How can policy advisors come to grips with complexity?

In this post I continue my discussion of the Australian Treasury’s wellbeing framework for policy advice. (The preceding discussion is here.)


The Treasury incorporates a range of considerations in its discussion of the complexity dimension of its wellbeing framework. The discussion is itself quite complex.

This section of the framework is headed: ‘Level of complexity that people are required to deal with’. This might be expected to lead to a discussion of the desirability of simple and transparent rules that are clearly defined (do not involve a large amount of administrative discretion) and which do not involve citizens and firms in incurring unnecessary legal fees and compliance costs to remain on the right side of the law. This aspect of complexity is covered, but much of the discussion involves somewhat deeper issues.

The discussion begins with a definition of complexity that does not actually clarify anything but does serve to make the point that policy decisions involve many interconnected considerations. The following paragraph discusses what the authors refer to as the conventional analysis of complexity that has focused on the economic impact of sets of rules. In that paragraph the authors suggest, among other things, that complexity ‘usually brings benefits both through a better targeting of rules and through the provision of greater certainty’. Benefits to whom? In my experience the complexity of government programs usually arises because of political pressure to make special provisions for particular groups. A paper by Ann Krueger and Roderick Duncan (NBER 4351), which is cited in the Treasury document, makes the important point that since a tendency for increasing complexity of controls is inherent in most efforts to regulate it should be taken into account in initial policy formulation.

The final paragraph of the section raises issues related to the ‘emergent properties’ of ‘complex adaptive systems’. The discussion takes place at such an abstract level, however, that I am not sure that anyone other than its author would know what it means. From my personal experience, when bureaucrats write like this they do so for a reason – for example, so that they can deny that they intended to convey a critical reader’s interpretation of their words, or so that they can claim to have covered points that they have actually chosen to omit. In view of this, rather than speculate about what the authors may have meant, I will present some points relating to the implications of complexity that I think the authors of the document should have incorporated explicitly (but more briefly than I have below).

First, in presenting policy advice it should not be presumed that political leaders will be capable of exerting top-down control to implement recommendations of their departmental advisors even if they, the political leaders, are not lacking in intestinal fortitude. When democratic political systems work well to promote ongoing policy improvements it is usually as a result of the development of widely-shared understandings that are often inherently fragile. One of the implications of this is that there may not be much point in proposing large scale reforms in a political environment that is receptive only to incremental change. Another implication is that there is an important role for public inquiries in providing forums in which the views of policy analysts may emerge as more widely-shared understandings - if those views can survive public scrutiny.

Second, it is important to understand the nature of problems before proposing solutions. This might be obvious to Treasury officers, but it is still worth emphasising in any public document discussing the implications of complexity for policy advice. Gary Banks, chairman of the Productivity Commission, has made the point as follows:

‘Half the battle is understanding the problem. Failure to do this properly is one of the most common causes of policy failure and poor regulation. Sometimes this is an understandable consequence of complex forces, but sometimes it seems to have more to do with a wish for government to take action regardless’ (‘Evidence-based policy making ...’ reprinted in ‘An Economy-wide view: speeches on structural reform’, 2010).

Elinor Ostrom has provided an excellent example of how poor understanding of problems can be a trap even for people who have some knowledge of economic theory:

‘Many textbooks on environmental policy present ... conventional theory of an open-access common-pool resource as the only theory needed for making effective policies ... . Massive deforestation in tropical countries and the collapse of multiple ocean fisheries are cited by many policy analysts and public officials as sufficient evidence to confirm the general validity of the theory. ... Policy analysts tend to distrust local citizens to create effective forms of governance. Consequently, they assume that multiplicities of self-organized regimes ... are by their very nature disorderly and ineffective. Order is presumed to result from central direction. ... These common-sense assumptions, however, lead to proposals to improve the operation of political systems that have the opposite effect. By removing decisions about the way to innovate, adapt, and coordinate efforts from those who are directly affected, these policy reforms have created institutions that are less able to respond to the problems for which they were created’ (‘Policy analysis in the future of good societies’, The Good Society, 11.1, 2002).

Elinor Ostrom observed that in many countries where governments have taken control of common-pool resources from local users the governments concerned have lacked the funds and personnel required to monitor these resources effectively. As a result many governments have exacerbated the resource management problems that they were trying to guard against.

Finally, in my view any discussion of the implications of complexity for policy advice that does not incorporate a reference to Friedrich Hayek’s insights about the dispersion of knowledge is deficient. Those insights seem to me to be just as relevant to explaining current problems in public provision of education and health services in Australia as to explaining the failure of economic planning in the former Soviet Union. Hayek’s insights about the implications of dispersed knowledge are particularly relevant to considering proposed public investments in infrastructure (such as the proposed broadband rollout). For all I know, the authors of Treasury’s wellbeing framework may have had good reasons to neglect mentioning Hayek’s insights. Nevertheless, I will attempt to compensate in a small way for their neglect by quoting a short passage from Hayek’s seminal article on the subject:

‘In ordinary language we describe by the word “planning” the complex of interrelated decisions about the allocation of our available resources. All economic activity is in this sense planning; and in any society in which many people collaborate, this planning, whoever does it, will have to be based on knowledge which, in the first instance, is not given to the planner but to someone else, which somehow will have to be conveyed to the planner. The various ways in which the knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining the economic process. And the problem of what is the best way of utilizing knowledge initially dispersed among all the people is at least one of the main problems of economic policy – or of designing an efficient economic system’ (‘The use of knowledge in society’, American Economic Review, 1945).

Summing up, I am obviously not quite as impressed with the Australian Treasury’s wellbeing framework for provision of policy advice as are senior Treasury officials. But I’m not well placed to judge the overall effect it has had on the quality of advice they offer. It is pleasing that the Treasury has been thinking broadly about the concept of wellbeing and has published a framework that it apparently finds useful for provision of policy advice.

How should wellbeing be considered in providing policy advice?

Every public policy analyst should know that the correct answer to this question is that wellbeing should be considered by comparing outcomes under existing institutions with likely outcomes under the alternative policies that are being contemplated. Bonus marks should be awarded to analysts who suggest that the risks associated with alternative policies should also be considered. Any analyst who suggests that comparisons should be made between the outcomes of existing policies and an unachievable perfect system should be recommended for a career change e.g. writing speeches for politicians.


What are the likely outcomes that are most relevant to consideration of wellbeing? Most economists would probably answer in terms of comparing the consumption possibilities over time associated with the alternative policies being considered. They might talk about potential Pareto improvements or about benefits and costs, including non-market benefits and costs. They might also talk about discount rates and distributional considerations. But I think the answer most economists would give could be fairly easily translated into a comparison of consumption possibilities over time.

The Australian Treasury provides a somewhat different answer in its wellbeing framework for provision of policy advice. Among the five dimensions of its wellbeing framework the Treasury does include consumption possibilities, the distribution of consumption possibilities and the level of risk that people are required to bear . The other two dimensions, however, are the level of opportunity and freedom that people enjoy – which is listed first – and the level of complexity that people are required to deal with.

When I first read the document containing Treasury’s wellbeing framework the first thing that struck me was the number of references to Amartya Sen. My first thought was somewhat cynical. I thought that the Treasury was feeling unloved and had decided to change its public image. It seemed to me that Treasury was sending out a signal that it was prepared to entertain broader concepts of wellbeing in order to counter the argument that it had a narrow economic focus. The Treasury had, of course, had a broad concept of well-being for a long time - at least since it issued a paper in the 1960s discussing limitations of GDP measurement - but it had also earned reputation over a long period for provision of hard-headed policy advice that was often unpalatable to governments. Since this had encouraged the development of competing, more political, sources of advice it seemed to me that the Treasury had decided that it needed to soften its image in order to stay in the game.

However, having looked more closely at the Treasury wellbeing framework, I now think it may be worth considering seriously as a move to consider broad issues relating to opportunity and flourishing, such as the issues that I am interested in on this blog. (See, for example, ‘Is the good society a useful concept?)

The Treasury document explains the relevance of Sen’s work as follows:

‘The recent work of Sen has sought to incorporate aspects of freedom from both the utilitarian and classical liberal approaches. He argues that freedom does have a special status for wellbeing, beyond its impact on happiness or pleasure. However, he expands the focus beyond simply the rights available to individuals, to include their effective opportunities to exercise those rights, given their personal and social circumstances’.

Sen’s concept of freedom is defined by ‘our capability to live the kinds of lives we have reason to value’. The main problem I have with this concept of freedom is Sen’s incorporation of a role for public debate and democratic decision-making in determining what kinds of lives we have reason to value. It seems to me that Sen’s capability concept doesn’t deserve the freedom label because it contains a strong element of paternalism.

This does not mean, however, that I think Treasury is on the wrong track in identifying opportunity and freedom in its wellbeing framework. As Robert Sugden has recently suggested, it is possible to conceive of opportunity as resting on ‘an understanding of persons as responsible rather than rational agents’. Each individual viewing the world from the standpoint of her own desires and beliefs, accepting her own entitlements as given and accepting responsibility for her own actions can value expanded opportunities for herself. (‘Opportunity as mutual advantage’, Economics and Philosophy (26)).

I don’t see any reason why Treasury should have any difficulty with the idea that in discussing opportunity and freedom it should view individuals as responsible for their own actions, even though they do not always act as rational agents. This does not preclude consideration of the consequences of paternalistic interventions – it just helps avoid confusing the meaning of freedom.

I had also intended to include discussion of the complexity dimension in this post, but I will leave that for another day. (Postscript: The discussion continues here.)

Is Buddhism opposed to individualism?

“Searching all directions with one’s awareness, one finds no one dearer than oneself. In the same way, others are fiercely dear to themselves. So one should not hurt others if one loves oneself.”

Who said that? Was it John Galt? No, it was the Buddha. The quote is from the Pali canon. Thanissaro Bhikkhu tells the delightful story behind the quote as follows in an article entitled ‘Hang on to your ego’, reproduced on the blog ‘Integral Options Cafe’:

‘King Pasenadi, in a tender moment with his favorite consort Queen Mallika, asks her, “Is there anyone you love more than yourself?” He’s anticipating, of course, that she’ll answer, “Yes, your majesty. You.” And it’s easy to see where a B-movie script would go from there. But this is the Pali canon, and Queen Mallika is no ordinary queen. She answers, “No, your majesty, there isn’t. And how about you? Is there anyone you love more than yourself?” The king, forced into an honest answer, has to admit, “No, there’s not.” Later he reports this conversation to the Buddha ... . the Buddha’s response is quoted above.

I was interested in Thanissaro Bhikkhu’s discussion of examples in the Buddha’s teachings of tips on healthy ego functioning because it seems relevant to a question I have been thinking about, namely the extent that Buddhist views of ethics differ from western views. In a review article I wrote about gross national happiness (GNH) I related a statement by Karma Ura, president of the Centre for Bhutan Studies, that governments should ‘create conditions for happiness in which individual strivings can succeed’ to Robert Nozick’s view of the ethics of social cooperation. I suggested that conditions that enable individual strivings to succeed would correspond to Nozick’s most fundamental level of ethics – the ethics of respect – mandating among other things respect for the rights of others. Nozick views the ethics of respect as the foundation upon which higher levels of ethics, including caring for the needs of others, may grow. (References to my article are given in my last post).

Before reading Thanissaro Bhikkhu’s article I was wondering how I would respond if someone suggested that I have placed an inappropriate western interpretation on what Karma Ura was writing about when he referred to individual strivings. What if he was talking about individual strivings to overcome self-love? I am now more confident that when a Buddhist refers to individual strivings there is a good chance that whatever they are talking about is consistent with what a westerner might refer to as healthy individual functioning.

If the Buddhist view of individual strivings was fundamentally different to the western view I would expect this to be evident in the psychological well-being section of the GNH questionnaire. However, the questions seem to cover similar ground to comparable western questionnaires, including recognition of the importance of self-worth, self confidence, overcoming difficulties, facing up to problems and enjoying life.

Delving further into Buddhist views about individualism I was reminded that the Dalai Lama is skeptical about the importance of cultural differences between easterners and westerners on issues relating to emotional management and ethics. He suggests that there is a very strong element of individualism in Buddhism:

‘One of the four laws of karma is, if you do not create the cause you will not experience the result. If you have created the cause, you will definitely experience the result. All this is individual, so the experiences you have are tied into your individuality’ (as reported by Daniel Goleman in ‘Destructive Emotions’, 2003, p. 254).

None of this implies that Buddhists, or anyone else for that matter, should be in favour of an atomistic individualism. I discussed why here last year.

Are Bhutanese people grossly happy?

Photo by Suzy Bates

Just about everyone who has heard of Bhutan would know that this tiny country – with population of about 800,000 in an area similar in size to Switzerland - has adopted Gross National Happiness as a national objective. The objective apparently has its origins in the 1970s in an assertion by the former king of Bhutan, Jigme Singye Wangchuck, that ‘Gross National Happiness is more important than Gross National Product’. Despite the origins of gross national happiness (GNH) in a play on words it is now recognized as an objective in Bhutan’s constitution.

I wrote a literature review article about GNH last year for Asian-Pacific Economic Literature (Vol 23 No 2). The article considers whether aggregate happiness is an appropriate policy objective and the advantages and disadvantages of various well-being indicators. (A policy brief summarising the article is available here; the final version of the article can be purchased here; and a draft is freely available here.) My conclusions, very briefly, were that it is possible to make sense of GNH as a policy objective if we think in terms of creating conditions in which individual strivings can succeed; that there are problems with happiness surveys and with composite measures of well-being (such as the human development index) as well as with GNP (and GDP). I acknowledged that the recently developed approach to GNH measurement in Bhutan is an impressive contribution, but my bottom line was that the best approach to well-being assessments is to gather together a suite of relevant indicators.

How is GNH measured in Bhutan? A few years ago the official answer was that happiness was measured by looking at the breadth of the smiles on the faces of the people. However a more quantitative and technical approach to measurement has recently been adopted. The underlying philosophy seems to be that a range of minimum conditions must be met before a person can be considered to be happy. The methodology involves attempting to measure the extent to which the attainments of members of the population approach a ‘sufficient level’ in nine dimensions: psychological well-being, time use, community vitality, diversity and resilience of cultural traditions, health, education, environment (perceptions and ecological knowledge), living standards and perceptions of governance. The methodology gives greater weight to large deficits in particular dimensions than to small deficits in several dimensions.

So, how happy are the people of Bhutan? Unfortunately, since Bhutan is the only country attempting to measure GNH, we can’t use the GNH methodology to compare the well-being of people in Bhutan and other countries. The initial survey results enable comparisons to be made between people in different regions in Bhutan – which may be useful for policy purposes within Bhutan – but is not helpful in making international comparisons.

In any case, I think the best way to assess the well-being of the Bhutanese people is to use a suite of indicators to look at how they are faring by comparison with India, their big neighbour. For example:

• GDP per capita in 2007 was $US 4,837, 75% higher than in India;

• the growth rate of real per capita GDP was 7.9% per annum over the decade to 2007; that for India was 4.9% per annum;

• average life expectancy is only slightly higher than in India - 65.7 versus 63.4;

• adult literacy is lower than in India - 53% versus 66%;

• poverty rates are much lower in Bhutan than in India – 26% with daily income below $1.25 versus 42% for India;

• average life satisfaction in Bhutan (according to nef estimates) is about 11 per cent higher than in India.

It seems to me that even though the people of Bhutan have plenty to smile about there is still room for improvement in some aspects of their well-being e.g. health and education.