17 Nov 2010

(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 (). 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