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Global macro & geopolitics from a small economy perspective

Hedgehogs, foxes, and public policy

David Skilling
5 August 2011

This is the latest edition of an email series containing reflections on public sector, economic, and policy issues. Watching recent debates across the world on many important policy issues has reminded me of a distinction used by celebrated British political philosopher Isaiah Berlin between hedgehogs and foxes. In this view, people are either hedgehogs – who know one big thing – or foxes – who know many smaller things. Many decision-makers and commentators currently seem to be acting like hedgehogs. I think this is a problem, and so this edition of The Observer offers some thoughts on the importance of humility in policy-making in a complex and uncertain world.

A complex world with many answers
I have written previously about the need for policy innovation that adapts existing policy approaches to perform in a rapidly and disruptively changing world. In many policy areas, from youth unemployment and social mobility, to rebalancing economies and strengthening growth prospects, to financial market regulation and fiscal consolidation, new approaches are required to address major challenges.

But it is often not obvious what to do. This is not because there are no answers, as much as because there are many reasonable answers – a good case can be made for both fiscal consolidation and fiscal stimulus, for example, or for avoiding both moral hazard and contagion risk in the Eurozone. The difficulty of course is that many reasonable answers are in tension and require trade-offs. The existence of tough trade-offs is not new. But in a world that is increasingly complex, fast-paced, and interconnected, in which our level of knowledge and understanding is lower, making trade-offs is much more difficult. Historical relationships between actions and results may not work as well, and new answers may be needed.

The world belongs to foxes
In such an environment, the world belongs to the foxes who are considering different ideas, trying to understand what works, questioning the conventional wisdom, and engaging in structured experimentation. But despite the changing landscape, too many policy debates across the world seem to proceed from a pre-set big idea, either because of ideological positions or because of over-confidence in a particular policy approach. Both are forms of hubris. We see this hedgehog-like behaviour in fiscal policy debates in the US and Europe, in approaches to financial market regulation, discussions around welfare policy, and in many other areas.

It will be difficult to generate the break-through ideas required to address the economic and social challenges without a reduction in the level of policy hubris – and a willingness to examine a diverse range of ideas. It is highly unlikely that all of the good ideas always come from the left or the right, or always involve more government or less government. And, as importantly, pride goes before a fall. Policy hubris was at the root of the recent financial crisis, and this hubris needs to be tempered to reduce the chances of future excesses.

So what to do?
To me the starting point is humility; an understanding that the world is complicated, that the evidence is generally not conclusive, and that reasonable people can disagree. And that there is a chance you will be wrong. There should be serious engagement with other perspectives, hard-headed assessment of progress, and a willingness to change course when appropriate. In a messy, complex world, pure policy approaches are unlikely to work well. This does not mean triangulating in a lowest common denominator way. Leaders are expected to lead, and decision-makers are expected to make decisions. In many policy areas, it is not possible simply to split the difference – a call needs to be made. But in making decisions, there should be active consideration of all sides of the argument. As F. Scott Fitzgerald observed, “the test of a first rate intellect is the ability to hold two opposed ideas in one’s mind at the same time, and retain the ability to function”.

Indeed, there is evidence that foxes do better than hedgehogs in making predictions, because they consider a broader range of alternatives and admit the possibility that they may be wrong. Reduced confidence can lead to better outcomes. In a government context, my claim is that policy-makers who understand that a single big idea will not provide insight on every policy issue are likely to generate better quality advice and outcomes.