Applying Tirole's socially responsible agencies thesis to public procurement

Jean Tirole published an article recently based on a keynote speech to the EU DG Comp conference from late last year on the implications of expanding the remit of public agencies such as central banks and competition authorities. In it, Tirole expresses his concern about the call for enlarging these agencies missions to include additional objectives such as climate change, inequality and other societal considerations. As he put it '[n]ow the talk of town is to enlarge agencies' remits.' Sounds familiar? It is unsurprising Tirole mentions procurement as a problematic area as well.

In his paper Tirole raises three main problems relevant for public procurement. First, in connection with 'green central banks', the issue of lack of capability to pursue a green agenda. Second, an issue of accountability. Third, incentives issues. These will now be looked into in turns on their relevance for public procurement.

1. Lack of capability

I have repeatedly stated in this blog (here, here and here) that adding additional objectives into public procurement will increase the complexity of the system. While my main argument is broader than that of Jean Tirole since it makes the decision making more difficult, it is worth looking into the narrow version of the argument in terms of the implication on capability. Tirole argues that for central banks to be able to achieve a green agenda (and a green agenda only) it would require sufficient staff to verify emissions claims and a methodology to define what is green. Furthermore, Tirole suggests that the proverbial green central bank should be able to run cost-benefit analysis so that it could establish effective climate policies.

This is a concern that can be taken lock, stock and barrel from the central bank scenario to public procurement. Can anyone imagine the staffing and skill requirements for procurement to add one single objective to its mission, across the whole of swathe of contracting authorities that exist in the EU? One of the reasons why MEAT criteria has not taken off is the added difficulty in deploying it in practice, plus the skills and associated resources to do so. If one were to multiply that with additional objectives such as innovation, SME engagement, social considerations it is easy to see where we are headed.

One final note on Tirole's suggestion on efficiency. While his argument is about finding efficient mechanisms, for procurement it seems that we are well beyond the scope of discussion on doing it efficiently which is different from cheaply.

2. Accountability

Tirole looks into accountability in various parts of his paper, for example when talking about  central banks and then expanding in more detail when looking into the problems that may occur from multi-factored missions. One of the risks of outsourcing the climate change fight to agencies  is that this dilutes the identification of who is in charge of environmental policy within a government, ie is it still the environment minister or has it moved elsewhere in the government or out of it? How will we achieve policy coherence and attribute responsibility accordingly? This dispersion of accountability once more raises the problem of efficiency since each agency will have a limited set of tools at its disposal to achieve the stated goal and possibly not the most efficient ones to do so. Again, this concern is applicable to public procurement as well since it may well be asked in the future to contribute to achieve such goal in addition to others.

There is an additional concern connected with accountability which is the risk of undefined expectations and mission substitution. Tirole warns that creating multiple missions for a single agency reduce accountability since now its objectives are defined in a more unclear way. Furthermore, push hard enough (and monitor for compliance hard enough) and then the agency may incur in mission substitution since the same resources it had before now have to fulfil these competing priorities. The implications for public procurement are obvious. Contracting authorities and procurement officials may be pressed to deliver on those extra objectives instead of its core function: fulfilling the need that justified tendering a contract in the first place.

3. Incentives

Tirole also raises the issue of misalignment of incentives once multiple missions are to be pursued by an agency. In his words (well, citing a paper he co-authored), expanding the set of tasks to be achieved typically reduces the total agency effort meaning that increasing the objectives creates uncertainty as to which mission the agency is attempting to fulfil and thus brings us back to the accountability issue. Well, suffice to say the exact same risk applies to public procurement as well.

Overall the view of Tirole offers a cautionary tale of the risks for agencies to have their mission expanded with additional objectives and for the most part Tirole does not even have to go further than green procurement to make his point fully. Applying his thesis to public procurement the parallels are obvious and the risks multiplied across the whole of the public sector. Sadly, these are the drawbacks proponents of strategic use of public procurement are not willing to engage with.