Political Economy Approach to Public Administration

We have read about the famous Wilsonian dichotomy of politics and administration and after the Second World War the diminishing relevance of this dichotomy. The above reference is vital to be kept in mind to understand this topic which brings together the science of politics and economic together to gain a detailed understanding of the administration of the state and its resources.

After the New Public Administration theory of 1968, there was a new approach proposed in the 1970s which talked about economic approaches to analyze public administration called the Public Choice Theory. We shall take a step back to understand a few concepts and developments of that time to better analyze the Public Choice Theory.

By the middle of the last century, the Pigouvian social welfare system was adopted by many economies. British economist Arthur C Pigou wrote a book called The Economic of Welfare in 1920 and also tried defining what welfare is in economic terms. According to him economic welfare can be measured like monetary welfare by means of using money as a yardstick.

Thus economic welfare, in the Pigouvian sense is the utility satisfaction that a person derives from the use of goods and services which can be exchanged amongst each other. The important aspect of this theory was that to maximize the welfare through the means of distribution of national income.

Now, we also need to understand a term called externality. It comes into action when an individual X affects Y in a reckless manner without taking Y’s gains or losses into account. This leads to a situation called externality. Therefore, in an economy, the Government intervention becomes important to address these externalities.

Consider this example given by Pigou himself: If a person is running the business of manufacturing alcohol, there is a specific and substantial social impact of this product. This can be, increase in crimes, increased cost of police staff and prisons, the long time and resources investment of the judiciary etc, which exceeds the net private product, the alcohol. To counter this, the alcohol production will have to be increased by the manufacturer. To deal with this overproduction the Government would have to impose a tax on the manufacturers. This tax would be to equate the private cost (of the manufacturer) and the social cost.

The above explanation was necessary to understand the Public Choice theory in a rather detailed manner. Before this theory was proposed, economists and other subject matter experts considered State or the Government to be an agent beyond the realms of economic theories. The state functioned on different drivers than economy and it was an accepted fact.

However, the Public Choice theory challenged this very fact and proposed the use of economic yardstick to evaluate the resource allocation in the public sector and economic analysis to identify the inefficiencies in the Government policy and decision making processes.

It also makes a premise that the bureaucrats and politicians work on a model to increase their own power and influence and end up formulating policies which may be against the larger public interest. Not, that we needed a theory to prove that however, it got a thumbs up from many authors and subject matter experts.

This theory also brought in a more consumer centric approach in the formulation of policies and the manner in which the government machinery should function. There was a clear inclination towards democratic administration from bureaucracy and an important aspect was emphasized that the government action needs to be in sync with the values, needs and wants of the citizens.