Incentives and Public Policy

President John Waterbury

John Waterbury took his audience on a journey of "intellectual tourism," in his lecture, "My Journey in Political Economics and Public Policy," delivered in West Hall's Bathish Auditorium on May 28 under the auspices of the Issam Faris Institute for Public Policy and International Affairs (IFI).

Throughout his talk, outgoing President Waterbury, who is also a specialist in the political economy of developing countries with special focus on the Middle East, explored the effects of the intervention of political authorities, in the form of incentives, on the economies of various Arab countries.

The lecture began with definitions. Political economy, he explained, "is the study of the interaction of public authorities with markets." Those interactions, when intentional, become public policy, driven by incentives and disincentives. But beware, President Waterbury cautioned, "Incentives, are quicksand." Because human behavior is so difficult to control, the consequences always vary and are frequently totally unpredictable.

Waterbury gave ample anecdotal evidence of the unpredictability of human behavior in the ongoing effort to produce economic results. In the mid-1950s, the government of Egypt attempted to mitigate the poverty of the masses by heavily subsidizing bread. The developing poultry industry immediately recognized that the subsidized bread was the cheapest poultry feed, and thus a policy designed to help the poor resulted in more plentiful chicken for the rich.

After describing the exploitation of corruption for political gain he had encountered when in Morocco from 1965 to 1968, Waterbury pointed to the relationship between performance and ownership in Egypt and cited the poor performance of public sector enterprise. Accountability, said Waterbury, is key; if the state owns the enterprise, only the taxpayers can ask for accountability. Waterbury asked how many in the audience felt they could effect change in the EDL (Electricité du Liban), when neither the taxpayers nor the shareholders have any control.

Looking back on his interest in political economy and public policy over the years, President Waterbury remarked, "Incentives in public policy have always been the heart of my work-and may be again."