House of Lords reform: lessons from public choice theory

Stephen Michael MacLean

27 June 2011

Public choice theory - the application of economics to politics - is inspired by classical liberal principles of free markets and limited government. With its focus on government depredations on individual liberty, it clearly favours an appointed chamber over the elected option.

First, in the principle of enlightened self-interest, public choice overturns the belief that in our public personas, we act contrary to individual desires. Politicians are no exception.

‘Instead of assuming that government aims at some particular goal,’ explained Gordon Tullock in The Vote Motive, ‘and then calculating how it should be achieved, students of economics of politics assume that the individuals in government aim at raising their own utility, that is, serve their own interests within certain institutional limits, and then inquire what policies they can be expected to pursue.’

This view was shared by Frédéric Bastiat. ‘If the natural tendencies of mankind are so bad that it is not safe to permit people to be free,’ he argued in The Law, ‘how is it that the tendencies of these organisers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?’

There should be little expectation that an elected House of Lords will be resistant to the practice of holding out the allure of taxpayer-funded largesse for electoral support. Tullock stated the matter without illusion:

‘The market operates by providing a structure in which individuals who simply want to make money end up by producing motor-cars that people want. Similarly, democracy operates so that politicians who simply want to hold public office end up by doing things the people want.’

F. A. Hayek was rather more pessimistic, lamenting in Economic Freedom and Representative Government that ‘...even a statesman wholly devoted to the common interest of all the citizens will be under the constant necessity of satisfying special interests, because only thus will he be able to retain the support of a majority which he needs to achieve what is really important to him.’

With an elected House of Lords, public choice theory points to more government programmes and more taxation to pay for them. By contrast, the appointed chamber - with members selected for the variety of professional experience and expertise they bring to legislative oversight - displays an independence from electoral politics that translates into impartial, ‘vote-free’ considerations of policy. Even party whips are not assured of complete compliance (which is exemplified on the crossbenches).

‘Government failure’ is the second tenet of public choice theory that bears upon House of Lords reform: while most economists will agree that markets are not perfect, the conventional wisdom that these shortcomings can be corrected by the state is wrong. Government failure is a greater problem than its market counterpart as incentives for self-correction are largely absent.

Yet this faith in government extends to proposals for an elected House of Lords, where it is taken as given that ‘more democracy’ will result in better government, when public choice theory suggests otherwise. Where now the House of Commons serves as the ‘confidence chamber’, with the Lords acting in a complementary role of scrutinising and revising legislation - a system where, as Tullock conceded, the aims of limited government can be achieved - two elected chambers will clash as each exerts its mandate to represent the will of the people.

Writing for the Parliamentary Campaign for an Effective Second Chamber, Professor The Lord Norton of Louth observed that two elected chambers will divide, not enhance, accountability, as core accountability becomes shared. Deadlock may ensue, with the two chambers horse-trading to reach a compromise for which no one voted. Britons have had a taste of this democratic dish with the legislative programme of the coalition government.

Such is the likely future of an elected House of Lords, competing not only for votes and power, but for spoils as well. An ‘escape’ from this species of over-government already exists in the form of an unelected - and thus ‘restrained’ - upper chamber.

Public choice theory, then, has much to teach proponents of House of Lords reform who, in like measure, favour individual liberty and fear the growth of government. An appointed chamber is more likely to preserve freedom and restrict the reach of the state than the elected alternative, where expansive and activist tendencies are inherent.

Tags: House of Lords, public choice, rent-seeking, Stephen Michael MacLean, Economic theory

Submitted by Andy Mayer on Mon, 27/06/2011 - 11:56.

The strongest evidence that the appointed chamber does not "preserve freedom or restrict the reach of the state" in the manner you describe is the current size of the state, and absence of much evidence that the Lords acted effectively to restrain the previous government's erosion of civil liberties. Experts, where needed to scrutinise and revise legislation or conduct consultations, can be appointed at far less cost than a job for life. Treating the Lords as a sort of House of SpAds, and then assuming it to be an effective and efficient one, is a very strange proposition without much evidence to support it. The democratic point is more about accountability. If you cannot be removed for doing a poor job, or indeed no job at all in the case of some sleeping peers, then the incentives to do a good job are weak. They rely entirely on noblesse oblige; something of a myth when the House was largely hereditary; entirely optimistic now it is principally an creature of political patronage. It is odd to assume that those who get to the Lords via the political route abandon all their populist instincts once within it. As for political contests between chambers. This in part will depend on the set-up. No change of mandate is proposed, and 15-year non-renewal senatorial terms are unlikely to lead to the kind of spoil-seeking perhaps but not obviously required of MPs, if a democratic mandate is the motive for that. But even if there are tensions, more than is already the case, what is the problem with this? Making government decision-making more difficult does not speak to either a smaller or larger state only a slower pace of change and more accountability. A more pertinent market economy theory to apply to the Lords is the advantages of lowering barriers to entry and exit. The former should be open to as many potential providers as possible, the latter less protectionist of current interests... surely?

Submitted by Whig on Mon, 27/06/2011 - 14:54.

Unfortunately, debates over the efficacy of a second chamber elected or appointed - or however it is arrived it - are almost irrelevant. As Karl Popper observed, the question is not 'who should govern' but instead 'what ought government do'? To the extent that the form of government (i.e. the first question) determines the outcome of the second - as Andy Mayer comments above - then yes, form is important. But it is my view that the form of the consitution has less bearing on the latter question than we may think. Clearly, a degree of democracy is desireable in restraining the size of government, but it has little impact beyond a certain point and it may, in fact, also reduce liberty if carried too far (hence the mistaken communitarian position). Thus we can also say that more democratic America has had less success in restraining the size of its government, in economic spheres, than say Singapore, although the opposite may be true in terms of civil liberties. There are few states which exhibit success both tendencies, democratic or otherwise! I would suggest that, in the long run, the form of the consitution is less important than attitudes of individuals towards the functions of government and willingness to support large government. The question of who is to govern misses the point, in fact, it misleads into thinking that answering it will deal with the principle question of political economy - i.e. what is the role of government. Unfortunately, we live in a society that answers this questions with 'anything it can get away with' if it even notices it is even a question (hardly surprisingly perhaps, as the state controls most of the education system). Under a small government confined to its proper sphere (i.e. dealing with property rights disputes) the form of the constitution is less important as it has no authority to interfere in most decisions - thus the kind of issues public choice economics highlights simply do not arise very much. Where they do arise, of course, it is sensible to have debates such as these i.e. how best to manage them. But under the status quo such questions are entirely failing to see the wood for the trees.

Submitted by Peter King on Mon, 27/06/2011 - 16:30.

Stephen makes an interesting point on the independence of the Upper House. However, it would have been more relevant if we were defending the idea of hereditary peers. These were, in principle at least, capable of independence, in that their position did not depend on government or party. However, the overwhelming majority of members of the Lords are now appointed by the Executive, and often on the basis of their affiliation to a particular party or cause. Whig's point is an important one: what matters is what a reformed chamber would do not just who it consists of. However, if the Upper House is made up of placemen for the main parties then it does matter who sits there. Another point, which applies equally to those promoting reform and to their small government opponents, is that the history of Lords reforms is a troubled one and a very good example of the pitfalls of rationality in politics. Finally, what the arguments about big or small government tend to ignore is what the House of Lords represents, and whether it is important to maintain it because of its historical significance.

Submitted by Philip on Mon, 27/06/2011 - 22:25.

I agree with Stephen in principle that there is no particular case for a democratically elected second chamber - though surely the first question to settle is "what can the second chamber do?" If it can only stop legislation and new taxes, that would be a start. I would prefer the sort of expert scrutiny for which people like to have an appointed second chamber to take place in more extensive select committee hearings in the first chamber. The danger with experts - as Hayek pointed out - is twofold. Firstly, experts in one field often assume they are experts in other fields - we trust a doctor's view on the political economy of health provision more than an economist's view (and Anglican archbishops like to give their views freely on many matters). Secondly, because they are often involved in "planning" in a situation where planning should take place (eg running a company) they assume that a country can be planned too (how often do we here the phrase "Great Britain PLC" from industrialists?). My preference would be an heriditary element, perhaps some elected people and some people (perhaps elected by the two chambers jointly) who have retired from the first chamber. Many ex-MPs are actually more impressive when they reach the Lords and can say what they think! What we need is a restraining chamber and a fully fledged democratic solution will not give us that.

Submitted by David Fredin on Wed, 26/10/2011 - 15:19.

Mr Andy Mayer point out some truths about the present situation in the Lords - as far as I can tell, not living in the UK. In my view it would be better to reeinstate the Hereditary Lords to get a more independant chamber to be check and ballances to the House of Commons and H.M. Government. A good idea would also be to let the Lords be able to stop some legislation by the Commons that threatens civil libertiers and treaties that threatens UK-independance, such as membership of the EU.

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House of Lords reform: lessons from public choice theory

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