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Column: Some cracks in the technocrat cult

By Chrystia Freeland

NEW YORK (Reuters) - We are living in the age of the technocrats. In business, Big Data, and the Big Brains who can parse it, rule. In government, the technocrats are on top, too. From Washington to Frankfurt to Rome, technocrats have stepped in where politicians feared to tread, rescuing economies, or at least propping them up, in the process.

Technocrats are in vogue within the intelligentsia, too. It is well nigh impossible to pick up a book about any social or political issue nowadays (including, I hasten to admit, my own) without coming across some data-heavy social science research. And the familiar pleas for common sense and a centrist approach, free from the taint of ideology, usually boil down to a call to put the technocrats in charge.

Technocrats have a lot to recommend them. We do, after all, live in the age of Big Data, and ignoring it or not being able to use it is a sure path to either bankruptcy or humiliation — witness the data jock extraordinaire Nate Silver and his legendary smackdowns of columnists who rely on anecdote and intuition.

But, particularly in the wake of 2008, a global crisis that technocrats both helped cause and failed to predict, there are also sound reasons not to rely mechanically on technocratic solutions. That's why it is worth reading a new paper by Daron Acemoglu of the Massachusetts Institute of Technology and James Robinson of Harvard University.

In their seminal 2012 book, "Why Nations Fail," Acemoglu and Robinson offered a powerful new framework for understanding why some societies thrive and others decline — those based on inclusive growth succeed, while those where growth is extractive wither.

Their new study, "Economics Versus Politics: Pitfalls of Policy Advice," will be published later this year in the Journal of Economic Perspectives and is available now in draft form as a National Bureau of Economic Research working paper. It tackles an essential subject in the age of technocracy: the limits of technocratic thinking as a basis for policy.

Their critique is not the standard technocrat's lament that wise policy is, alas, politically impossible to implement. Instead, their concern is that policy which is eminently sensible in theory can fail in practice because of its unintended political consequences.

In particular, they believe we need to be cautious about "good" economic policies that have the side effect of either reinforcing already dominant groups or weakening already frail ones.

"You should apply double caution when it comes to policies which will strengthen already powerful groups," Acemoglu told me. "The central starting point is a certain suspicion of elites. You really cannot trust the elites when they are totally in charge of policy."

An example discussed in the paper — and an issue on which Acemoglu changed his own mind in the course of writing it — is the role of trade unions.

"My view for a long time was that labor organizations had become rent-seeking," he said, using the economics term for groups that specialize in getting a bigger share of the pie rather than making it grow overall.

"Now, my view is that, even though we are not transitioning from dictatorship to democracy, you need some labor organizations as a counterweight to business lobbying."

Acemoglu and Robinson make the argument at greater length in the paper: "Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the union's ability to exercise this monopoly power, and that is certainly the right policy in some circumstances. But unions do not just influence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe."

Two other important examples the study dissects are financial deregulation in the United States and privatization in post-Soviet Russia. In both cases, economic reforms that made a lot of sense in the abstract and in terms of economic efficiency had the unintended consequence of strengthening already powerful political interests.

As the powerful often do, they overplayed their hand. The result was a political spiral which in the United States helped set off the 2008 financial crisis and in Russia led to the rise of President Vladimir V. Putin and his authoritarian regime.

This paper reminds us of something important, which critics of the elite often don't understand or don't want to understand. In both the United States and in Russia, the reforms which strengthened powerful vested interests didn't begin as a cunning plot by a wealthy cabal, intent on further enriching itself. Instead, they were endorsed and advocated by today's high priests, the technocrats, who sincerely believed they were acting in the common good.

"What our paper is targeted at is, there is a certain hubristic attitude among economists — we are the queen of the social sciences because we use numbers and data," said Acemoglu, who is a professor in MIT's department of economics. "But that can ignore the implications of political power."

That reminded me of a Russian oligarch who once told me he had been prepared to pay a bribe to influence the privatization process in his favor. But, he delightedly recalled, he soon discovered that all he needed to do was explain that the policy would further the cause of market reforms in Russia. Then, as he put it, "like little darlings," the technocrats in charge hastened to put it into action.

That's the big take away from the Acemoglu and Robinson paper: There is no such thing as pure policy, and we should check our pockets and lock our doors when someone tells us otherwise.

(Chrystia Freeland is the managing director and editor, Consumer News at Thomson Reuters. Prior, she was U.S. managing editor of the Financial Times. Before that, Freeland was deputy editor of the Financial Times, in London, editor of the FT's Weekend edition, editor of FT.com, UK News editor, Moscow bureau chief and Eastern Europe correspondent. From 1999 to 2001, Freeland served as deputy editor of The Globe and Mail, Canada's national newspaper. Freeland began her career working as a stringer in Ukraine, writing for the FT, The Washington Post and The Economist.

She is the author of two books: "Plutocrats: The Rise of the New Global Super-rich and the Fall of Everyone Else," published by Penguin in 2012 and "Sale of the Century: The Inside Story of the Second Russian Revolution," published by Crown Publishing books in 2000.)

(Chrystia Freeland is a Reuters columnist. Any opinions expressed are her own.)

(Editing by Jonathan Oatis)

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