IPES 2006 State Reform, Public Policies and the Policymaking Process

Motivation Natural inclination of economists is to emphasize policy recipes and reforms as a way of improving the well-being of people in developing countries. In Latin America during the 1990s, this has led to the adoption of a wide variety of reforms, grouped under the Washington Consensus The outcome of these efforts has been disappointing. This project is based on the belief that the potential of policy recipes depends on the quality of the policymaking process through which those recipes are discussed, approved, implemented and enforced. Improvements in the policymaking processes – and a better understanding of these processes when policies are designed – are key in order to improve the quality of public policies, and achieve development objectives.

Motivation Comparison across countries – even within LAC – reveals very substantial differences in the success of reforms and, more generally, in the quality of public policies. While some countries can sustain policies long enough to create a stable and predictable environment, others experience sudden changes in policies with every change in government. While some are able to adjust their policies in response to shocks, or implement reform when previous policies have failed, others seem unable to adjust, or get stuck in bad policies for long periods of time. While some are able to implement and enforce policies once they have been enacted, others seem unable to do so effectively. What determines the capacity of countries to design, approve and implement effective public policies? In this project, we try to provide some answers to this question.

Reforms and Public Policies The process of reforms initiated in the 1990s in LAC, with its successes and failures, provides wonderful motivation for focusing on the policymaking processes that produced (or failed to produce) them. In parts of the IPES, we will be focusing on these reform processes as a window through which to look at the PMPs. However, our interest is broader than simply understanding reforms. We want to understand, more generally, certain features of public policies, not just on the magical moment in which they shift (i.e, on the moment of reform) but on a more permanent basis. This broadens our interests to include issues such as the extent to which tax policies benefit a few, or the population at large. Or the quality of implementation and enforcement of some long-lasting policy.

The objectives To improve our understanding of the process by which public policies get enacted, approved and implemented (the PMP). To improve our understanding of the mapping between these policymaking processes and some key qualities of public policies. To improve policy recipes, by adapting them to (political) institutional capabilities. To contribute to the debate about (possibly) reforming political institutions, shedding some light on their effects on policy. To foster institutional political analysis in Latin America. To foster interdisciplinary collaboration.

The approach We view public policies as the outcome of inter-temporal political transactions among political actors. Political institutions do not affect policy outcomes directly, but rather through their impact on the process by which policies are designed, approved and implemented (the PMP). The workings of the PMP (and the impact on policy outcomes) do not depend on single-factor explanations but rather on a multiplicity of factors, and their interaction. For this reason, we adopt a GE approach.

Country focus Our approach is very demanding in terms of the knowledge of the institutional details of the countries under study. For this reason, in the first phase of this research agenda we focused the research on very detailed country studies. Phase I: Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. Now we are adding Costa Rica, Guatemala and Jamaica (still preliminary) These country studies should be a crucial input for each of the background papers of the IPES.

Outer features of public policies The focus of the approach is in explaining not the content or substance of policies (such as whether tariffs are high or low), but rather certain common features or qualities of public policies, characterized asouter features –Stability vs. volatility: –Adaptability vs. rigidity –Coordination / coherence –Investment related qualities / capacities –Public vs. private regardedness These features are more naturally linked to the institutional environment than the content of policies themselves. Content may shift back and forth within a certain (weak) institutional environment in response to realization of political shock. Features such as stability or adaptability will remain the same. Focus on outer features also allows comparability across policy issues, not possible with the contents of policies.

The Policymaking Process (PMP) Within our framework, the PMP takes center stage. A lot of effort is spent in each of the country papers characterizing the PMP: –Which are the key actors that participate in it? –What powers and roles do these actors have? –What preferences, incentives and capabilities do these actors bring to the table? –What are the characteristics of the arenas in which they interact? –How frequent are these interactions? –What is the nature of the transactions they engage in? We believe that certain key characteristics of the PMP play an important role in determining some important features of policy outcomes (link PMP PO) In turn, the workings of the PMP can be traced back to political institutions (link PI PMP)

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

PMP Policy Outcomes We view public policies as the outcome of inter-temporal political transactions among political actors. Key insight: important features of public policies depend crucially on the ability of political actors to achieve cooperative outcomes – that is, their ability to strike and enforce inter- temporal political agreements. In political environments that facilitate such deals, public policies will tend to be of higher quality, less sensitive to the realization of political shocks, and at the same time more adaptable to changing economic conditions. In environments that hinder cooperation, policies will be of lower quality, either too unstable (subject to political swings) or too inflexible (unable to adapt to socioeconomic shocks), poorly coordinated, etc. Key question: what determines cooperation?

What determines cooperation? Number of actors with substantial impact on the policymaking game (related to number of veto players). Discount rate of actors (related to their tenure in office). Frequency of their interactions. Extent of convergence or divergence of preferences. Availability of credible enforcement technologies (such as an independent judiciary, or a strong bureaucracy to which certain public policies can be delegated). Link between PMP and characteristics of public policies modeled by Spiller and Tommasi (2003)

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

Policy outcomes may differ across issues Different policy issues may differ in their transaction characteristics. Some (such as social security) may be more demanding than others in terms of the enforcement of inter-temporal deals. Some may have special outside enforcement mechanisms (such as international trade agreements for the case of trade policy). They may involve key specific actors (such as the Central Bank for monetary policy, or the teachers union for education) They may be played in different arenas. They may differ on the degree of divergence of preferences. Policy outcomes thus may differ across issues, even within a given institutional environment.

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

PI PMP In turn, key aspects of the PMP are determined (among other things) by the nature of the political institutions. For example, the number of actors, as well as their preferences, may be shaped by the nature of the electoral rules, which affect the configuration of the legislature. Constitutional rules (such as agenda setting power of the president) may affect the interaction between the relevant actors. Rules regarding the workings of political parties, as well as electoral rules, may determine whether the primary arena where political transactions take place is the legislature, or whether the key actors are the party leaders (or the governors).

IPES 2006: State Reform, Public Policies and the Policymaking Process I.The different dimensions of State Reform II.State Reform, Public Policies and the PMP: Methodological Framework III.The Cast of Characters and their Interaction IV.Characterizing the Policymaking Process V.The PMP, State Reform and Public Policies in specific sectors VI.Conclusions and Policy Implications

IPES 2006: State Reform, Public Policies and the Policymaking Process I.The different dimensions of State Reform II.State Reform, Public Policies and the PMP: Methodological Framework III.The Cast of Characters and their Interaction IV.Characterizing the Policymaking Process V.The PMP, State Reform and Public Policies in specific sectors VI.Conclusions and Policy Implications

IPES 2006: State Reform, Public Policies and the Policymaking Process I.The different dimensions of State Reform II.State Reform, Public Policies and the PMP: Methodological Framework III.The Cast of Characters and their Interaction IV.Characterizing the Policymaking Process V.The PMP, State Reform and Public Policies in specific sectors VI.Conclusions and Policy Implications

III. The cast of characters and their interaction Rather than looking at the problem country by country, here we look at some key actors, arenas and interactions and characterize their role in the PMP across countries: –Political parties and party systems –The legislature (and the legislators) –The president (and the executive, more generally) –The judiciary –The bureaucracy –Regional authorities (their role in the national PMP) –Business interests –The media –The articulation of technical knowledge on public policies into the PMP Entry point is each actor /arena, but we will also emphasize key interactions

III. The cast of characters and their interaction For each of them, we will focus on the following: –Key roles in PMP, both formal and informal. –Incentives of the actors, tracing them back to working of (formal and informal) political institutions. –Institutional capacities, and match between capacities and assigned roles. –Interaction with other key players in the PMP –Discussion of the extent to which the actor actually plays its roles, and how this differs across countries. –Mechanics through which actor plays assigned roles –Taxonomy of roles based on country comparisons –Impact on the outer characteristics of reforms and public policies (with caveats regarding GE) We want you to show us these actors at play! –Illustrate with examples from country chapters!

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

(features of) PUBLIC POLICIES Y POLICY- MAKING GAME XxZY FUNCTIONING OF POLITICAL INSTITUTIONS (rules of policymaking game) X General Equilibrium Interactions BASIC INSTITUTIONS & HISTORY features of specific policy issues Z The framework

V. The PMP, State Reform and Public Policy in specific sectors Tax reform / tax policy Budget Institutions Privatization / Regulation Social Protection Health Education Civil Service Pensions Decentralization Political reform

V. The PMP, State Reform and Public Policy in specific sectors Each of these will be studied using similar framework Some may have important specific actors (pensioners for social security reform, regulatory agencies for regulation) PMP 0 Reform PMP 1 Based on illustrative cases, not comprehensive coverage. Key idea: to show how the nature of public policies and reforms is not independent of the nature of the PMP through which they are designed, approved and implemented In some cases, to show that reforms, in turn, have an impact on the nature of the PMP (eg, election of regional governors in Venezuela, reform of budget institutions in Brazil) Additional general theme: Analysis of the cost of reforms Knowledge of country PMP studies is required for those countries covered in these papers.

IPES and edited volume Background papers will be used for two different products As input for IPES As Chapters in edited volume IPES directed to more general public, edited volume more academic IPES has very tight deadlines and length restrictions The IPES 2006 name is a marketing ploy to prolong shelf life, the IPES comes out in late September! Given tight deadlines, our main concern today is with the IPES Once IPES is in the hands of the publications department, we will shift our attention to the edited volume. We expect complete versions of the papers by April 4

Objectives of the workshop Provide feedback to the authors of background papers Provide instance for interaction, since actors do not play the game by themselves, but interact with the rest of the participants in the PMP. Maximize match between background work and IPES needs Help us coordinators think about how to turn a set of excellent background papers into a great IPES To maximize coordination and interaction, we have allowed ample discussion time after each paper Discussion should not be restricted to the paper itself, but rather to its fit within the general project, as well as to general issues that are relevant for the project as a whole that are inspired by the presentation or discussion of the paper. Bilaterals: we will inform you of the schedule for the bilaterals right after lunch.

IPES 2006 State Reform, Public Policies and the Policymaking Process