Why Did Economic Policy As a Discipline First Develop in Scandinavia and the Netherlands - And How Did It Develop Elsewhere?

This is a very difficult issue to deal with. A number of circumstances certainly contributed to explaining why both pillars of the core of economic policy could be built in Scandinavian countries, thus locating there the concep­tion of economic policy as a discipline.

The first such factor is certainly the openness of the Scandinavian and Dutch world to the theoretical innova­tions introduced elsewhere since the beginning of the century, in particular, as far as the theory of microeco­nomic failures is concerned. Section 1.5 referred in particular to the role of the openness of the Norwegian school to progress in macroeconomic analysis through the contributions of Haavelmo and Klein. In some cases, scho­lars of those countries even anticipated macroeconomic failures. In fact, the most notable members of the Stockholm school, Knut Wicksell, Gunnar Myrdal and Bertil Ohlin, offered important contributions on the dynamics of a market economy and macroeconomic mar­ket failures. Especially relevant were the influence of Wicksell on Keynes (Wicksell 1898, 1934, 1935) in inte­grating the monetary and real sectors and the demonstra­tion by the Stockholm school of how employment can be stimulated by economic policy, which originally appeared before Keynes (Ohlin 1937). When Swedish economists first read the general theory, they thought that ‘Keynes' ideas were tracking the views already developed in Sweden', and in their opinion, Keynes was too ‘classical' and not innovative enough, which made them increas­ingly irritated (Jonung 2013: 2). Indeed, Carlson and Jonung (2013) show that there seems to have been an interaction between Keynes' and Ohlin's ideas.

In general, the main characteristic of the Scandinavian (and possibly the Dutch) economic community is its rela­tively asymmetric openness to international intellectual cir­cuits. Living in small countries, Scandinavian economists learnt and could speak foreign languages, really more German than English, up to World War II. Even if they often wrote in their native languages, exchanges among the scho­lars of the different Scandinavian (and also Nordic, i.e. including Finland) countries were guaranteed by regular conferences and a ‘Marstrand Meeting' - the most important meeting forum - for economic researchers from 1936 to 1985 (Kffirgard, Sandelin and Sffither 2008). Thus, policy thinking became similar. This made it possible for developments abroad to penetrate each Scandinavian country and to spread in the region, but it also might have delayed or made it difficult for some ideas introduced there to be absorbed abroad, thus impairing future developments of the discipline.^[19]

In addition, one might argue that the development of eco­nomic policy as an autonomous normative discipline was natural for countries adopting (indicative) planning for their economies. Thus, even if Zeuthen had warned that the theory of economic policy was not only necessary for planned economies but potentially useful for less interventionist societies, because of the need to ensure mutual consistency of their policy choices, in fact, ‘economic policy action chan­ging according to moods can be extremely harmful' (Zeuthen 1958: 133 Italian trans.).

Undoubtedly, complexity of economic policy and the need for coordinating the various fields of action are more acute where policy goals to correct markets are more ambitious and widespread. This could rather easily explain why such a theory never developed in the United States, where the dominant credo was one of scarce public interventions, with the exception of unemployment and anti-inflationary policies. Important contributions to optimal control theory and the theory of economic policy were those of Kendrick (1976, 2000), Chow (especially 1973, 1976) and Ando and Palash (1976).

In a similar vein, one could say that this was also the case for Germany, where the Keynesian precepts penetrated with difficulty, and the principles held of an economy largely based on market forces within a set of rules (Ordoliberalism). This was especially during the Ehrard era (Ehrard was a firm believer in economic liberalism and a supporter of the market) until the second half of the 1960s. At that time, the new minister of the economy, Karl Schiller, provided for coordination of federal, land and local budget plans in order to give economic policy a stronger impact. In 1967, under the pressure of an economic slowdown, the Bundestag passed the Law for Promoting Stability and Growth, known there as the ‘Magna Charta of Medium-Term Economic Policy Management', trying to pursue the targets of the Kaldor magic square (magisches Viereckis the German expression) and thus adopting an approach of ‘global guidance' (Globalsteuerung). The case of Austria differs from that of Germany, since in Austria, which was characterised by a larger role of the public sector, there was at least one economist, Reinhard Neck, who cultivated the theory of economic policy and ancillary tech­niques (see e.g. Neck 1976).

This explanation, which links the development of eco­nomic policy as a discipline in a country to the extent of government intervention in the economy of that country, would also fit the case of the United Kingdom. In this coun­try, there was a vast array of public actions, including - in addition to macroeconomic policy - extensive recourse to public enterprises and the welfare state.

Meade (1951, 1955) made the largest attempt to build a systematic set of logical alternatives as a guide to action outside Scandinavian countries and the Netherlands, even before Tinbergen and Theil. He succeeded in pursuing this target only partially in his first works, as he studied not the abstract and general issues of economic policy but only how to manage international economic policy by using multiple instruments to pursue various targets: at the same time, in particular, balance-of-payments equili­brium, full employment and, more generally, economic welfare. However, in later investigations he enlarged his analysis of economic policy and mainly dealt with the basic design of economic policy. In his lecture at Manchester on ‘The Controlled Economy' of 1970 (see Meade 1971), he depicted three kinds of interconnected programmes:

1. An indicative plan, designed to enable private and pub­lic decision-makers to make better forecasts of future market conditions, which would facilitate their deci­sions, in the absence of future markets. This would derive from the indication by citizens of their decisions as to the amount of goods and services they would demand or supply, conditional on a matrix of alternative current and future prices of all of them. This process would converge towards a situation where a specific matrix of prices equating demand and supply for all goods and services could be found. An econometric model would be an inferior, even if simpler, system to carry out the basics of this plan.

2. A long-run structural plan, whose aim is to enable the government to set its instruments, both in the present and at various future periods, at levels that should allow for the best use of the community's resources.

3. A short-run stabilisation plan to cope with the effects on inflation and unemployment of residual uncertainty and unpredicted events in a way to avoid cumulative inflationary or deflationary situations.

Meade (1971) got very close to conceiving planning as an interactive action with the private sector, i.e. to a strategic conception on economic policy. His triple level of planning, through a structural and short-run control plan, on the one hand, and an indicative plan, on the other, is his solution to the issue.

The purpose of an indicative plan is to influence the expec­tations of private decision-makers. The other plans are designed to set the government’s instruments at a level that will allow them to attain their social objectives. Preparing these plans can be done only if, by means of an indicative plan, the government has some forecast of the private sector’s intentions (or an econometric model of the economy). Similarly, an indicative plan needs knowledge of the solu­tions of the other plans. Other British contributions were Heal (1969, 1971, 1973, 1987, 2005),^[20] Hughes Hallett and Rees (1983) and Holly and Hughes Hallett (1989).

All the theoretical contributions to economic policy and the whole economic policy discipline in the United Kingdom had only a short-run impact on the whole British academic community. A partial explanation of this apparent exception of the United Kingdom to host a ‘school’ of eco­nomic policy could be that in the 1950s and the following decade the attention of at least part of British academia was directed towards some alternative target, i.e. developing a more radical critique of the prevailing marginalist credo, as done by the Neo-Ricardians.^[21]

The discipline seemed to have a possibly larger impact on practical public intervention in the United Kingdom. Efforts were initially made to introduce optimal control in the eco­nomic administration of the country. In fact, the Treasury established a Committee on Policy Optimisation chaired by Professor R.

The explanation of the relevance of the discipline in a country depending on the extent of that country's degree of public intervention in the economy can find some applica­tion with reference to Australia. In fact, in Australia there were a number of additions to the literature on economic policy. Trevor Swan, well known for his contributions to the development of growth models, contributed to the 1945 ‘White Paper on Full Employment', setting the framework for Australian macroeconomic policy in the following three dec­ades (see Coombs 1994: appendix). Above all, Swan can be considered to be one of the main contributors to the theory of economic policy. In fact, already in 1953 he had devised the essential concepts of controllability that were being devel­oped by Frisch and others and applied them to summarise the content of the many hundreds of pages devoted by Meade to the analysis of internal and external equilibrium. This was the so-called Meade(-Corden-Salter)-Swan diagram. Swan's tendency to delay publication of his results meant that the diagram did not appear in print until 1960 (Swan 1960; Butlin and Gregory 1989). Finally, work by Preston and Pagan has been path-breaking for some extensions of the theory of economic policy (Preston 1974) and its almost final systematisation (Preston and Pagan 1982).

However, the explanation of a scarce penetration of the new discipline in a country in terms of the extent of policy intervention in that country would not fit the case of France, where the government played an important role in a number of fields, and indicative plans were prepared for some dec­ades after World War II. Perhaps other factors - in addition to those of a casual nature, such as the limited role of econ­omists vis-a-vis politicians and bureaucrats or technocrats - were more relevant.

Somewhat relevant could be the general attitude towards science (e.g. positivism) in Anglo-Saxon countries (as this type of epistemology denies a scientific status to normative statements), whereas Frisch insisted on adopting a norma­tive perspective in the planning procedure for assessing the size of the variables involved and their relations (e.g. Frisch 1961). However, the homogeneity of Scandinavian and Dutch societies and the relative weakness of groups in favour of specific interests and acceptance of the implications of a social consensus tended to facilitate a unifying approach to policymaking. The very notion of a unitary Scandinavian economic policy model has been debated (Pekkarinen 1988), but the degree of homogeneity was and still is very high - certainly within each country (see e.g. Bjerkholt 1998, 2005 for Norway) and to a large extent also for all of them with respect to other European countries. In particular, three fea­tures common to all Scandinavian countries are: implemen­tation of incomes policy, relevance of the welfare state and other institutions typical of this particular version of capitalism (the so-called Nordic model). Insofar as the Netherlands are concerned, one must consider the existence of a similar degree of social homogeneity, notwithstanding that at the end of the war the government was an uneasy coalition of different political parties (Hughes Hallett 1989: 192).

In addition, an important role might have derived from the existence of bodies composed by economists intermediating between politicians and bureaucrats for devising a set of consistent policies. In Scandinavia and the Netherlands, technical institutions participating in academic economics, ancillary to the political bodies, were instituted. A Central Plan Bureau was established in the Netherlands in 1945. In Norway, an Economy Department and, later, also a Planning Department were created at the Ministry of Finance, which together with Statistics Norway (with a Research Department established in 1950) and the Institute of Economics of the University of Oslo constituted an ‘iron triangle' for the buildup of economic planning (Eriksen, Hanisch and Sffither 2007). A very detailed account of the interaction between the theoretical innovations and the use of macroeconomic models for policymaking, especially under the influence of Frisch, can be found in Bjerkholt (1998). Similarly, a detailed account of the procedures implemented at the Dutch Central Planning Bureau, as well as the insights derived from Frisch's suggestions during his visit to the bureau, can be found in van Eijk and Sandee (1959).

A related and very important factor that could explain the birth of economic policy as a discipline in Scandinavian countries is the tendency of Scandinavian economists to tune into public debate on economic policy issues. In particular, in the two or three decades after the war in Scandinavia and the Netherlands, the international commu­nity of economists interacted with public and private decision-makers, interest groups, the press, other scientists and the general public through the intermediation of the economists of these countries, who were open minded and had no vested interest in implementing their ideas. The interaction operated in a way that can be thought of as being conducive to a policy model that was specifically national.^[23] They still do so now after a further wave of glo­balisation, even if less than in previous decades.

In explaining the birth of economic policy as a discipline in Scandinavian countries, we can thus speak of a kind of national (economic) policy model, as done by Pekkarinen (1988) in deal­ing with an issue central to our analysis but of a more limited content, that of Keynesianism and the framework of policy ideas prevailing in Scandinavian countries. The model ‘is cre­ated out of the broad structural, cultural, social and institutional context of each country' (Pekkarinen 1988: 4). These factors all converged in Scandinavian countries to produce an environ­ment favourable to the birth of a discipline such as economic policy. If one factor can be privileged in this context as a synthesis of other influences, possibly the common cultural ascendant in Scandinavian countries of economic policy as an autonomous discipline can be traced back to Wicksell. His socialist orientation, his support for the welfare state, his criti­cal analysis of Pareto's maximum principle (for which see Palsson Syll and Sandelin 2001) and his analyses of macroeco­nomic failures in terms of employment and inflation are all elements having an influence on many parts of the future dis­cipline. Our way of proceeding to explain the emergence of economic policy as a discipline in some countries is necessary for a number of reasons. We refer only to a couple of them here.

First, there is a problem of hysteresis of theories due to the cultural and economic factors underlined by Galbraith (1987). In addition, still now there may be a certain lack of

correspondence between rather recent developments in the economic science - which certainly now have an interna­tional span and to some extent were already so around World War II - and current policy debates and action. Acocella (2013) suggests a reason why the hysteresis might not have operated in the case of the innovations introduced since the end of the 1960s. In fact, already towards the end of 1970s and in the following years, both the international and the local communities of economists were ready to accept them because the new theories brought them back to the classical ones (Johnson 1971).

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