Chapter 1 for The Power of Economists within the State

Chapter 1

Economists and Market-Conforming Reform

Ireland had already undone itself before the global recession did. In 2007—a year before the onset of the international financial crisis—the Irish property bubble burst, and real estate prices that had been growing rapidly for two decades started to plummet. So did the tax receipts from property transactions, which suffered a drop of 36 percent in 2008. The loss of tax revenue marked the beginning of the Irish fiscal and economic crisis. The meltdown that followed was of historical proportions. Between 2007 and 2010, GDP (gross domestic product) fell by 12 percent, unemployment tripled—from less than 5 percent to almost 14 percent—and a generous bank bailout produced a sovereign debt crisis that forced the Irish government to accept a rescue package from the European Union (EU) and the International Monetary Fund (IMF). The country once known as the “Celtic Tiger”—renowned for its remarkable economic growth from the mid-1990s onwards—was reduced to one of the “P.I.I.G.S.,” (Portugal, Ireland, Italy, Greece, and Spain), figuring alongside the debt-ridden economies of Southern Europe.

Ireland’s spectacular boom and bust were intimately linked to the tax policies pursued by Irish governments. Usually the story is cast in market-oriented terms: Irish policy makers used a very low corporate tax rate to attract foreign direct investments and cut taxes on labor to create incentives for enterprise and growth. Yet, a closer look at the Irish case shows that this narrative is misleading. The tax policies pursued by Irish governments from 1980 onwards were not attuned for the most part to market principles; they ran directly counter to them. Whereas conformity to markets implied level playing fields and taxation that was neutral with respect to economic behavior, Irish tax policy was geared toward directing and influencing—economists would say “distorting”—the economic choices of households, businesses, and investors. The most striking evidence of this was the Irish property boom, which was driven partly by a wide array of specific tax breaks for investments in the construction of everything from hotels and seaside resorts to multistory car parks and sports clinics. In fact, the tax policies of Irish governments bore a strong resemblance to the interventionist tax schemes that were popular around the world in the 1960s and 1970s.

The Irish tax regime was profoundly different from the policies of another small Anglo-Saxon country on the other side of the globe. New Zealand, to many observers, was the textbook case for the use of market principles in public policies. In the 1980s, it went further than any other advanced economy in lowering tax rates and eliminating exemptions, deductions, and loopholes from the tax code. In stark contrast to Ireland, the governing principle in New Zealand was that the tax system should influence economic choices as little as possible. This principle was applied with remarkable rigor. For instance, New Zealand was the only developed country without tax incentives for private retirement savings and without any exemptions from its value-added tax.

The differences in tax policy among the Scandinavian countries were equally puzzling. Despite its social democratic credentials, Norway adopted a major market-oriented reform of taxation in 1992. Though more moderate in scope than in New Zealand, the reform lowered the top statutory tax rate on labor considerably and introduced a system that was neutral with respect to a number of economic decisions. At the same time, the Norwegian tax system retained features that ran counter to market principles, in particular a very favorable tax regime for housing. Denmark, on the other hand, resisted market-conforming tax policies for a very long time. Despite a series of policy revisions in the 1980s and 1990s, Denmark maintained remarkably high marginal tax rates on labor and high and uneven rates on different types of capital income. As recently as in 2009, a Danish worker on just above average wages paid 63 percent of the last krone she earned in total taxes on labor—that is, 12 percentage points more than in Norway and almost twice as much as in New Zealand.

These brief presentations raise a general question of interest to students of political economy, public policy, and economic sociology alike: Why do some advanced capitalist countries go further than others in adopting market-conforming policies? Why do some states seek to achieve economic growth through policies that emphasize economic efficiency and level playing fields while others pursue prosperity by stimulating specific economic sectors and activities?

The book addresses this broad query by looking at one of the main areas of market-oriented reform from 1980 onwards. Taxation was at the center of efforts to restructure the economic systems of advanced economies in this period due to its critical role in financing the activities of the state and its impact on the workings of the economy. The tax reforms enacted by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States were powerful symbols of the broader movement toward a greater role for markets in public policy. Market-conforming tax policies, as I conceptualize them, entailed the reduction of marginal tax rates, the removal of tax breaks and more uniform taxation of different types of income and assets—all changes that were meant to stimulate the free operation of markets and an efficient allocation of resources. (See the following pages for a more extended discussion of the concept.) Both technical and highly politicized, the field of taxation provides fertile terrain for exploring the politics behind the turn to the market in public policy. This book offers an in-depth account of the driving forces behind market-conforming policies based on a comparative analysis of the actors and institutions that formed tax policy across a carefully selected set of small, developed countries—New Zealand, Ireland, Norway, and Denmark—over the period from 1980 to 2010.

Whereas previous scholarship has pointed to political parties, production regimes, and political institutions as determinants of the adoption of market-conforming policies, this book highlights the role of economic experts within the state. The core argument of the book is that the varying degree of market-oriented reform to an important extent reflected the historical institutionalization of economic expertise in state bureaucracies. Market-oriented policies were adopted in some places and not in others not only because of differences in governing parties, economic structures, or legislative institutions but also because the institutional entrenchment of the experts that advocated neoclassical economic ideas varied dramatically across countries. Economic knowledge had a potentially profound impact on the adoption of market-conforming policies, I argue, yet this impact depended crucially on the position established by economic experts inside the state.

This argument points to the interaction between professional groups and administrative institutions as determinant of public policies. Highly trained experts often occupy strategic positions within government bureaucracies from which they may pursue professionally defined policy agendas, and they possess knowledge resources that they can leverage vis-à-vis elected politicians. At the same time, professional groups penetrate state bureaucracies to different degrees. The position of experts varies across both countries and organizations, depending not only on functional tasks but also on political-administrative struggles over the proper role of different forms of knowledge in managing the affairs of the state. This book thus puts forward a contingent argument about the institutional role and policy impact of a specific form of professional knowledge, namely economic expertise. This argument joins a growing literature about the role of the economics profession in the diffusion of market-oriented policies.

Economists and the Turn toward the Market in Public Policies

The worldwide liberalization of economic policies has been one of the defining political-economic trends of the late twentieth and early twenty-first centuries (see, for example, Simmons, Dobbin, and Garrett 2006). Governments around the globe have adopted a wide array of reforms aimed at achieving economic gains by allowing markets to operate more freely. These policies include the deregulation of product markets, labor markets, and financial markets; the liberalization of trade; the corporatization and privatization of state entities; and low-rate, broad-base tax reform.

A growing body of literature sees the “ubiquitous rise of economists” as one of the principal drivers behind these reforms (Markoff and Montecinos 1993; Bockman and Eyal 2002; Fourcade Gourinchas and Babb 2002; Babb 2004; Fourcade 2006, 2009; Chwieroth 2009; Reay 2012). This mostly sociological literature highlights that economics has become a “global profession” within which ideas and practices spread rapidly across national borders (Fourcade 2006). The transnational economics discipline has been characterized by an “overwhelming domination of U.S.-based scholars, scholarship, and institutions” (Fourcade 2009: 256). The field has been led by a small group of top American economics departments including MIT, Chicago, Harvard, Yale, Berkeley, Stanford, and Princeton (Chwieroth 2007: 11–12). From the 1950s onwards, these institutions led the way in what is often described as a “paradigm shift” from Keynesian to neoclassical economics. This included the emergence of monetarism, “rational expectations” and microfoundations in macroeconomic theory, as well as new economic theory in fields such as taxation, labor, and finance.

With the advent of neoclassical economics, the substantive focus of the discipline shifted from the demand side toward the supply side of the economy and from macroeconomic issues toward microeconomic questions. Moreover, formal modeling based on sophisticated mathematics emerged as the dominant and unifying methodological approach (Colander 2000; Fourcade 2009: ch. 2). To be sure, this paradigm shift was neither sudden nor complete, and substantive differences over policy remained (cf. Campbell and Pedersen 2014). Yet, modern neoclassical economics is widely regarded as “the most coherent and well-bounded scholarly enterprise in the social scientific field” (Fourcade 2009: 3), with broad consensus around basic assumptions and methodological techniques (see, for example, Reay 2012 on the “flexible unity of economics”).

An important channel for the diffusion of market-oriented policies has been the growing role of economists trained in U.S.-style neoclassical theory both in international organizations like the IMF (Evans and Finnemore 2001; Chwieroth 2009) and in national governments—especially in developing countries such as Chile (Montecinos 1998), Mexico (Centeno 1997; Babb 2004), and the Eastern European states (Bockman and Eyal 2002) but also in developed economies like Australia (Pusey 1991) and Italy (Quaglia 2005). Yet, as Marion Fourcade has pointed out, the ascent of the economics profession has varied greatly across states: “Economic knowledge gets entrenched with different force across countries, in different places and institutions, and for different purposes, and its very substance can also differ in subtle ways” (Fourcade 2009: 261). Moreover, she links the varying role of economists to national differences in the political-administrative order, that is, in the “organization and exercise of ‘government’” (247).

My argument builds on this literature by stressing the role of economists in bringing about market-oriented reform and the importance of administrative institutions in shaping the role of economic experts. But it also makes two novel contributions. First, it makes the link between the role of neoclassical economists as agents of market-oriented reform at the end of the twentieth century and the buildup of economic expertise in government bureaucracies during the Keynesian era. As I will show, the institutional position and authority granted to Keynesian economists in the postwar decades was crucial for the later adoption of neoclassical economic perspectives within the state. Ironically, the ties established between government ministries and the economics discipline during the Keynesian era later served as channels for the diffusion of new economic ideas that prescribed market-oriented reform.

Second, I extend the discussion about the influence of economists into the realm of public administration. For all its emphasis on the power of economic “technocrats,” the sociological literature has paid surprisingly little attention to the issue of how economists influence policy through public bureaucracies. Although this literature suggests several sources of policy power for economic experts, it says little about how economists act in the policy process and about the ideas and norms that underpin their administrative behavior. I address these issues by drawing on insights from the state and bureaucracy literatures. As laid out in detail later in the chapter, I argue that the particular expertise, ideology, and norms of neoclassical economists shaped their administrative behavior in ways that were conducive to greater influence in policy making. This argument sheds new light on the question, raised by academics and casual observers alike, of why economists have become so influential in the formulation of contemporary public policies.

Market-Conforming Tax Policies

The broad shift from state interventionism toward social and economic policies that emphasize the role of markets has been given many labels, including “neoliberal,” “Washington consensus,” “free-market,” “market friendly,” and “market conforming.” Although there is clearly much overlap among these concepts, I prefer to use the more specific term market conforming to describe the policies investigated in this book. By market-conforming policies I mean policies that conform to the free operation of markets and that aim to ensure an efficient allocation of resources.¹ Conformity to markets in public policy implies that governments, instead of intervening directly in the economic choices of businesses and individuals, rely on market mechanisms to achieve economic goals. Significantly, this does not mean that states retreat from economic management but rather that they “enlist” the market in governing the economy (Krippner 2007; Schmidt and Woll 2013). Indeed, it is often shown that the deregulation of markets is accompanied by the introduction of new sets of rules to ensure that the freer markets operate properly (for example, Vogel 1996).

In the field of taxation, market-conforming or market-based policies are usually identified with the lowering of tax rates, the broadening of tax bases, and the removal of tax distortions to economic behavior (Steinmo 1993, 2003; Swank 1998, 2006; Boix 1998). In line with this understanding, I operationalize market-conforming tax policies as consisting of three elements: the reduction of marginal tax rates, the broadening of tax bases through the removal of deductions and exemptions, and more uniform taxation of different types of income and assets. One could object that market-conforming policies also involve lowering the overall level of taxation to reduce the role of the state in the economy. However, I maintain that limiting the size of government is a separate issue that should not be conflated with the orientation toward the market in public policy. Market-conforming taxation is not about reducing the level of revenue but rather about collecting a given amount of revenue in a way that entails the fewest possible distortions to the allocation of resources.

An advantage of this more restricted definition of market-conforming tax policies is that it distinguishes between tax reforms that combined reduced rates with the removal of tax deductions and the closing of loopholes—such as the 1986 U.S. Tax Reform Act—and reforms that cut rates at the same time as expanding tax breaks—such as the 1981 U.S. Economic Recovery Tax Act. As tax experts Joel Slemrod and Jon Bakija point out, the “underlying philosophies [of these reforms] were vastly different and in some ways contradictory” (Slemrod and Bakija 2004: 24). Whereas the former type of reforms was aimed at generating efficiency, the latter type was at odds with notions about an efficient allocation of resources. This distinction is obscured in some important studies of tax reform, such as Monica Prasad’s comparative analysis of free-market reforms in the United States, the UK, France, and Germany (Prasad 2006). The definition employed in the present study allows us to separate the two, with only the first type of reforms being classified as market conforming.

Yet, why do these reforms warrant our attention? Some would claim that low-rate, broad-base tax reforms were narrow, technical policy changes, which favored a role for economic experts and never generated much political opposition. Because these reforms were often broadly revenue neutral, they did not fundamentally change the parameters of the state. This view is inaccurate for several reasons. First, low-rate, broad-base reforms were often major policy events: In many places they constituted the most fundamental changes to tax systems in a generation or more. The 1986 U.S. tax reform and the Swedish “tax reform of the century” in 1991 are good examples of this (Steinmo 1993). Second, even if some aspects of these reforms were highly technical, the main lines were not. Reductions in tax rates and the removal of deductions were things most taxpayers could relate to. Tax policy is arguably more visible and politicized than other areas of economic policy, such as monetary policy or financial market regulation. For instance, Hirschman and Berman characterize tax policy as a “well-defined, highly public and partisan [issue]” where “economists should have less direct influence” (Hirschman and Berman 2014: 784). Third, although this type of reform left room for political agreement, it also encountered staunch opposition in many quarters. The removal of tax breaks was opposed by businesses that benefited from special incentives; the lowering of top tax rates met resistance from low income earners and leftist parties; and the curtailment of deductions for home ownership, pension savings, and the like was often wildly unpopular. Finally, even if the reforms did not dramatically alter the size of the state, they did entail a new role for the state in the economy. With the reforms, the state abandoned its role in actively directing the flow of investment to priority industries and socially desirable ends, and it lowered its ambitions for redistribution and social policy provision through the tax system. In other words, market-conforming tax reforms constituted politically contested and economically consequential changes to a core area of social and economic policy.

Conventional Accounts: Ideas, Interests, and Institutions

The existing literature offers a series of explanations for the adoption of market-conforming policies. I here review three types of conventional accounts, which emphasize, respectively, ideas, political parties and interest groups, and political institutions.

In the standard ideational account, market-oriented reforms of taxation represented a “shift in policy paradigm” (Swank and Steinmo 2002: 643), that is, a fundamental change in the ideas of policy makers about the goals and instruments of policy (cf. Hall 1993: 279). The belief that tax policy could be used to achieve industrial and redistributive policy goals by influencing economic behavior was abandoned in favor of the idea that the tax system should be neutral with respect to economic choices to generate an efficient allocation of resources (Steinmo 2003: 213–226). The key policy prescriptions were to lower tax rates at the same time as broadening the base on which taxes were levied. The basic ideational argument is that market-oriented tax reforms around the world were the result of policy learning and the spread of new economic ideas about tax policy from the United States (Steinmo 2003: 209). Yet, although this account is persuasive as an explanation for the common trend toward market-conforming policies, it offers little help in understanding why these policy prescriptions were much more influential in some places than in others.

A potential explanation for the uneven spread of ideas can be found in the literature on policy diffusion. In one prominent model, the diffusion of a given policy through learning or imitation depends on geographical or sociocultural proximity (for example, Weyland 2005; see Simmons, Dobbin, and Garrett 2006 for a review). Diffusion “happens among groups of peers who share information and whose experiences are more relevant to each other—among neighbors, cultural groups, or states at the same level of development” (Simmons, Dobbin, and Garrett 2006: 798). Countries are more likely to adopt policy ideas from countries that are close to them in terms of geography, language, history, or religion, which would lead us to expect market-oriented policies to spread more easily from the United States to Anglo-Saxon countries than to Scandinavian or Continental European states. However, a problem with this model is that it puts little emphasis on the necessary role of actors in carrying ideas and turning them into policy. Diffusion is supposed to occur between “countries” that learn from or mimic their “peers.” But the concrete lines of transmission are missing. Another problem is that the model disregards national institutional contexts. By treating the adopting states as black boxes, the model glosses over the fact that states are complex decision-making systems that vary in their institutional makeup.

An ideational approach that does take the issues of agency and institutional context seriously is John Campbell and Ove Kai Pedersen’s argument about “knowledge regimes” (Campbell and Pedersen 2011, 2014). They contend that the diffusion of neoliberalism is meditated by “the organizational and institutional machinery that generates data, research, policy recommendations and other ideas that influence public debate and policymaking,” what they refer to as a knowledge regime (Campbell and Pedersen 2014: 3). This includes “policy research organizations like think tanks, government research units, political party foundations, and others that produce and disseminate policy ideas” (3). Campbell and Pedersen’s claim that the organization of knowledge matters for the adoption of economic policy ideas is important and very much in line with the argument of this book. However, their emphasis on the whole range of policy research organizations draws the attention away from the primary importance of ministerial bureaucracies (beyond their research units) for the adoption of new policy ideas. Which knowledge structures and actors are most significant is of course an empirical question. But a priori there are good reasons to believe that location matters: Experts in top bureaucratic positions are likely to have a more direct influence on policy making than experts in independent policy research organizations (Halligan 1995). Not only do bureaucrats have privileged access to politicians, they are also intimately involved in the actual drafting of policy.

A second set of explanations for variation in the adoption of market-conforming policies emphasizes political parties and interest groups. A prominent exponent for the partisan account is Carles Boix, who argues that the “ideological preferences of the party in power” are the key determinants of “which ‘competitive strategy’ countries embrace to affect the supply conditions of the economy” (Boix 1998: 3). The different objectives of parties lead them to choose widely different economic policies. Right parties want to maximize economic growth and protect economic liberties and therefore pursue market-conforming tax policies, whereas left parties seeking to modify market outcomes and redistribute wealth prefer more interventionist policies (Boix 1998: 3–4). In the same vein, Duane Swank argues that right governments are more likely than left governments to adopt market-conforming tax policies because they see greater economic and electoral benefits from this kind of reform (Swank 2006: 856–857).

These partisan accounts have two important flaws. First, they build on a simplistic conception of policy making. In the party narrative, tax policy decisions directly reflect the policy preferences and strategic calculations of politicians. Yet, real-world policy making is far more complex, as politicians interact with bureaucrats, outside experts, and other stakeholders who bring their own knowledge and policy ideas to the table. Second, the stylized tax policy preferences of the left and the right bear little resemblance to the actual positions of political parties. In many places, the issue of market-conforming tax reform cut across the left–right cleavage (for example, Steinmo 1993; Patashnik 2008). On the left, some saw lower rates and broader bases as a means to improve the functioning of the economy and increase fairness, whereas others held on to high tax rates on top incomes and capital as a tool for ensuring redistribution and social solidarity. On the right, politicians embraced the prospect of lower rates but were reluctant to give up the benefits for individuals and businesses related to deductions and specific tax incentives. Tax policy preferences were thus far more complex than portrayed by the partisan accounts, and so were the politics of taxation.

Other accounts see business groups as the protagonists of market-oriented reform. One version of this argument is the varieties of capitalism (VoC) perspective, which affirms that there are two distinct and stable forms of capitalism: liberal market economies (LMEs), where businesses coordinate through markets and the public sector plays a limited role, and coordinated market economies (CMEs), where businesses coordinate at the sectoral or national level and the state intervenes actively in industrial and social policy (Hall and Soskice 2001). In VoC accounts, firms are the crucial actors in producing lasting differences between countries belonging to the two varieties of capitalism. The policy preferences of firms are conditioned by the production regime and therefore vary systematically between CMEs and LMEs. Whereas businesses in liberal economies support liberalization, businesses in coordinated economies see liberalization as detrimental to the political-economic institutions on which they depend (for example, Hall and Thelen 2009: 21). In the area of taxation, Duane Swank argues that CMEs are less likely to adopt market-conforming tax reforms than LMEs because in CMEs interventionist tax policies are integral to state promotion of long-term growth and high marginal tax rates on capital and employers are necessary to maintain social solidarity (Swank 2006: 858).

The VoC framework is useful for understanding some of the persistent differences between LMEs and CMEs, such as the higher total tax level in the social-democratic countries than in the liberal economies. However, it has trouble explaining change that is incoherent with the existing regime. The emphasis on the complementarities between the institutions of the political economy seems to preclude the enactment of liberal policies in a coordinated economy and vice versa (see, for example, Streeck 2005). This weakness can be related to the primary role attributed to firms in the VoC framework. For reasons well specified in this literature, firms are unlikely to push for path-breaking changes in political-economic institutions. At the same time, the VoC literature downplays the role of other actors who arguably are more capable of enacting fundamental change, such as state actors. Yet, it does not put forward a convincing argument for why the adaptations of firms excludes a potent role for the state (see, for example, Hall and Thelen 2009: 16–17). This exclusion deprives the VoC perspective of an important source of change and incoherence.

Finally, the degree of market-oriented reform has been attributed to political institutions. The thin version of the argument is that political institutions with fewer “veto players” permit a greater extent of reform (Tsebelis 1995; for an application to tax policy, see Ganghof 2006). Veto players are actors whose agreement is necessary to change the status quo, and they can be either institutional (for example, chambers in parliament) or partisan (such as political parties needed for a majority). In systems with only one veto player, a governing majority can enact its policy proposals without facing institutional barriers or resistance from coalition partners. The veto player framework is undoubtedly useful for understanding differences in the prospects for policy change. At the same time, it can tell us very little about the initial motivation for change or the direction of reform, that is, why reform took a market-conforming or interventionist course. Another version of the institutional argument is more relevant for our purposes. Relying on a thicker notion of institutions, Sven Steinmo contends that political institutions shape the roles, strategies, and preferences of actors in policy making. “Different decision-making systems,” argues Steinmo, “have profoundly shaped the formulation of tax policy [by influencing] who dominates the tax policy-making process, the strategic choices and ultimately the policy preferences of these same actors” (Steinmo 1993: 10). Yet, the major shortcoming of this argument is that it does not specify which institutions matter and exactly how they shape preferences, strategies, and roles in policy making. The theoretical framework presented in the following pages seeks to provide a more elaborate response to these questions.

Economists and the State

The argument of the book diverges from these conventional accounts by emphasizing the role of economists within the state as drivers of market-oriented reform. It starts from the basic premise that economists can be important policy actors. Economists produce and carry knowledge and ideas about economic policy that help political leaders address societal challenges and possess professional authority that confers legitimacy on their proposals. From the 1970s onwards, neoclassical economic experts were important providers of ideas about market-conforming policies. Yet, the argument highlights that the policy influence of economists depends crucially on their position within state bureaucracies. Due to historical differences in the institutionalization of economic knowledge, economists in some places occupied strategic positions at the center of the state, whereas in other places they remained at the margins of the administrative system. These differences, I contend, contributed to the cross-national variation in the adoption of market-conforming policies.

This account of market-oriented reform differs in significant ways from the ones discussed earlier: Although it shares the ideational literature’s attention to economic ideas, it is more focused on the actors that carry and advocate these ideas. And although it follows the “knowledge regime” literature in the emphasis on the organization of knowledge, it concentrates on economists inside rather than outside the state. The argument also echoes institutionalist insights about the impact of political-administrative structures, but it goes beyond this in its focus on the agency of professional groups operating within institutions.

At the same time, this argument joins a growing body of scholarship about the impact of economic experts and the organizations they inhabit on the spread of ideas and policies (Babb 2004; Fourcade 2006, 2009; Chwieroth 2009; Hirschman and Berman 2014). Following this literature, my argument builds on theory from the sociology of professions and organizations. But it also draws on the original insights of the state-centered literature of the 1980s (Skocpol 1985; Weir and Skocpol 1985) as well as related work within public administration (Carpenter 2001). As such, the argument combines what Peter Hall has called “economist-centered” and “state-centered” approaches (Hall 1989a). In the theoretical framework presented over the following pages, I first discuss how professions like economics emerge, reproduce, and transform within the state, and then go on to discuss the power of economists in policy making within public bureaucracies.

The Rise of the Economics Profession within the State

Professions, according to Andrew Abbott, are “exclusive occupational groups applying somewhat abstract knowledge to particular cases” (Abbott 1988: 8). What distinguishes professions from other social groups is that they possess some special skill acquired through extensive training and rooted in an abstract system of knowledge. This special expertise is the basis for the position of professions in society. Whereas earlier theories said that professions have power and prestige because their knowledge corresponds to central needs of society, scholars like Eliot Freidson and Magali Larson have argued that professional power is based on “gain[ing] support from strategic social or political groups” (Larson 1979: xiii; see also Freidson 1970). In other words, professions seek to persuade groups in power that their special competences are instrumental to achieving salient political goals.

The emergence of professions within the state therefore depends on the sponsorship of political or administrative elites. Professions “originally emerge by the grace of powerful protectors” (Larson 1979: xii), and their privileged role is “secured by the political and economic influence of the elite which sponsors [them]” (Freidson 1970: 73). This does not mean that professions are forever dependent on their original sponsors. Once a professional group has obtained a stable position in the state apparatus, it can use this position to pursue its own goals. As Larson puts it, “Professions gain autonomy: in this protected position, they can develop with increasing independence from the ideology of the dominant social elites” (Larson 1979: xii).

The reproduction of professions within the organizations of the state depends in large part on the “filtering of personnel” on professional criteria (DiMaggio and Powell 1983: 152). This entails that staff is recruited and promoted mainly on the basis of academic qualifications rather than on attributes such as seniority or administrative experience. Recruitment based on a common professional training ensures that new organization members share the basic skills, way of thinking, and behavioral norms of their colleagues:

To the extent managers and key staff are drawn from the same universities and filtered on a common set of attributes, they will tend to view problems in a similar fashion, see the same policies, procedures and structures as normatively sanctioned and legitimated, and approach decisions in much the same way. (DiMaggio and Powell 1983: 153)

But at the same time as being a mechanism of reproduction, recruitment of newly educated professionals is a source of innovation and change.

The transformation of a profession is usually triggered by ideational changes at its core. The central tenets and beliefs of an academic profession are not set in stone; they change over time through what has been described as a process of “scientific revolutions” or “paradigm shifts” (Kuhn 1962).² When basic assumptions and principles change at the center of a profession, this can be expected to stimulate ideational change among its broader membership. New ways of thinking spread from the academic core to the periphery of professionals working in a wide array of organizations, including state bureaucracies. The channels of diffusion are much the same as the ones that generate reproduction, namely academic training and professional networks (cf. DiMaggio and Powell 1983: 152). New approaches taught in academic courses are picked up by graduate students who subsequently get jobs in the outside world. And novel ideas spread within networks of professionals that cut across organizational boundaries, through journals, conferences, and other forms of knowledge exchange.

To be sure, the diffusion of a new paradigm in the social sciences is neither sudden nor complete. It is a gradual process that often unfolds over decades and that rarely affects every part of the profession. Existing ideas often persevere in parts of the discipline and blend with approaches within the new paradigm. Campbell and Pedersen emphasize the lengthy coexistence of paradigms during periods of ideational change: “One [paradigm] can exist alongside another in competition for long periods of time . . . the shift from one paradigm to another does not involve an abrupt break but rather is an incremental and evolutionary process” (Campbell and Pedersen 2014: 11).

The point is rather that the spread of new ideas is a contingent process that depends on the ties between the academic core and the organizations where professionals work. The most important ties in this regard are recruitment ties. Organizations that hire staff based on advanced academic qualifications in a particular field—such as a PhD in economics from a top university—establish a direct link for the transmission of new approaches from the center of the discipline. “Recruitment procedures matter [because] they establish a pathway through which new beliefs can be transmitted,” observes Chwieroth. “Organizations that recruit almost exclusively among individuals with a particular type of training or degree are highly susceptible to developments within that profession” (Chwieroth 2009: 51). Organizations that practice this type of “intellectual monocropping” (Evans and Finnemore 2001) are exposed to the changing paradigms within a discipline, whereas organizations that recruit more broadly are less sensitive to these changes. Moreover, the speed at which ideas spread through the inflow of new recruits will depend on the rate of generational change. New paradigms take root “as cohorts with older-style training are replaced with cohorts with newer-style training” (Colander 2007: 19; see also Chwieroth 2007: 18). In periods with extensive retirement and replacement of staff, ideational change within an organization can be swift. In periods with little staff turnover, the process will be slower. State bureaucracies can also be connected to the academic discipline in a number of other ways, including through professional associations and journals, conferences and seminars, advisory commissions and other kinds of advisory work, as well as more informal contacts. By stimulating interaction and knowledge transfer, links of this kind facilitate the diffusion of new paradigms from the academic core to the broader field of professionals.

The upshot is that the closer the relationship between the organization and the profession, the more sensitive the organization will be to ideational changes in the discipline. It is important to note that this argument constitutes an alternative to the country-to-country diffusion model discussed earlier. This alternative model emphasizes the links among professionals at the microlevel rather than the links among countries at the macrolevel. Diffusion flows “along the lines of relations linking theorists, rather than along the lines of relations linking adopters” (Strang and Meyer 1993: 498; see also DiMaggio and Powell 1983 on normative isomorphism). In other words, the crucial variable in accounting for the spread of new ideas is not geographical or cultural proximity but the organizational embeddedness of the profession.

Whereas the discussion so far has applied to professions in general, the economics discipline also has certain special attributes that distinguish it from other professional groups. The sociologist Marion Fourcade emphasizes two such features: the intimate links between economics and the exercise of state power and the transnational nature of the economics profession (Fourcade 2006, 2009). Historically, the rise of the economics profession was closely tied to the expansion of state capabilities after World War II. As nation-states assumed increasingly complex tasks of economic management, economics emerged as a “technique of government” (Fourcade 2009: 2). Economists gained legitimacy by linking their specific expertise to goals seen as essential for the prosperity of the nation. Based on this, modern polities “increasingly acknowledged the special place of economic information and expertise within government structures and administrations” (Fourcade 2009: 24). But the close relationship between economic expertise and state power also meant that the role of economists was profoundly shaped by what Fourcade calls the “administrative order.” In her comparative analysis of economic knowledge in the United States, the UK, and France, Fourcade stresses “the importance of the organization and exercise of ‘government’ in shaping the economists’ professional and intellectual enterprises” (Fourcade 2009: 247). Political and administrative institutions not only filter the access of academic knowledge to the policy process (cf. Weir and Skocpol 1985). They also confer authority on the professional projects of economists: “By defining the terms under which economic knowledge is incorporated into public policy, public administrations have implicitly contributed to construct the professional role of the economist” (Fourcade 2009: 25; emphasis in the original). Different institutional constellations thus gave rise to different roles for the economics profession: In the porous, specialist American bureaucracy, academic economists played a key role as top bureaucrats and advisors; in the British generalist civil service, economists were marginal; and in the statist system in France, technocrats with broad training in economics, law, and political science dominated. The implication is that the role of the economics profession within government will depend on the nature of the state itself.

At the same time as the practice of economists is intimately linked to national political-administrative institutions, the economics profession is distinguished by its transnational character. Economics has become a global discipline where ideas, practices, and authority flow from the “core” of top U.S. economics departments to the “periphery” of professionals working in universities, governments, and businesses all over the world (Fourcade 2006). The channels of diffusion are manifold. Beyond the advocacy of international organizations such as the IMF, the World Bank or the Organisation for Economic Co-Operation and Development (OECD) and the “missionary” work of American economists, an important channel has been the training of foreign students. Returning graduates with doctorates from American universities have played key roles in economic policy making in a number of countries—in particular developing ones (Fourcade 2006: 172–173; see, for example, Babb 2004). This is highly relevant for the discussion about how new economic ideas spread to government bureaucracies. In a transnational field like economics, it is not only the ties between an organization and the national profession that count but also the links that connect the organization to the international discipline. In the words of Fourcade: “Relations in the international field of economics (and particularly vis-à-vis the United States) can thus be just as important as relations within national fields in driving institutional or intellectual reproduction and change” (Fourcade 2009: 243).

To summarize, the theoretical arguments presented so far imply, first of all, that the formation of economic expertise within the state depended not only on political and economic factors but also on features of the administrative system. Second, they imply that the spread of ideational changes from the core of the economics discipline to government bureaucracies was contingent on the ties between bureaucratic organizations and the academic discipline and that both national and international linkages were significant in this regard.

The Power of Economists in Policy Making

The previous section addressed the mechanisms underlying the emergence and transformation of economists within the state. But how do economists influence policies once inside the bureaucracy? The sociological literature on the economics profession has not dealt explicitly with this issue. Although the literature generally portrays economists as powerful technocrats, it does not offer a genuine theory of policy making to account for their influence. The problem is that one cannot infer from the mere presence of economists in the bureaucracy that economists actually influence policy. As we know from the state and bureaucracy literatures, the ability of bureaucratic organizations to shape public policies varies enormously (Skocpol 1985; Carpenter 2001). The question is therefore if and why economists inside the state were able to exert effective influence over public policies. I propose to address this question by drawing on the concept of “bureaucratic autonomy.” The argument I put forward is that economists were able to exert a major influence on policy because their particular expertise, ideas, and behavioral norms were conducive to bureaucratic autonomy, that is, the ability to independently formulate, pursue, and attain their policy preferences.

The notion of state or bureaucratic autonomy is useful in this context because it provides a theoretical foundation for making sense of the policy role of state actors. In the 1980s, state theorists such as Theda Skocpol argued that the state is not just an arena for struggles between interests in society; it is an actor in its own right, able to “formulate and pursue goals that are not simply reflective of the demands or interests of social groups, classes, or society” (Skocpol 1985: 9). This kind of autonomous state action is driven by bureaucratic organizations, or what Skocpol characterized as “organizationally coherent collectivities of state officials” (Skocpol 1985: 9). Bureaucratic autonomy can be identified with three essential features. The first is that bureaucrats independently formulate preferences about policy goals and solutions. Bureaucracies can be regarded as autonomous when they develop preferences, interests, and ideologies that are distinct from those of politicians and interests groups (Carpenter 2001: 14). The second feature is that bureaucrats actively pursue their preferences (Skocpol 1985: 9). In the policy process, we can identify this with an activist approach to policy advice. That is, bureaucrats push their own policy views vis-à-vis political leaders to influence their policy preferences. Third, bureaucratic autonomy implies that bureaucrats attain their preferences. This means that officials succeed in imposing their preferences on politicians, who are formally in charge of making policy decisions.³ As Carpenter points out,

Bureaucratic autonomy lies less in fiat than in leverage . . . the dominant form of bureaucratic autonomy exists not when agencies can take any action at will but when they can change the agendas and preferences of politicians and the organized public. (Carpenter 2001: 4, 15; emphasis in the original)

It is important to note that the ability of bureaucracies to impose their own goals and solutions on those of politicians and interest groups is not constant. Bureaucratic autonomy varies across countries, policy areas, periods, and organizations (Carpenter 2001: 4; Skocpol 1985: 14, 17). The role of the official in policy making ranges from the subordinate, who is exclusively concerned with carrying out the will of politicians, to the powerful, who is heavily involved in the formulation of goals and solutions (Aberbach, Putnam, and Rockman 1981; Campbell 1988).

The degree of bureaucratic autonomy is partly determined by the legal mandates and governance structures of an organization, what is often referred to as formal autonomy. But effective autonomy also depends on other features of the organization and its staff (Carpenter 2001). In line with this, I argue that the professional background of officials may be seen as an important determinant of bureaucratic autonomy, given that professionals possess particular expertise, ideas, and norms.

Professionals’ primary source of bureaucratic autonomy is their expertise, that is, particular skills rooted in an abstract system of knowledge. Professional expertise is forged through formal training and refined through interaction with other members of the profession. The cultivation of this kind of knowledge will thus be most intense in organizations where the profession holds a dominant position. On the most basic level, expertise confers legitimacy on a profession when it is socially recognized (Larson 1979; see also Babb 2004: 15–16; Chwieroth 2009: 11–12). The acknowledgment of a profession’s expertise in understanding and solving a policy issue grants authority to its members in the policy-making process. That authority will be even greater if the profession has an effective monopoly of knowledge, that is, if it is the only group with recognized knowledge about the issue at hand.

This idea of expert power dovetails with the Weberian argument about bureaucracy as domination through knowledge. For Max Weber, the power of bureaucracy derived in large part from its specialized expertise, as the expert training of officials puts them in a strong position vis-à-vis politicians: “The power position of a fully developed bureaucracy is always overtowering. The ‘political master’ finds himself in the position of a ‘dilettante’ who stands opposite the ‘expert’ facing the trained official who stands within the management of administration” (Weber 1946: 232). This argument has been echoed in a number of key studies of bureaucracy. Hugh Heclo, for instance, argued that administrators shape policy by means of “administrative resources of information, analysis, and expertise” (Heclo 1974: 303–306; see also Peters 2010: 198–199). In practical terms, professional expertise may strengthen the ability of officials to set the policy agenda, to evaluate and counter policy proposals, and to warn politicians about deficiencies of existing policies.

Yet, while expertise is conducive to authority at a general level, the power deriving from particular types of expertise depends on the political and economic context. The influence of professions in the bureaucracy hinges on their special knowledge being regarded as useful for achieving salient political goals. Just as professional groups can gain leverage when their knowledge is seen as indispensable for achieving core political objectives, they can be marginalized when their specific expertise is no longer perceived as relevant, such as after major social or political change (Larson 1979: xii). For instance, in the wake of the Great Depression and World War II, the macroeconomic expertise of Keynesian economists came to be seen as crucial for achieving the new political goals of active economic management, whereas the expertise of lawyers came to be regarded as irrelevant for addressing these goals. Likewise, in the 1970s and 1980s, economic crises and policy failures brought issues relating to the supply side of the economy to the fore. Whereas the macroeconomic expertise of Keynesian economists was seen as ill suited to handle these problems, the expertise of neoclassical economists in the analysis of markets and microeconomic questions corresponded more closely to the economic problems of the day. This, I argue, strengthened the policy leverage of neoclassical experts in this specific political-economic context. (By contrast, the microeconomic expertise of neoclassical economists would likely have procured them little influence in the context of planning in the 1940s and 1950s.)

A second source of professional power in policy making is ideology. Given that professions rely on abstract systems of knowledge, the potential for producing ideology is inherent to a profession (Freidson 1970). Professional status “allows a group of experts to define and construct particular areas of social reality, under the guise of universal validity conferred on them by their expertise” (Larson 1979: xiii). Professional ideologies can provide a powerful motivation for change. As Theda Skocpol points out, ideologies may “encourage leading state officials to pursue transformative strategies”—that is, to actively pursue an agenda of policy change (Skocpol 1985: 9). This kind of policy advocacy is often based on a perceived discrepancy between theory and reality—between such perfect notions as “full employment” or “efficient markets” and the imperfect status quo. For instance, in the context of laissez-faire in the 1930s, Keynesian ideology constituted a radical agenda that motivated economists to work for fundamental policy changes. Similarly, in the 1970s and 1980s, at a time of extensive state intervention, neoclassical ideas provided a radically different vision of the economic order, which motivated economically trained officials to pursue reform. In other words, the transformative nature of neoclassical ideology spawned autonomous action on the part of bureaucrats.

Finally, professionally defined norms about administrative behavior may constitute a source of bureaucratic autonomy. One of the main tenets of the sociology of professions is that professionals act according to norms and standards defined within the profession (Wilensky 1964). In an organizational context, professional background can be a stronger determinant of behavior than functional role or features of the organization (DiMaggio and Powell 1983: 152–153). An official’s professional training can thus have major implications for what he or she perceives as appropriate behavior in the policy process (Wilson 1989: 59–60, 70; see March and Olsen 1989). Officials who lack professional ties and identify primarily as public servants will be sensitive to norms that define clear boundaries between the roles of bureaucrats and ministers, leading them to take a restrained approach to policy advice. Officials with a strong professional identification will be less attentive to such norms and more concerned about “doing what is right” according to the principles of their profession, inducing them to take a more activist approach to policy advice.

This may particularly be the case for neoclassical economists. Sociologists John Markoff and Verónica Montecinos argue that identification as economists implies adherence to a set of values and principles that are distinct from those of civil servants or politicians:

The honor of professionals, then, is likely to involve a devotion to the intellectual standards of the body of knowledge to which they adhere . . . this is distinct both from the pride in skilled service of Weber’s bureaucrats and from the pride in defense of group interests of responsible politicians . . . Economists accordingly often see themselves as in the service of “rationality” or “efficiency” rather than in the service of the goals of their superiors . . . economists may therefore be seen not merely as possessors of technical skills in the service of particular policies, but as representatives of an intellectual community devoted to the development and interpretation of a body of ideas not wholly manipulable by power-holders. (Markoff and Montecinos 1993: 51–52)

The attachment to professional norms can thus lead economists to actively pursue their policy agenda vis-à-vis politicians, with little regard for the prerogatives of elected leaders. Based on these theoretical mechanisms, we would expect bureaucratic autonomy to be greater in organizations dominated by neoclassical economists than in departments where other groups prevail.

The theoretical framework thus combines an argument about large historical processes with a microlevel account of individual behavior within organizations. The historical-institutional element centers on how political projects and administrative institutions shape the bureaucratic role of particular professional groups and how the administrative entrenchment of professions conditions the diffusion of new ideas within the discipline. The microorganizational element stresses how professional background not only determines expertise but also shapes the identities and role perceptions that determine administrative behavior. The resulting theoretical model is illustrated in Figure 1.1.

The figure summarizes the main theoretical expectations. First, I expect the postwar institutionalization of economic knowledge within the state to reflect a broad set of economic, political, administrative, and professional factors. Second, I expect the institutional entrenchment of economic expertise in this period to condition the later adoption of neoclassical economic thinking. Third, I expect that the stronger the position of neoclassical economists within the state in the period from 1975 onwards, the greater leverage will officials have in the formulation of policy—due to differences in expertise, ideational motivation, and administrative behavior. Finally, I expect a greater policy role for bureaucrats to contribute to a greater extent of market-oriented reform.

Cases and Methods

The book explores these theoretical propositions across a set of small, developed countries: New Zealand, Ireland, Norway, and Denmark. These states have small culturally and ethnically homogenous populations and highly advanced economies. These cases are selected because they allow us to isolate some of the key relationships outlined earlier, thereby providing a laboratory for exploring the theoretical argument. First, as small and homogenous polities, these countries have simple legislative institutions compared to larger and/or more culturally diverse states. None of the four countries has a second parliamentary chamber with effective veto power, meaning that the power to pass legislation is concentrated in a single assembly. This distinguishes them from the federal bicameral systems in states such as the United States, Germany, and Switzerland. The four countries studied here also have small and tightly knit policy elites. Politicians, bureaucrats, businesspeople, and interest group leaders know each other well and interact frequently. Moreover, the cultural homogeneity of these states means that divisive issues of race, ethnicity, and religion are less salient politically than in more diverse countries. Taken together, it can be argued that these features lower the barriers to reaching consensus and producing political decisions. This does not necessarily mean that policy making is a simple affair. The prevalence of minority or coalition governments in these states (apart from New Zealand) makes political negotiations necessary. And, in the Nordic countries, the presence of corporatist bodies and institutional mechanisms for investigating policy implies that policy formulation can be a long and deliberative process (Arter 2008; Campbell and Pedersen 2014). Yet, the well-bounded and concentrated policy-making systems of these small states offer a favorable setting for zooming in on the linkages between the professional makeup of bureaucracies and the adoption of market-conforming policies.

The disadvantage with this strategy is that it makes it more difficult to generalize the findings to larger, messier policy-making contexts. In the tightly knit policy-maker communities of small states it may be easier for economic experts to “capture” politicians, and there are fewer institutional barriers to the policy influence of experts. Yet, although this may magnify the effects of the role of economists within the state, it should not bias the study in favor of our hypothesis relative to rival hypotheses. Small states arguably provide a favorable setting for the influence of other policy actors too: Close relationships between policy elites can make it easier for political parties to colonize the state and set policy on their own, just as it can give interest groups privileged access to decision makers. And the economic vulnerability of small states may favor the involvement of interest groups in policy making through corporatist bargaining (Katzenstein 1985). In other words, the small state setting does not privilege the role of economic experts over other actors.

The fact that these countries are advanced economies should also make them less likely cases for the influence of U.S.-style economics. The literature about the globalization of economic knowledge argues that developing countries were most susceptible to the diffusion of American-style economics because of the stronger need for legitimacy vis-à-vis international financial institutions and other parts of the international community (Babb 2004: 215). Developed countries did not incorporate U.S.-trained economists in top policy-making positions to the same extent, due to factors such as “a closed civil service, strong autochthonous intellectual traditions, and less exposure to international policy pressures” (Fourcade 2006: 174). From this perspective, the developed countries examined here constitute hard cases for the adoption of neoclassical economic thinking.

But why these particular countries? The four cases are selected with a view to evaluating our explanation for the adoption of market-conforming policies at the same time as controlling for rival explanations. Similar cases are therefore matched in pairs on key political-economic and sociocultural dimensions. In terms of production and welfare regimes, New Zealand and Ireland are liberal market economies with residual welfare states, whereas Norway and Denmark are coordinated market economies of the social democratic kind with generous universal welfare states. In terms of history, language, and culture, the first two countries belong to the Anglo-Saxon sphere and the last two to the Scandinavian area. Of course, this does not mean that the paired countries are perfect mirror images of each other. For instance, Denmark used to be a medium-sized empire, which Norway was not. (Indeed, Norway was ruled from Copenhagen for nearly four centuries.) But considering that we are dealing with real-world cases, the paired countries do exhibit a number of similar features that provide a basis for comparison. The matching allows us to hold alternative explanatory variables constant across pairs of cases, meaning that any variation in outcomes within these pairs must be attributed to other factors. In addition, the cases include countries that are different in significant respects but exhibit similar policy outcomes. For instance, New Zealand and Norway both introduced market-conforming tax reforms even though they have different production and welfare regimes, cultural legacies, and political institutions. This comparison of “most different systems” complements the matching of similar systems by allowing us to pinpoint those factors that are common to otherwise different systems and that therefore may account for the similar outcomes (for a discussion of this kind of “mixed systems design,” see Frendreis 1983).

To demonstrate that the proposed causes actually produced the observed outcomes, the comparative analysis is combined with the tracing of causal processes within each case (see George and Bennett 2005: ch. 10; Gerring 2006: ch. 7). This entails confronting our theoretical expectations about the links in the causal chain—that is, from the institutional position of economists to the adoption of market-conforming policies—with empirical evidence. Demonstrating the influence of economists and their ideas poses challenges in this respect (see Chwieroth 2007; Béland and Cox 2010). First, given that ideas in themselves cannot be observed, how do we show that an actor holds a particular idea? Chwieroth discusses three approaches to measuring ideas: examining behavior, relying on written and oral records, or using educational background as a proxy (Chwieroth 2007: 8–9). As he points out, the first option is problematic because conflating ideas and actual behavior means that ideas cannot be used to explain action. Chwieroth favors the third option based on its potential for quantification. Yet, arguably, this alternative suffers from the same problem as the first: If we equate ideas with educational background, we cannot use someone’s education to explain his or her beliefs. It also excludes anyone who comes to believe in a certain idea without having studied at the right university. The second option does not go free of this problem either: Policy documents, for instance, constitute both expressions of ideas and actions in themselves. Interviews are arguably less prone to this problem but pose challenges in terms of truthfulness and memory. Yet, provided that we rely on a range of written and oral records, I would argue that the second option is the best we have. This is the approach taken in this book, which uses a combination of policy documents, interviews with the actors themselves, and interviews with other actors to ascertain the existence of particular policy ideas.

Second, how do we demonstrate that these ideas actually influence policy outcomes? Demonstrating influence is a challenge in any study of decision making: Apart from the difficulties associated with identifying ideas, this problem is not particular to studies involving ideas. Influence is usually understood as an actor’s ability to shape a decision in accordance with his or her own preferences (Dür 2008: 561). If we accept that preferences can be idea based (rather than derived solely from material interests) (for example, Mehta 2010), this understanding applies to the influence of ideas, too. According to Andreas Dür, tracing of influence usually involves gathering evidence on the following steps in the causal chain: initial preferences, influence attempts, access to decision makers, decision makers’ response to influence attempts, and degree of correspondence between preferences and outcomes (Dür 2008: 562).

The book applies a version of this model to trace the policy influence of economists and their ideas. If the core argument of the book—that the postwar institutionalization of economic expertise conditioned the role of neoclassical economists in state bureaucracies in the 1970s and 1980s, which in turn influenced policy outcomes through the intervening variable of bureaucratic autonomy—is correct, we should observe the causal processes shown in Table 1.1. To draw causal inferences, we need to show empirically that these intervening variables were present and connected in the particular, specified ways.

The empirical analysis is based on a unique combination of historical evidence and interviews with present-day policy makers. The book draws on nearly eighty original interviews with policy-making elites, including several ministers of finance, top-level bureaucrats, academic economists, and business and union representatives, conducted by the author between 2009 and 2011 in Dublin, Wellington, Copenhagen, and Oslo (see the Appendix for a full list of interviews). The interviews provide evidence on the preferences, motivations, and behavior of key policy actors, thereby offering a glimpse into the often opaque internal politics of treasuries and ministries of finance. The data from the interviews are triangulated with evidence from policy documents and other written sources.

The book follows a rather simple plan. Chapter 2 discusses the political-economic and intellectual background for the turn toward market-conforming tax policies and traces common trends and diverging paths in the changes to tax systems from 1980 to 2010. The following four chapters constitute the empirical core of the book. Chapter 3 investigates the role of state economists in New Zealand’s radical shift to market-oriented policies in the 1980s. Chapter 4 examines why Ireland pursued a wholly different set of tax policies and discusses the impact of its generalist civil service on the position of economists in the bureaucracy. Chapter 5 documents the central role of economic expertise in the Norwegian social-democratic state and traces its long-term implications for economic policy making, and Chapter 6 investigates why the same pattern did not manifest itself in neighboring Denmark. The final chapter revisits the theoretical argument and considers what general lessons can be drawn from the analysis.

Notes

1. To avoid excessive repetition, the terms market-conforming and market-oriented are used interchangeably in the text.

2. Thomas Kuhn’s original notion of a “paradigm shift” was reserved for the natural sciences, which are typically governed by a single paradigm. But the term is often applied also to the social sciences, even if these disciplines are characterized by a greater diversity of approaches. When used about the social sciences, the term usually refers more loosely to major changes in the basic assumptions, ways of thinking, and methodology that are accepted by members of a scientific community.

3. I here understand “imposing a preference” as meaningfully changing the core policy goals or solutions that another actor wishes to pursue. Merely filling in the details of a politician’s incomplete policy view does not qualify as imposing a preference. To be identified as real bureaucratic influence, the views of politicians need to change significantly and meaningfully with respect to their initial preferences as a result of the advocacy of officials.