Bonfire of the Quangos: Restoring Accountability or Returning to Opportunism?

 (by Grischa Perino)  The recent move of the coalition government to abolish, merge and review quangos “quasi-autonomous non-governmental organisations” is being sold as a long needed return to accountability in key policy areas and as an opportunity to realize substantial efficiency gains (see also Catherine Waddams’s recent contribution).  I will focus on the accountability aspect, in particular the tendency of politicians to cater to short-run rather than long-run interests which famously are not always perfectly aligned.

One of the main purposes of delegating some power to independent agencies such as the Bank of England, Ofcom, the Office of Fair Trading and the Competition Commission is to shield them from opportunistic interests that would undermine the credibility essential for them to function properly.  Of course, delegation is never absolute and parliament always has (and rightly so) the power to change either the remit or the institutional form of any body or agency performing governmental functions. However, exactly how easily the government can interfere with their business is very important. 

 My recent research[1] points out that delegation of specific government functions to independent agencies can indeed improve commitment to long-run goals.  This advantage holds if a) the government faces the temptation to deviate from general principles to cater short-run interests and b) there is some uncertainty as to what is the best policy ex-ante.   Both conditions, temptation and ex-ante uncertainty about what is the best policy, are likely to be met in many fields currently under these quangos’ remits. The benefits of delegation – and this is a clear result of the paper – rest on one key ingredient, that quangos are better protected from opportunistic interests than government departments.

Exactly this aspect is going to be fundamentally changed even for those quangos that appear not to be directly affected in the present round. The current version of the Public Bodies Bill gives ministers not only the power to put specific quangos up for review, abolish them or modify their functions but also to add other – so far protected quangos – to those lists (clause 11). Hence, in its present form the Bill would reduce the independence of all quangos substantially.  Even if those powers would never be formally exercised, they would have a substantial impact on how quangos behave. The mere threat of being moved from the ‘safe’ list to the ‘unsafe’ list by simple minister order would be sufficient to undermine their independence and to change the way they conduct their everyday business. They would become much more like a government department than an independent safeguard of society’s long-run interests (which at least some of them are at the moment). 

The proposed reform could end up, not so much reducing the costs of policy implementation,  as reducing the costs of short term policy  opportunism.

[1] Grischa Perino (2010) ‘How delegation improves commitment’, Economics Letters 106 137–139

4 Responses to Bonfire of the Quangos: Restoring Accountability or Returning to Opportunism?

  1. Although the de jure independence of these agencies may be worsened by new legislation, the new political exigencies of coalition government may mean that the de facto independence of these agencies remains the same or even increases. If two actors must agree in order to exercise discretion — in this case, the relevant minister, and his/her junior, probably drawn from a different party — then the risks of opportunism are reduced even if the legislative position of the quangos is unchanged.

    • Bruce Lyons says:

      The problem is that Parliaments last (at most) five years and ministers typically stay in post for a much shorter time. Institutions last much longer. The issue raised by Grisha cannot be dismissed simply because one may trust the current incumbents.

      • I don’t particularly trust the current incumbents: my point was rather than a shift from single party government to coalition government (polisci language: an increase in the number of veto players) represents a general bind on the exercise of discretion; and those who have studied delegation to IRAs have found that delegation is less common where the number of veto players is higher. See either
        Gilardi, Fabrizio (2005), “The Formal Independence of Regulators: A Comparison of 17 Countries and 7 Sectors”, Swiss Political Science Review, 11(4): 139-167 or Gilardi, Fabrizio (2002), “Policy Credibility and Delegation to Independent Regulatory Agencies: A Comparative Empirical Analysis”, Journal of European Public Policy, 9(6): 873-893.

        Having said that, I’m not sure that, subsequent to an act of delegation and the establishment of a formally independent regulatory agency, that changes in the number of veto players have an effect on the de facto independence of regulatory agencies. I’ve written a paper on this together with Christel Koop making this claim; but others disagree with us.

  2. Stu White says:

    This is exactly why governments should not adopt business (really corporate) practices in a wholesale fashion. It often results in short term thinking where immediate goals (quarterly profit, share price) are seen as more important than long term goals (growth, r+d). Independent agencies (like OFT) allow for expert consultation in order to maximise policy effectiveness. Thus politically costly, but necessary decisions can be made by agency officials who, until now, were shielded from the immediate negative fallout. Reducing the independence of quangos will, I suspect, prove harmful to politicians as they will no longer be able to ‘blame the bureaucrats.’

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