What can we learn from the US Government shutdown?

22 October 2013
Comment
A recent article by Slate magazine suggests how the American press would report its own recent budget and debt problems if they happened in a foreign country. It may be wry entertainment but the article contains an important truth. The politics of the budget process are not just something that happens to poorer countries far away. They are something that really matters to national development.

‘Who gets what, when and how’ is sometimes put forward as a definition of politics in general. It certainly defines the national budgeting cycle. The politics of the budget therefore provide a useful prism through which to view the politics of a country more generally. In countries with majoritarian legislative systems, the politics of who will get what, when and how often goes on ‘behind closed doors’. In non-democratic regimes with tame legislatures, the same result happens but for different reasons. It is probably a testament to the openness of American society and to the relative power of the US Congress over budget issues, compared to its international peers, that the politics of the US budget are so clearly played out for the world to see.

Understanding the detail of the politics of the budget process, certainly in developing countries, requires more effort. Studies have successfully done this, sometimes focusing on the budget itself, and other times on the wider public financial management system (of which the budget is part). Researchers often term this kind of power analysis ‘political economy’ research: moving beyond what should happen to ask what actually does happen, and explaining seemingly irrational decisions through reference to a combination of the (often ruthless) self-interest and (sometimes hidden) power of the real players involved. These studies tend to show (unsurprisingly) that money follows power, and understanding the real objectives, incentives and ambitions of those holding power goes a long way to explaining how and why public money flows (or doesn’t flow) as it should.

Why does this matter to people in poor countries, or those who claim to be working on their behalf? At the risk of stating the obvious, it matters because the national budget is a key development tool. The spending of national (and sometimes donor) resources through public expenditure systems is the single largest ‘development intervention’ of any country in any year. Despite the level of attention that aid and development finance receives, in only a few countries does aid represent any substantial share of government expenditure, let alone GDP, and this number has declined in recent years. In many ways ‘getting aid right’ is a (costly) parlour game for insiders – but ‘getting the budget right’ is more important for many more people.

The idea of ‘getting the budget right’ is certainly not new, and the fundamental technical and political challenge of matching finite resources to infinite wants is well established. It is also something very difficult for outsiders to effectively influence. If politics is who gets what, when and how – and the national budget is a key manifestation of this – it’s not surprising that national governments resist being told how and what to spend by their external stakeholders. Anyone who has been part of a conditionality (sorry: ‘performance’) framework attached to a budget-support intervention will testify to this. As a result, reforms to the budget process need to be sensitive to the political realities of the budget process.

This fact is not confined to poor countries far away. A recent IMF evaluation of its own performance in dealing with the economic and fiscal crisis in Greece notes the importance of political-economy lessons to be learned in a conditionality (sorry: ‘adjustment’) programme. It notes risks about overestimating the ‘depth of ownership’ of the reform programme and the need to spread the pain across different parts of society if reform is to succeed. The US is not likely to receive an external aid programme any time soon. However, the recent politics of the US budget show that any hypothetical external support to US budgeting systems would need to be aware of the political realities of the country it is attempting to reform, including the perceived self-interest of powerful elements within the US Congress.

ODI will be exploring issues of ‘budgeting in the real world’ at the 2013 CAPE Conference in November 2013. The politics of the budget process across many countries will be reviewed to see what (if anything) can be learned about the kind of politics that drives effective budgeting systems, and what (again, if anything) external supporters of reform can actually do to help. An effective national budget – the single most important development intervention in any country – will flow from effective national politics: understanding these politics is crucial to understanding the national budget. Recognising this fact will bring greater realism to debates about what can be achieved by external supporters.

Authors

Research Associate
Bryn is a Research Associate for Public Finance and Institutions and the Country Programme Manager [...]