained within the QOF, covering a range of clinical domains and subject to annual revision. Similar performance frameworks have since emerged in other sectors, notably the Public Health Outcomes Framework (PHOF) for public health provision and the Adult Social Care Outcomes Framework (ASCOF). The presence of such governance arrangements and policy frameworks raises vital epistemological questions concerning the knowledge and evidence that inform decision-making. In the various areas of health research, there remains a need for evaluative research that addresses 14 GPs were given the option of becoming budget holders, purchasing certain types of hospital care for their patients These were mainly outpatient services, elective operations care and diagnostic procedures (Greengross et al., 1999). 15 Trusts had to apply for this foundation status to demonstrate that they met certain governance and service quality criteria.

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the range of different elements of NHS governance and policy tools in a way that is sensitive to contrasting perspectives towards evaluating outcomes. The epistemological focus of the approach proposed here is well-suited to such outcome-orientated evaluation of the substantive complexities involved in this domain of governance and policy. Different types of health evaluation research have tended to each focus on one of these respective elements rather than considering the interrelationships between them. Positivism has strongly influenced the forms of outcome-orientated evaluation used to address each element.16 In terms of medically orientated research, the Evidence-Based Medicine (EBM) approach became widely used, which aimed to establish conclusive quantitative evidence about the effectiveness of health treatments and surgical procedures, based upon use of techniques such as randomised control trials and meta-analyses. This approach has been criticised for not capturing the full range of quality of life criteria that are vital for evaluating interventions.17 Relating to this, the aim of EBM to provide a value-neutral approach has been criticised for not recognising the normative choices that are inevitably involved in developing treatment plans for patients (Upshur, 2003). There are a range of research fields engaging in different ways with evaluative questions about health policy. There is an extensive health research literature that assesses specific policy in terms of outcomes, though without reflecting on the implications of the findings for wider governance and policy strategy.18 Of the research that does include such reflections, mainly with a public administration orientation, some contrasting conclusions have been reached about key features of NHS governance such as performance targets and quasi-markets that were introduced through NPM-style reforms. On performance targets, a substantial amount of research stresses the benefits of this approach

16 Greenwood and Mills (2020) provides a more detailed review of health evaluation research. 17 The EBM approach which was founded upon a strong commitment to positivist methods such as randomised control trials for evaluating health interventions has been a strong influence in health intervention research. However, the aim of EBM to provide a value-neutral approach has been criticised for not recognising the normative choices that are inevitably involved in developing treatment plans for patients (Upshur, 2003). 18 Two recent examples published by leading health policy research centres in the UK are Griffin (2019) and Oyugi et al. (2021).

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(Mays, 2006). Other contributions are critical of the positivist assumptions of the case for performance measurement. In a similar vein to the critiques of NPM introduced in Chapter 2, they stress the problematic character of performance targets. Their discussions of how the definitions of such targets exclude important evaluative criteria (Lamont & Waring, 2015; Maynard & Dixon, 2016) reflect the knowledge problems this involves. Research adopting the assumptions of mainstream public choice theory has emphasised the incentives-based case for the use of quasi markets, fostering competition amongst service providers (Enthoven, 1985; Le Grand & Bartlett, 1993). Again, outcome-orientated studies evaluating quasi-markets tend to be founded upon positivist assumptions that have been the subject of criticism. A much-discussed example was research cited by Prime Minister David Cameron in support of the politically controversial Health and Social Care Act,19 explored in detail below. This research was argued by critics to infer wrongly that improved outcomes were caused by New Labour’s internal market reforms, when other factors such as the availability of more effective treatments could have caused the improvement (Pollock et al., 2011). Critiques have been developed of the assumptions made, under the influence of public choice theory, about individual motivation, that underpin the case for quasimarkets. These critiques, for example those emphasising the importance of collaborative motivations and a public service ethos (Allen et al., 2002; McMaster, 2002; McMaster & Sawkins, 1996), parallel the sociological critiques of public choice theory. Qualitative approaches which depart from positivist assumptions and recognise the contested, normative dimensions of health policy evaluation are also well established. However, such qualitative studies focus on specific elements of NHS governance, such as reforms to commissioning (Coleman et al., 2015), or the impacts of targets (Bevan & Hood, 2006). While these contributions provide important evaluative insights, there remains a need for research for holistically evaluating the different elements of health service governance taken together. With both first and second order coordination being of integral importance to NHS governance, such research would need to consider how both challenges are addressed and the inter-relationships between them, incorporating sensitivity to the full range of qualitatively distinct criteria relevant for assessing service quality.

19 This was the study by Cooper, Gibbons, Jones and McGuire (Cooper et al., 2011).

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This case study focuses upon the impacts of the 2012 Health and Social Care Act (HSCA) upon NHS governance. The HSCA, passed by the Conservative/Liberal Democrat coalition, sought to address questions of the inter-relationships between scales of governance and between the private, public and third sector in the NHS. The Act changed some aspects of New Labour’s approach to health service governance, seeking to promote further competition in service provision as part of a more decentralised approach, with simplified performance targets. The purchaser-provider split was retained but primary care trusts (PCTs), which had previously been responsible for commissioning public health, primary care, secondary and some tertiary care services, were abolished. Instead, consortia of general practitioners, known as clinical commissioning groups (CCGs), were given responsibility for commissioning most services.20 The aim was to promote decentralisation and competition in healthcare delivery, bringing commissioning decisions closer to the patient and diversifying providers, including more opportunities for the private sector, to allow commissioners and patients greater choice. A further change was that public health provision became the responsibility of local authorities. In relation to the complexities that can be involved in evaluating performance, the HSCA also introduced changes to the national policy frameworks and performance protocols governing health service delivery. There was a move away from New Labour’s approach of defining ‘disease-specific’ frameworks in order to shift attention away from prominent killer diseases, such as diabetes and cardiovascular disease. Instead, outcome-based performance assessment was sought that would encourage a focus on patients holistically, recognising the interconnections between different health conditions (Conservative Party, 2008; cited in Mills, 2016, p. 152). The QOF was retained and the PHOF was introduced to manage the performance of local authorities in their new role in public health provision. While these reforms would have a major impact across the NHS, this case study, which yielded previously published findings (Greenwood & Mills, 2020), focuses on the impacts on diabetes care.21 Diabetes care 20 As an exception some services were commissioned by NHS England, including specialised services, general practice, dentistry, optometry, pharmacy, prison health care and military health. 21 The empirical part of the research for this case study was carried out by Thomas Mills, for a doctoral research project (Mills, 2016), supervised by this author.

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is recognised to be a complex challenge of international significance (Farooqi, 2012). Primary, secondary and public health are all viewed as having a role in the treatment and prevention of diabetes. Here, there is a need to keep in mind the difference between type 1 (DT1) and type 2 (DT2) diabetes. DT1 typically develops in adolescence with links to hereditary factors. By contrast, DT2 usually occurs in later life, with unhealthy lifestyles being a frequent cause. Public health thus has an especially significant role for preventing DT2. These range from medically orientated interventions, such as the NHS Health Check for screening individuals at risk of diabetes, to measures promoting community health, such as cycling schemes and fiscal measures to discourage unhealthy food. Unless the condition is effectively treated, the condition can cause a number of complications, including cardiovascular disease, stroke, kidney disease, diabetic retinopathy and foot ulcers leading to leg amputations. Primary care has an important role in managing the condition for those newly diagnosed or with good control of their diabetes. The role of secondary care is to treat patients with diabetes of either type with complex health needs or who experience complications as a result of the condition that requires specialist treatment (Greenwood & Mills, 2020). The starting point for the research was an analysis of reports and documents published by a wide range of stakeholders from government and the third sector. This was supplemented by interviews with 26 participants. These interviews took place between February 2013 and September 2015, which allowed a year for the effects of the reforms to set in. The interviewees included GPs (n = 4), diabetes specialists (n = 5) and public health professionals (n = 4), as well as patient and charity representatives (n = 6) (Greenwood & Mills, 2020). Stakeholder perspectives towards the reforms were found to share a normative commitment in broad terms to the value of providing health care and quality of life for all. This general normative commitment served as the foundation for the case study in a way that paralleled the commitment to climate change mitigation discussed in the case study above. As in the LZC homes case study, the focus was on understanding the contrasting perspectives towards the coordination problems involved in translating this general normative commitment into practice. The case study finds evidence that, in some respects, the HSCA led to improvements to NHS governance for diabetes care, though a range of serious grounds for concern were also found. The contrasting

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ways in which stakeholders framed these questions of policy effectiveness were reviewed. The findings are presented below, organised in terms of different types of coordination problem, which are grouped into two broad categories. Firstly, were first order tasks concerning the effectiveness of service frameworks in fostering a suitable level of quality in diabetes care. Secondly were second order questions concerning the impact of the HSCA reforms on the processes through which diabetes services are delivered. In debates about the effectiveness of national policy for diabetes care, concerns were expressed that paralleled those of many of the stakeholders involved in the LZC homes agenda discussed above. For they also concerned the broad challenge of ‘steering,’ that of moving towards the sought goals while being flexible about the different possible means of attaining them. The broad aim motivating New Labour’s National Service Framework for diabetes, which had defined national-level standards for service provision, had been widely welcomed on its introduction in the 2000s. Yet many stakeholders with experience of working in policy delivery on the ground now considered it to lack the flexibility to allow providers to adapt to individual patients’ circumstances and preferences. This was particularly important, these stakeholders argued, in the case of diabetes patients with multiple conditions, often in the later stages of their lives (Greenwood & Mills, 2020, pp. 1087; 1090). The shift away from disease-specific governance was therefore welcome because it was perceived to be more flexible, although the charity Diabetes UK was concerned that focus on diabetes might be lost. Similar criticisms were raised about specific indicators and targets within the QOF and the PHOF, reflecting differing views on how to prevent and treat early stage DT2. In the LZC homes case, contrasting stakeholder perspectives towards policy targets and evaluation criteria reflected a differing level of priority given to technological solutions to achieving emissions reductions compared with social and behavioural change. In the diabetes case, similarly, contrasting levels of emphasis were placed upon the role of medical interventions, compared with approaches encouraging changes in lifestyles that would help address the causes of the condition. Most notable were debates about interventions for controlling blood glucose levels (which was measured according to the levels of HbA1c in the blood) for those patients with diabetes to manage the condition. Stakeholders who placed especially strong emphasis upon the need for this

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medical approach referred to positivist evidence, based on the use of randomised control trials, that managing HbA1c levels reduces the risk of the onset of DT2. Just as the LZC homes agenda strongly emphasised the social context within which technological solutions were deployed, some stakeholders, including some GPs and diabetes specialists, were critical of what they saw as an over-emphasis of policy frameworks upon such a medical intervention. They argued that, while HbA1c levels are an important factor to consider, such a control target within the QOF limited the scope of professional judgement and patient involvement in the development of treatment plans. They emphasised the need to consider contextual factors such as patients’ age and lifestyle preferences which significantly affected the potential for achieving HbA1c reductions and the benefits this might bring.22 Consequently, the target could drive the overuse of pharmacological therapies in some cases, distorting doctor– patient relationships. Some academic researchers on diabetes questioned the premise, accepted across much of the diabetes specialist profession, that such blood glucose control measures necessarily provide benefits. Instead, their socially orientated perspective stressed the importance of socioeconomic public health interventions that promote healthy lifestyles in terms of diet and regular exercise. They pointed to emerging evidence that linked intensive blood glucose control measures to heart failure amongst some patient groups, most notably elderly patients (Yudkin & Montori, 2014). This emerging evidence led to a modification of the QOF target concerned23 (Greenwood & Mills, 2020), an illustration of the potential significance of epistemological issues for understanding policy change. For some experts, this change did not go far enough. The debate remained ongoing. Some similar problems of coordination were discussed in a somewhat parallel debate about the impacts of the PHOF on public health provision by local authorities. With the QOF argued by some to drive a pharmacological approach to DT2 in primary care oriented to blood glucose control, the PHOF included a target to deliver the NHS Health check for detecting people with raised blood glucose. Advocates of the NHS Health

22 Some campaigners emphasised that pharmacological treatments offered relatively little benefit for some older patients for whom they might also carry particular risks (Collis, 2014, cited in Mills, 2016, p. 170). 23 The HbA1c target level was changed from 8.5 to 7.5 millimoles per litre.

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Check emphasised the health benefits, to individuals, of the early identification of ‘pre-diabetes’ symptoms. Yet, this was challenged by others who, as discussed above, took a more socially orientated approach towards diabetes prevention (Mills, 2016). They did not, however, reject the NHS Health Check outright but preferred a more flexible approach to delivery that would see it be used to target particular hard-to-reach communities rather than the policy of testing everyone over 40 (Greenwood & Mills, 2020). Such contrasting views clearly reflect contrasting epistemological perspectives towards the relative effectiveness of different kinds of diabetes intervention and treatment. Interconnected with these challenges of steering are questions concerning the most suitable scales of governance for addressing these challenges. Regarding reforms to processes of service delivery at regional and local level, the most widely welcomed change was the new role of local authorities in public health. Some concern was expressed that local authorities were not always sufficiently prioritising the allocation of their resources for public health, given that the perception sometimes remained that this was the responsibility of the NHS (Mills, 2016). However, the new responsibilities for local authorities were often viewed as providing an opportunity for professionals and community representatives to develop public health programmes that would more effectively take account of local needs. In this connection, the quarterly local PHOF reports as an informational tool, provided a useful basis for these local discussions (Greenwood & Mills, 2020). As an example of the benefits of such local collaboration, a public health professional interviewed highlighted how their new responsibilities had enabled them to develop a new cycle network in collaboration with the local authority transport department. This, they explained, would have been more difficult to deliver prior to the reforms. Further questions of coordination arise in relation to the long-running debate about the roles of and inter-relationships between primary and secondary care. Debate here did not concern the choice of interventions, as in the case of T2 diabetes prevention and treatment, but rather, how to develop integrated models of care around people with more advanced forms of diabetes that were widely agreed to be desirable. In theory, the HSCA provided an opportunity for the development of such integrated care, to be delivered by networks of professionals in a way that spanned the primary and secondary care sectors more seamlessly. This aim was affirmed in the best practice guidance published by NHS England

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after the HSCA was introduced (NHS England, 2014). However, the impacts of the reforms were widely criticised for undermining this aim of integration (Greenwood & Mills, 2020). In some areas, especially more rural locations with particular requirements for the development of primary care capacity was especially needed, CCGs were welcomed as being more responsive to the needs of diabetes patients than the previous PCTs. However, these benefits were viewed as mainly for healthy patients in these rural contexts, whose care could be overseen by GPs. On the more general picture, research by Diabetes UK (2014) found that integrated models were only being developed in a minority of cases (Diabetes UK, 2014). There was concern that CCG commissioning tended to overlook the significance of the secondary care sector for those patients whose diabetes caused complications. The Diabetes UK report provided evidence of the harm this fragmentation caused patients, in terms of increases in unplanned emergency hospital admissions for patients experiencing serious diabetes complications. An extreme example of secondary care being undermined following the HSCA reforms was Southampton CCG, which sought to develop unilaterally primary care for diabetes, ending investment in specialist services at the local NHS hospital. This move was described by a leading diabetes expert, Professor Roy Taylor, as resulting in “the complete disintegration of specialist care to a disgraceful degree” (PAC, 2012). In the end, this outcome prompted Southampton CCG to recommission parts of the hospital-based specialist service. From the perspective of the Bloomington School and their case for polycentricity, ‘fragmentation’ of governance cannot be assumed to be ineffective. Understanding the character and impacts of fragmentation involves a fundamental epistemological dimension. However, in this example, a strong case can be made that the HSCA led to coordination problems on the ground, given the significance of the impact on some patients reported by Diabetes UK. Here, the coordination problem involved a lack of balance between the expertise and capabilities of the primary and secondary sectors. General practitioners had knowledge of patients’ circumstances and the capacity to promote less resourceintensive prevention and treatments, while secondary care offered more specialist, expert-led treatment for those patients that required it. It would appear that the HSCA’s aim of introducing decentralisation and competition in healthcare delivery frustrated the effective utilisation of these diverse forms of knowledge in some local contexts.

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As in the LZC homes case discussed above, identification of such first and second order coordination problems prompts the question of their causes. The insights provided by stakeholders suggest that a main concern here was the reforms made to institutional arrangements in second order terms, especially with respect to their impacts upon the incentives of healthcare providers. The incentives within the CCG-based system were widely viewed as having led primary care to focus on building up its own capacity at the expense of the secondary sector, with numerous local examples of this being cited. The call from Diabetes UK for a return to a disease-specific framework was a response to these concerns about the fragmentation of diabetes services (PAC, 2012). However, this case study suggests that it was the incentives for CCGs established by the reforms that drove this fragmentation. In summary, the dual focus of this case study upon the epistemological and motivational dimensions of coordination challenges and their inter-relationships offer a fuller evaluative picture of policy impacts within NHS governance. Some of the coordination problems involved in the governance of diabetes care, especially in the definition of certain key performance measures relating to the prevention of DT2, reflected first order epistemological problems involved in defining policy objectives of the kind also identified in the LZC homes case. Other coordination problems identified were in second order terms, highlighting the need for fostering collaboration between the different organisations involved in NHS governance across different scales. While having an epistemological dimension in terms of involving a lack of collaboration and knowledge sharing, these problems were found to be driven by the incentives created by the 2012 reforms. Hence again, the case illustrates how the epistemological dimension is significant in its own right, as well as how exploration of this dimension enriches our understanding of the impacts of incentives problems with which they are often so closely intertwined.

References AECB. (2009). Projecting Energy Use and CO2 Emissions From Low Energy Buildings—A Comparison of the Passivhaus Planning Package (PHPP) and SAP. AECB— The Sustainable Buildings Association. Allen, P., et al. (2002). The use of contracts in the management of infectious disease related risk in the NHS internal market. Health Policy, 59(3), 257– 281.

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Anderson, T. L., & Leal, D. (2001) Free market environmentalism. Revised ed. Palgrave. ARUP. (2009). New generation of zero carbon homes moves a step closer. Bevan, G., & Hood, C. (2006). Have targets improved performance in the English NHS? British Medical Journal, 332(7538), 419–422. Coleman, A., et al. (2015). Leadership for health commissioning in the new NHS. Journal of Health Organization and Management, 29(1), 75–91. Conservative Party. (2008). Delivering some of the best healthcare in Europe: Outcomes not targets responsibility agenda. London. Cooper, Z., et al. (2011). Does hospital competition save lives? Evidence from the English NHS patient choice reforms. The Economic Journal, 121(554), F228–F260. DCLG. (2008). Definition of zero carbon homes and non-domestic buildings: Consultation. HM Government. Diabetes UK. (2014). Improving the delivery of adult diabetes care through integration: Sharing experience through learning. England, N. H. S. (2014). Action for diabetes. London. Enthoven, A. (1985). Reflections on the management of the National Health Service. Nuffield Trust. Farooqi, A. (2012). Primary care: The custodian of diabetes care? Practical Diabetes, 29(7), 286–291. Gibbs, D., & O’Neill, K. (2015). Building a green economy? Sustainability Transitions in the UK Building Sector, Geoforum, 59, 133–141. Grand, J. Le., & Bartlett, W. (1993). In J. Le Grand & W. Bartlett (Eds.), Quasi-Markets and social policy: The way forward? BT—Quasi-Markets and social policy (pp. 202–220). Palgrave Macmillan UK. Greengross, P., Grant, K., & Elizabeth, C. (1999). The UK national health service 1948–1999. Greenwood, D. (2010). Really Zero—Stakeholder perspectives on policy in England for the 2016 Zero carbon homes target. University of Westminster. Greenwood, D. (2012). The challenge of policy coordination for sustainable socio-technical transitions—the case of the zero carbon homes agenda in England. Environment and Planning C: Government & Policy, 30, 162–179. Greenwood, D., Congreve, A., & King, M. (2016). The future of policy and standards for low and zero carbon homes. RICS Research Trust. Greenwood, D., Congreve, A., & King, M. (2017). Streamlining or watering down? Assessing the “smartness” of policy and standards for the promotion of low and zero carbon homes in England 2010–15. Energy Policy, 110, 490– 499. Greenwood, D., & Mills, T. (2020). Steering, knowledge and the challenge of governance evaluation: The case of national health service governance and reform in England. Administration & Society, 52(7), 1069–1100.

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CHAPTER 9

Conclusion

This book has proposed a conceptual and methodological approach for assessing governance effectiveness. Of integral importance to ‘governance effectiveness,’ as understood here, is the question of the scope of markets and the institutional arrangements for their operation. There are various types of institutional arrangements and forms of governance that might be adopted to attain sought policy goals. These include the provision of public goods and services, establishing legislative frameworks, regulation of various kinds and communication strategies. Some of these are concerned with promoting certain solutions, such as, for example, sector-specific subsidies for particular technologies or specific approaches to public service delivery. By contrast, governance might involve establishing institutional frameworks within which multiple potential ways of achieving policy goals can be developed, deployed and tested through processes of innovation, comparison and potentially competition. The degree of specificity with which policy goals should be defined is itself the subject of exploration within this proposed approach. A central focus is to assess the classical liberal view that any such policy goals seeking to shape distributive outcomes will inevitably be arbitrary, prompting the question of the extent to which state-led frameworks can foster coordination in pluralist societies. Stressed here is the significance of the heterodox terms in which classical liberals articulate this scepticism about state capacities. Indeed, the insights offered by their heterodox scholarship, it is argued, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8_9

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can be taken as providing the basis for an outcome-orientated approach to governance evaluation that is lacking in political science and related fields. Previous presentations of these heterodox approaches have tended to be bound up with a case for classical liberalism. By contrast, this book has stressed that adoption of this approach does not necessarily entail a prior commitment to any specific conclusions about the relative effectiveness of different institutions, whether classical liberal or otherwise. Rather the questions inspired by heterodoxy are taken to open up governance evaluation to exploration of the full spectrum of institutional possibilities. The different kinds of practices adopted within governance are shaped by ‘policies,’ which can take a range of forms, such as general strategies, the selection of specific tools or other ad hoc decisions. The focus proposed here is upon assessing governance practices and policy approaches in terms of how far they coordinate and balance the attainment of potentially multiple goals. This focus demands assessment of the inter-relationships between policy goals and outcomes, as well as analysis of the causal inter-relationships between institutional processes and their impacts. An outcome-orientated approach, it is argued, can complement and enrich established, process-orientated approaches that predominate in how governance is analysed in political science and related fields. The range of conceptual and methodological approaches to analysing the processes of policy formation within political studies and associated research fields is widely documented. As summarised in Chapters 2 and 7, these approaches, from public choice theory to various forms of institutionalism, from policy process research to interpretivist critiques of policy discourses, offer a range of insights into the ways in which policy processes reflect institutional contexts. The varying roles, motivations and interrelationships between the actors and organisations involved are examined. Institutionalist analysis has evolved to explore the complexities of individuals’ motivations. Interpretivist analyses highlight actors’ contested, subjective understandings of policy problems. Although recent research is therefore highly sensitive to the subtleties of the policy process, there is a need, highlighted by Chapter 2, for governance research that is more directly evaluative. Evaluation research and some approaches to policy analysis do have such a directly evaluative orientation. However, their traditional focus has been upon individual policies and programmes rather than the wider contexts of governance through which multiple policies are adopted. Hence, there is need and potential for governance research to engage more directly with evaluative questions concerning

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the inter-relationships between institutions and markets, by drawing from heterodox political economy approaches. The heterodox Austrian tradition, with its close, in-depth focus upon assessing the functions of markets and their strengths relative to nonmarket, political and policy processes, is of core importance to achieving such institutional evaluation. As set out in Chapter 3, the Austrians depart from the Neoclassical approach, recognising that, rather than converging on optimal outcomes, markets are inevitably imperfect. Nonetheless, for the Austrians, markets, through the ongoing generation of prices, fulfil indispensable coordinative functions, encapsulating various forms of knowledge held by individuals across society as well as fostering discovery and innovation. They highlight the significance of locally situated economic knowledge and the specificity of the range of kinds of expert knowledge held by individuals within complex, dynamically changing modern economies. The challenge of shaping market outcomes within this context of dispersed, shifting forms of knowledge, as highlighted by Hayek in particular, involves profound complexity. Hence, aside from motivational questions concerning the suitability of economic actors’ incentives, achieving effective governance involves a significant epistemological dimension. Just as individual economic actors in various situations face complex choices and trade-offs in seeking to attain their goals, so do governance and policy actors. As explored in Chapter 4, the Hayekian perspective highlights the complexities involved in translating into practice the range of egalitarian and sustainability goals that are stressed as being so significant within contemporary governance. Outcome-orientated governance evaluation demands close consideration of these complexities. As has been highlighted by numerous critics, the Austrian presentation of this challenge is rather one-sided. Overall, markets are presented as an elegant and relatively effective, albeit by no means perfect, solution to coordination problems. Political and policy interventions are viewed as tending to fail, stifling innovation and causing unintended negative consequences that hamper the coordination that would otherwise be fostered through markets. As Chapter 5 sets out, political and other non-market processes can also be understood as potentially fostering coordination. This potential is largely overlooked in Hayek’s work and has only been touched upon by some more recent contributions within the Austrian tradition. Once this potential is recognised more fully, the Austrian conception of coordination can be used as a lens for interrogating and

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comparatively assessing the capacity of both market and non-market political processes to foster coordination. A key contribution of this book is to show how the conceptual tools provided by the Austrians can be detached from their pro-market conclusions and used to provide a balanced assessment of the various inter-relationships between market and non-market within contemporary governance. The understanding presented here of coordination challenges for governance utilises the distinction offered by Knight and Johnson between first and second order coordination. In these terms, while the first order task involves establishing a suitable balance between market and non-market processes in specific contexts, the second order challenge, considered in Chapter 6, is to establish a suitable institutional framework through which such first order coordinative tasks are addressed. In other words, the second order ‘meta level’ question concerns the institutional arrangements for deciding how the specific role of markets is settled. As Knight and Johnson recognise, democratic political processes are just one way in which this second order challenge might be addressed. Alternatively, second order coordination might be fostered by processes of institutional selection and competition. Rather than being directly shaped by political decisions, such a second order process of decentralised institutional selection would be driven by a right of individuals to exit institutional arrangements the goals of which they do not share, or that they consider to be ineffective in terms of goal attainment. Institutions might evolve and adapt in response to the decisions taken by individuals about whether to remain part of them, or to exit. This question of second order coordination is brought into focus by Bloomington School scholarship, as has been drawn upon by more recent classical liberal writings. These contributions highlight the contrasting ways in which scales of governance might be established and adapted, given that the geographical scope of the various problems they seek to address varies so greatly, from local to global. From this perspective, fostering coordination is viewed as a challenge not only of achieving an effective balance between politics, policy and markets but of establishing a suitable institutional context within which this balance adapts. The starting point for the approach to evaluating governance proposed here is to establish outcome-orientated assessment of how far the coordination of policy goals has been attained in first order terms. As is recognised, the question of how far outcomes reflect ‘successful’ attainment of policy goals will inevitably be contested, being subject to different

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interpretations. The range of individuals affected by and with an interest in these outcomes will have contrasting types and levels of knowledge in relation to these outcomes. Hence, there is a need to interrogate a range of such perspectives. How far and in what sense are goals considered to have been achieved, enabled or frustrated by specific policies or wider institutional arrangements that shape policy delivery? Drawing from the heterodox insights of the Austrian School, the proposed approach includes close analysis and comparison of actors’ understandings of the complex choices and trade-offs involved in policymaking. Such analysis requires sensitivity to the uncertainties inherent within policy decisions and the contrasting forms of expertise and innovation integral to effective policy delivery. This outcome-orientated approach lends itself to drawing from the insights of a range of disciplinary perspectives through which outcomes might be understood, including fields such as sociology, environmental sciences, educational and health research. Such outcome-orientated assessment of specific combinations of policies in first order terms can serve as a basis for assessing the effectiveness of the decision-making processes that shaped them—i.e. the wider context of the governance arrangements through which policy decisions are taken. As explained above, integral to outcome-orientated first order analysis are detailed comparisons of the knowledge base informing policy decisions with the understandings offered by a range of other actors. Such analysis, especially given its sensitivity to the complexities involved in policy choices, can enable assessment of the extent and character of the knowledge and evidence about past and potential future policy impacts that informs decision-making. Starting from such an assessment, as discussed in Chapters 7 and 8, it becomes possible to trace the ways in which processes of policy formation and delivery and their wider institutional context, shape policy actors’ epistemic perspectives. For, where gaps are identified in the knowledge of actors involved in policy delivery, this prompts the question of the features of the process that caused them. Such analysis, starting from an outcome-orientated focus, can thus offer insights into the effectiveness of decision-making processes. Insights of this kind can complement and enrich entirely process-orientated analyses of governance and policymaking. Such evaluation of the ‘coordinative effectiveness’ of governance and policy processes also offers potential for exploring second order questions, as defined by Knight and Johnson, concerning the institutional processes through which the balance between politics, policy and markets is settled

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upon. Classical liberal authors have questioned the position of Knight and Johnson that such ‘meta level’ coordination should be orchestrated primarily through democratic politics. They offer hypotheses concerning the potential for decentralised processes of institutional adjustment to foster second order coordination. Empirically orientated research carried out by Bloomington School scholars suggests the coordinative potential of such processes of decentralised adjustment, driven by the right of individuals to exit institutional arrangements that they find unsatisfactory or ineffective. There remains much scope though for large-scale comparative work directly exploring classical liberal hypotheses about decentralised forms of second order coordination and their outcomes in first order terms. Contributions from the Bloomington and Hayekian traditions point to important frameworks for such a line of enquiry. However, they tend to be presented in a way that is inextricably bound up with classical liberal scepticism about state decision-making and centralised forms of governance. This book has detached the heterodox foundations of these approaches from classical liberal anticipations of the findings of such future research. This more fully opens a path for future research to directly address these recently emerging lines of enquiry about governance effectiveness in second order as well as first order terms. A range of case studies assessing policy outcomes in first order terms could potentially be drawn upon to inform second order assessment. Of such fundamental importance are questions of coordination that their significance inevitably, albeit often rather intermittently, resonates across a range of research fields. The term coordination, as well as related concepts such as integration and holistic governance, has been central to a number of research streams across the social sciences. These assessments of governance and the policy process in terms of coordination and related concepts tend to be process-orientated, giving relatively little consideration to outcomes. They do not seek to establish the kind of detailed, systematic, outcome-orientated assessment proposed here.1 Ultimately, governance evaluation requires such consideration of outcomes. The concepts offered by heterodox political economy, suggest the potential for achieving outcome-orientated engagement in a way that is sensitive to the complexities involved in evaluation and the insights that might be provided by a range of disciplines. Heterodox traditions point to the need

1 See Section 7.2 of Chapter 7.

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for a close focus on the epistemological dimension of governance challenges, offering insights into how stakeholders respond to and address this. As demonstrated by the two case studies presented in Chapter 8, such an epistemological focus not only enables a sensitive approach to outcome-orientated evaluation but can also enrich the insights offered by established, process-orientated approaches that have tended to focus on the motivational dimension of governance policymaking. Recent years have seen increased emphasis on the importance of academic research having wider impacts beyond academia. Research assessing the effectiveness of governance and policy can clearly be expected to offer great potential for such impact. Questions of governance and policy effectiveness in so many sectors are matters of central concern for the wider public as well as specific groups of stakeholders. Hence, engaging with these questions is clearly vital for political studies and policy analysis to achieve the fullest possible impact. The approach proposed here, assessing governance and policy in terms of coordination in the outcome-orientated sense used in political economy, can enable research that more fully addresses these questions. The novelties of the approach are the combination of a recognition of the need for consideration of outcomes, sensitivity to complexity and recognition of the integral importance of ongoing processes of knowledge discovery and innovation as part of the process of coordination. This book started by stating the urgency and profound importance of a range of contemporary policy challenges. The need for a reorientation of political studies towards closer engagement with evaluative questions of coordinative effectiveness is similarly pressing.

Name Index

A Anderson, Elizabeth, 52, 127–129, 134, 141, 142, 163, 159 Anderson, Terry, 61, 102, 129, 140, 191, 258 Arneson, Richard, 127, 128, 155–157

Dryzek, John, 116, 136, 233 Dworkin, Ronald, 126, 127, 142

B Barry, John, 139, 140 Bentham, Jeremy, 39 Bevir, Mark, 29, 31, 53, 231 Blaug, Mark, 41, 221, 248 Buchanan, James, 48, 49

F Frey, Bruno, 206 Friedman, Milton, 9, 40, 41

C Coase, Ronald, 58–62, 189, 190, 192 Cohen, Gerry, 45, 58, 125, 127, 128

D Demsetz, Harold, 56, 60, 189 Dickinson, Henry, 87–90, 95 DiZerega, Gus, 165, 166, 168

E Eckersley, Robyn, 139, 140

G Gamble, Andrew, 105, 106, 161, 188

H Hayek, Friedrich, 6, 8–13, 15, 16, 54–58, 82–106, 113, 114, 116, 117, 120, 122, 125, 126, 131, 135, 139, 141, 142, 149–152, 155, 158–163, 165–167, 169–173, 186–188, 191, 201, 202, 207–209, 219, 236, 289

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8

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NAME INDEX

Hood, Christopher, 29, 30, 268, 276 I Ikeda, Sanford, 12, 50, 99, 101–104, 149, 255 J Jessop, Bob, 28, 37 Jordan, Andrew, 138, 199, 226, 227 K Kingdon, John, 169 Kirzner, Israel, 54, 89, 93, 94, 168, 170, 172, 242 L Le Grand, Julian, 46, 49, 50, 276 N Niskanen, William, 48–50 Nussbaum, Martha, 130, 133, 134, 142, 154, 156–158 O O’Neill, John, 84, 92, 103, 131, 160, 161 Ostrom, Elinor, 6, 7, 9, 13, 14, 54–56, 62, 164, 168, 185, 192–200, 202–206, 218, 225, 234, 235, 258, 263 Ostrom, Vincent, 6, 7, 9, 13, 14, 27, 50, 55, 56, 164, 166–168, 185, 186, 192–197, 199, 204–208, 225, 234, 244, 263 P Pennington, Mark, 6, 7, 54, 56, 57, 102, 105, 106, 181, 184–186, 188, 192, 198–209

Phillips, Anne, 123, 125, 127–129 Pigou, Arthur, 61, 189 Plant, Raymond, 10, 114, 142 Polanyi, Michael, 14, 92, 161 Pressman, Jeffrey, 25, 26, 227–229

R Rawls, John, 113, 115, 116, 125, 130–134, 142, 156, 157, 183 Rhodes, Rod, 3, 29, 32–34, 37, 152, 231 Robbins, Lionel, 39, 40

S Samuelson, Paul, 40, 41, 43, 45, 46, 60 Schumpeter, Joseph, 170, 171, 242 Sen, Amartya, 42, 44, 45, 130, 132, 133, 135, 154–156 Simon, Herbert, 30, 97, 139 Somin, Ilya, 205, 206 Sørensen, Eva, 3, 4, 34–37, 152, 230 Spicer, Michael, 30 Stoker, Gerry, 3, 28, 29 Stringham, Edward, 4, 102, 187, 188, 190

T T’Hart, Paul, 26 Torfing, Jacob, 2–4, 31, 34–37, 152, 162, 230 Tullock, Gordon, 48–50

V Vanberg, Viktor, 27, 84, 159, 188, 207

W Walras, Leon, 39, 43, 163 Weiss, Carole, 27

NAME INDEX

Wildavsky, Aaron, 25, 26, 97, 208, 228, 236 Williamson, Oliver, 58, 59, 62, 161 Wohlgemuth, Michael, 165–168

Y Yanow, Dvora, 228

297

Subject Index

A Accountability, 35, 200, 270, 273 Altruism, 52 Appraisement, 95 Autonomy, 33, 113, 114, 118, 130–133, 135, 140, 155, 158, 274

B Behavioural economics, 44 Behaviouralism, 24, 279 Bloomington School(s), 5–7, 9, 13, 14, 50, 53, 55, 56, 62, 63, 168, 185, 186, 189, 192–195, 197, 200, 207, 218, 282, 290, 292 Bureaucracy, 49, 51 bureaucrats as budget maximisers, 50

C Calculation calculation debate, 11, 82, 95, 98, 99

calculation in kind, 85 economic calculation, 87, 93, 96 Capabilities approach, 133–135, 154, 157 Centralisation, 202 central government, 3, 193, 260, 272 central planning, 193, 201 Classical liberalism. See Liberalism Climate change, 1, 136, 198, 257, 261, 269 climate change governance, 198, 199, 203 climate stability as a public good, 198 Club goods, 183 Coase theorem, 61, 189 Collective action problems, 32, 33, 55, 194 Common pool resources (CPRs), 14, 55, 195, 263 Competition jurisdictional competition, 199, 200, 205

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 D. Greenwood, Effective Governance and the Political Economy of Coordination, https://doi.org/10.1007/978-3-031-30383-8

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SUBJECT INDEX

markets and competition, 56, 90, 94, 103, 173, 196 Complexity complexity theory, 83 economic complexity, 90, 240, 241 technical-scientific complexity, 238, 239 Consequentialism, 10, 11, 82, 166 Constitutions constitutional design, 184, 208 constitutional law. See Law constitutional political economy, 183 Consumers, 11, 42, 46, 58, 83, 92, 241 Cooperation, 36, 51, 160, 164, 173, 194, 195, 198, 223 distinguished from coordination, 182 Coordination coordinative effectiveness, 2, 18, 218, 234, 235, 248, 255, 257, 291, 293 definition of, 93 democracy and coordination, 166 dynamic coordination, 225 first order coordination, 8, 9, 14, 149, 172, 181, 182, 184–186, 197, 201, 202, 209, 234, 236, 237, 244, 245, 259, 272 horizontal coordination, 223–226 second order coordination, 8, 9, 17, 18, 173, 181–187, 189–192, 196–198, 201–205, 207–209, 234, 235, 244, 276, 283, 290, 292 static coordination, 225 vertical coordination, 223 Cost-benefit analysis, 38, 102, 220 Critical realism, 243 Culture, 115, 121, 125, 158, 188, 205

D Decentralisation, 257, 273, 277, 282 Democracy democracy and coordination, 166 democratic anchorage, 36, 230 priority of democracy, 184, 186 Deontology, 10 Difference principle, 132 Discourse analysis, 232 Discrimination, 123, 124 Distribution of goods, 32 E Economics austrian economics, 54 classical economics, 41 ecological economics, 46, 81, 87, 138 evolutionary economics, 53 feminist economics, 53 formalist revolution, 40 heterodox economics, 14, 15, 23, 28, 54, 248 institutional economics, 189 marginalism, 41 neoclassical economics, 37, 38, 41, 43, 47, 48, 54, 58, 63, 81, 84, 89, 97, 102, 220 positive economics, 40, 45 transaction cost economics, 62 welfare economics, 40, 41, 189 Education, 1, 8, 27, 31, 119, 124, 125, 142, 226, 237 Effectiveness, 3, 5, 7, 11, 14, 15, 27, 30, 35 definition of, 3 Efficiency, 4, 11, 43, 100, 261, 262, 268, 271, 273 pareto efficiency, 43 Elitism, 31 Emissions permits, 61, 198, 269 Ends

SUBJECT INDEX

individual ends, 97, 104, 113, 115, 117 means-ends inter-relationships, 63, 97, 236 moral ends, 8, 63, 84, 97, 115–117, 132 policy goals, 96, 97, 113, 115, 219, 271 Entanglement of market and non-market, 56 Entrepreneurship and appraisement, 95 Hayek on, 104 Mises on, 95 policy entrepreneurs, 168, 172 politics and entrepreneurship, 169 social entrepreneurs, 169 Environmental management, 8, 60 Environmental policy integration, 223 Environmental sustainability, 16, 113, 114, 119, 135–137, 139, 140, 142, 159, 231 Epistemology, 8, 11–13, 15, 18, 24, 42, 45, 48, 50, 53, 54, 63, 82–84, 86–88, 91, 93–96, 98–102, 113–115, 117, 119, 120, 123–126, 128–130, 132, 134, 135, 137, 138, 141–143, 149–153, 157, 159, 160, 162, 164–167, 183, 186, 188, 196, 201, 209, 220, 230, 231, 235, 237, 238, 244, 246, 248, 255–257, 259, 262, 264, 267, 270–272, 274, 281–283, 289, 293 Equality equality of opportunity, 16, 26, 114, 118, 123–125, 127, 130, 131, 141, 155, 158 luck egalitarianism, 127–130 Equilibrium, 41–43, 45, 46, 54–56, 87–89, 157

301

European Union, 198 E.U. Emissions Trading Scheme, 198 Evaluation evaluation research, 27, 98, 115, 116, 220, 233, 235–237, 241, 243, 245, 248, 275, 288 governance evaluation, 1, 7, 8, 14, 15, 27, 36, 37, 53, 63, 81, 84, 94, 106, 114, 149, 182, 186, 208, 218–220, 233–235, 240, 288, 289, 292 Evidence-based medicine, 275 Exit rights, 199, 203–205 Externalities environmental externalities/ pollution, 237 negative externalities, definition of, 58 negative externalities, examples of, 61 positive externalities. See Public goods F Factors of production, 55, 85, 88, 91, 95 Federalism, 196 Foot voting, 197, 199, 203, 205, 206 Frame analysis, 232, 241, 242 Free market environmentalism, 102, 141, 191 G Goals. See Ends, individual ends; Policy goals Governance climate change governance, 198, 199, 203 collaborative governance, 34, 221 corporate governance, 34

302

SUBJECT INDEX

fragmentation of governance, 282 holistic governance, 221, 226, 227, 292 joined-up governance, 221 local governance, 13, 204 metropolitan governance, 13, 194 multi-scale governance, 193, 272 network governance, 3, 4, 15, 31, 34–36, 140, 150, 152, 153, 199, 221, 230 private governance, 4, 190 scales of governance, 198, 243 self-governance, 17, 190, 191, 193, 263 Government failure, 49, 51, 83, 98 Green state theory, 139, 140

H Healthcare, 240, 257, 272, 277, 282, 283 Hierarchy of needs, 120 Homo economicus, 23, 42, 43, 45–49, 51, 55, 102 Human needs hierarchy of needs, 120 subsistence needs, 121, 122

I Ideal theory, 126, 127, 139, 155 Implementation research, 25, 26, 227, 229 Incentives. See Motives Inconsistency, 225 distinguished from coordination, 225 Individualism methodological individualism, 84 normative individualism, 84 Inequality, 1, 45, 124, 125, 128, 130, 132, 142, 184, 217

Innovation, 4, 17, 30, 50, 54, 58, 81, 89, 93, 101, 102, 162, 167, 168, 172, 173, 185, 200, 202, 225, 242, 256, 259, 262–264, 266, 271, 287, 289, 291, 293 Institutional analysis and development (IAD) model, 13, 55 Institutionalism feminist institutionalism, 52 rational choice institutionalism, 51 sociological institutionalism, 52, 53 Institutions adaptation of, 17, 56, 63, 164, 168, 169, 181, 184, 185, 187, 188, 193, 195–197, 201–204, 207, 208 evolution of, 185, 187, 191, 195, 197, 200, 202, 203, 207, 209 Inter-organisational theory, 33, 35, 222, 223, 230 Interpretivism, 220, 231 Interviews. See Research methods

J John, Peter, 25 Judiciary, 191 Jurisdictional competition, 199, 200, 205 Justice, 16, 25, 57, 115, 117, 118, 128, 131, 132, 134, 136, 137, 139, 141, 142, 157, 158, 206, 231

K Knowledge discovery of knowledge, 11, 15, 86, 93, 149, 162, 172 dispersed knowledge, 91, 93, 289 economic knowledge, 82, 90–93, 160, 161, 289

SUBJECT INDEX

encapsulation of knowledge, 11, 15, 82, 93, 94 know-how, 92 local knowledge, 122, 124, 196 tacit knowledge, 17, 93, 152, 160 technical-scientific knowledge, 239, 247 L Labour division of labour, 91 labour supply, 273 Labour Party, British, 12 Law common law, 191, 192 constitutional law, 188 legal centralism, 201 Law, Legislation and Liberty, 187 Legitimacy, 34, 35, 97, 162 Liberalism classical liberalism, 6, 7, 9, 12, 18, 57, 81–83, 95, 103, 106, 113, 116, 117, 123, 131, 158, 186, 201, 207, 209, 255, 288 political liberalism, 115, 134, 157 social liberalism, 118, 119, 122, 130, 131, 135, 150 Libertarianism, 187 Liberty, 9, 10, 57, 82, 114, 116, 131, 141, 166, 231 M Markets and governance, 17, 32, 63, 83 market exchange, 1, 4, 10, 45–47, 86, 103, 104, 149, 160, 168 market failure, 45, 46, 49, 58, 59, 142 market prices, 42, 45, 54, 55, 87, 88, 99 Max Planck Institute, 32

303

Means-ends inter-relationships, 63, 97, 236 Meta-governance, 37, 182 Methodological individualism, 84 Mixed economy, 83, 95, 99 Monopoly, 46, 58 Mont Pelerin Society, 9 Motives incentives, 50, 230 inter-relationship between knowledge and motivation, 13, 83, 164, 196, 220, 256, 270–272, 283 motivational dimension of analysis, 47, 48, 54, 63, 150 Mutual adjustment, 163, 223

N Natural capital, 137, 138 Needs. See Human needs Neoliberalism, 9, 10 Network governance and accountability, 35 and legitimacy, 162 effectiveness of, 2, 32, 35 first generation of network governance research, 4, 34 second generation of network governance research, 33–35 Networks, 2, 3, 23, 28, 29, 31–37, 56, 150, 152, 154, 162, 182, 222, 224, 229–231, 260, 281 issue networks, 32 New public governance, 31 New public management (NPM), 29, 51, 273 New right, 48, 51, 53 Nirvana fallacy, 56 Non-mandatory standards. See Voluntary standards

304

SUBJECT INDEX

O Oligopoly, 46 Optimality, 54, 130 Pareto optimality, 43 Organisational theory, 33 Original position, 132 Outcomes, 1–4, 6, 8, 10, 14, 18 outcome-orientated evaluation, 26, 28, 241, 275, 293

P Partisan mutual adjustment. See Mutual adjustment Performance indicators, 226 Performance management/targets, 29, 30, 51, 244, 257, 273, 275–277 Planning indicative planning, 99, 101 land use planning, 99, 101 Pluralism, 10, 31, 120, 122, 137, 166, 195 Policy agricultural policy, 100 climate change policy, 226 energy policy, 266, 268 environmental policy, 223, 227 health policy, 101, 275, 276 housing policy, 232 industrial policy, 100 policy analysis, 2, 38, 81, 96, 102, 182, 220, 221, 236, 293 policy evaluation, 16, 115, 116, 123, 133, 219, 226, 232, 233, 240, 242, 243, 246 policy implementation, 259 policy instruments, 132, 217, 229, 260 policy tools. See policy instruments social policy, 223, 226, 227 urban policy, 223, 226

Policy analysis, 2, 5, 38, 81, 96, 97, 102, 116, 182, 220, 221, 223, 232, 236, 240, 245, 288, 293 Policy goals, 1, 25, 46, 52, 96–98, 140, 141, 143, 149, 154, 161, 162, 202, 217, 223, 226, 241, 256, 259, 265, 287, 288, 290 definition of, 115 pattern-shaping goals, 17, 141, 142 Policy process research, 25, 26, 288 Political economy Austrian School of political economy, 9, 242 Bloomington school of political economy, 5, 6, 9, 13, 15, 55, 63 entangled political economy, 186 heterodox political economy, 5, 14, 17, 23, 36, 37, 47, 48, 63, 157, 168, 186, 217, 218, 220, 242, 267, 289, 292 Political science, 2–7, 12–16, 18, 23–33, 35, 38, 47, 48, 52, 62, 63, 97, 140, 152, 153, 199, 218, 219, 221–223, 227, 229, 237, 241, 270, 272, 288 Pollution. See environmental externalities Polycentricity, 14, 161, 185, 194, 195, 199, 202, 204, 244, 282 Positivism logical positivism, 40, 41, 43 positivism and economics, 14 positivism and political science, 14, 24 Preferences, 123, 126, 128, 131, 134–137, 139, 140, 165, 172, 193, 197, 239, 242, 279, 280 subjectivity of, 123 Prices consumer goods prices, 16

SUBJECT INDEX

epistemological functions of, 92, 143 factor prices, 88 market prices, 42, 45, 54, 55, 87, 99 non-market prices, 87, 88 Primary goods, 132, 134 Principal-agent problems, 98 Producers, 11, 42, 58, 83, 94, 101 Property common property, 203 private property, 9, 60, 61, 102, 103, 190–192 property rights, 6, 59, 61, 82, 102, 186, 189–192, 194, 197 Public administration, 3–6, 15, 18, 25, 27–32, 35, 63, 96, 199, 218, 222–225, 227, 229, 241, 272, 275 Public choice theory and bureaucracy, 49, 51 and constitutions, 183 and voting systems, 49 Bloomington school, 13, 50, 53, 197 critiques of, 47, 51, 276 definition of, 58 Public economies, 13, 57, 194, 196 Public goods broadcasting, 60 examples, 30, 45, 60, 128, 183, 194, 206 global public goods, 198, 204 lighthouses, 60 pure public goods, 195 Public-private partnerships, 29, 51, 196 Public services, 14, 33, 34, 37, 130, 196, 273 Q Qualitative methods, 245

305

Quantitative methods, 236 Quota systems, 61, 102

R Rationality bounded rationality, 45, 106 rational choice theory, 55, 229 rational comprehensive model, 223 rational constructivism, 188 Rechstaat, 187 Regulation building regulations, 260, 263, 264, 266, 267, 269, 271 environmental regulation, 18, 102, 206, 256 regulatory capture, 270 smart regulation, 264 Relativism, 232, 233 Rent controls, 99 Research methods qualitative methods, 245 quantitative methods, 236 semi-structured interviews, 246 Resources resource exchange, 222 resourcism, 133 Robustness, 54, 63, 105, 168, 270 Roskilde school, 230 Rotterdam school, 34, 230 Rules, 4, 14, 27, 36, 48, 59, 61, 62, 91, 103, 104, 135, 149, 188, 190–195, 204, 207, 217, 227

S Social capital, 103, 104, 198 Social democracy, 12, 117 Socialism, 15, 84, 89, 117 socialist planning, 10, 12, 46, 83, 88, 89, 94, 99, 234 Socialist calculation debate, 11

306

SUBJECT INDEX

Social justice, 16, 57, 116, 118, 128, 134, 141, 157, 158, 231 Soviet Union, 13 Spontaneous order, 94, 161, 165, 166, 187, 197, 207 Stakeholders, 18, 150, 167, 171, 204, 227, 231, 232, 235, 244–247, 255, 260–263, 265–272, 278–280, 283, 293 State governance and the state, 37, 63 hollowing out of the state, 32 state intervention, 10, 16, 47, 56, 61, 100, 123, 130, 131, 142, 189–191 Steering, 3, 16, 37, 100, 113, 118, 149, 153, 182, 217, 234, 243, 256, 259, 274, 279, 281 governance as steering, 16, 118, 182, 217, 234, 243, 274 Street level bureaucracy, 26, 242 Subsidies, 101, 287 Sustainability ecological sustainability, 102, 136, 141, 155, 234, 238, 240 strong sustainability, 137, 138 weak sustainability, 137, 138 SWOT analysis, 246 Systems theory, 32, 152 T Tacit knowledge, 17, 93, 152, 160 Tax, 101 Technology, 89, 238, 266 Thatcherism, 9 The Calculus of Consent (by Hayek, F.A.), 48 The Constitution of Liberty (by Hayek, F.A.), 15, 96, 99, 187

The Road to Serfdom (by Hayek, F.A.), 12, 15, 83, 96, 104, 187 Transaction costs, 34, 61, 62, 189, 190, 202, 205 transaction cost economics, 62

U Uncertainty, 17, 54, 95, 101, 138, 139, 165, 190, 219, 228, 240, 245, 248, 267 Unintended consequences, 94, 98, 100, 101, 104, 105, 125, 141, 229, 237, 248, 258, 259, 269 United States of America federal system, 199, 205, 207 U.S.Congress, 51, 197 Utility definition of, 42, 44, 84 marginal utility, 122 ordinal, 84

V Values incommensurable values, 84, 238, 240 subjectivity of values, 84, 116, 117, 121, 123, 137, 140, 245 value pluralism, 142, 155, 237, 239 Voluntary standards, 262 Voting systems, 48, 49

W Welfare social welfare, 39, 118, 154, 232 welfare economics, 40, 41, 43, 189 Welfare state, 58, 119 minimum income, 58, 119