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Quo vadis Expert Council? – Economic freedom

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Quo vadis Expert Council?  – Economic freedom

The Council of Experts is in the headlines because an internal dispute is being played out publicly. But that’s just the tip of the iceberg.

The wise men of the Council of Experts (SVR) are once again in the headlines. This time it’s about an internal dispute between Veronika Grimm and the rest of the council. Ms. Grimm should resign if she is not prepared to give up her position on the supervisory board at Siemens Energy. The question is not whether members of the Council are allowed to exercise such a mandate – of course they are. But should they? This article is not about this question or about the suspicion that my dear colleagues are just using the matter as an excuse to get rid of Veronika Grimm because she steps out of line too often. Rather, it is about the development that the Council has taken in recent years and the question of whether political advice from expert councils that function like the SVR is actually organized sensibly.

In order to be able to assess the development of the Council, the annual reports must be consulted. This involves some effort, as these reports consist of between 400 and 500 tightly printed pages. The author of these lines can claim to be one of the few economists in Germany who at has read the entire report from the last eight years. The reason for this is that in each summer semester of these years I organized a seminar on the last SVR report, in which the entire report was discussed. The seminarians had to read the entire work (this was checked), and of course the seminar leader also had to read it. As you can imagine, these were intensive seminars with few participants. Most students were of the opinion that this was far too much effort for 5 credits. But those who took part have repeatedly confirmed that they learned a lot and benefited greatly from the seminar. I will no longer be offering the SVR seminar in the coming summer semester. The reason is that the last 2022/23 report discussed was of such poor quality that I had great difficulty teaching the seminar participants good economics based on this report. This is of course a very provocative claim and so I will try to substantiate it with a few examples.

The Council’s analyzes very often lead to statements that are superficial at best, often represent self-evident facts in a complicated manner and often raise more questions than they answer. On page 213 you are informed that the word “crude oil (…) refers to the as yet untreated energy source petroleum.” This introduces the chapter that deals with the energy crisis. This is followed by explanations of how the industry can be restructured in order to become more independent of gas supplies. However, anyone expecting a comprehensive analysis with clear statements about the existing options will be disappointed. It remains with general statements (232-234). For example, when it comes to making electricity demand more flexible, it is pointed out that this requires “transparency in pricing and planning security”. What impact such a strategy has on costs, productivity, competitiveness or even welfare is not discussed. A relatively complex simulation by the Council of electricity price developments leads to the conclusion “… that an increase in electricity prices places a heavy burden on companies in the manufacturing sector.” (p. 254). Not wrong, but do you need the SVR to see that? When it comes to switching to hydrogen, the council leaves it to calculate the expected demand from the basic industry. The supply side is not considered. The question of where the hydrogen should come from, in what quantities it is available and at what price is of absolutely central importance. Even if you cannot answer these questions exactly today, you should at least ask them, point out their great importance and the answers that you are already capable of today. As far as the future of Germany’s energy supply is concerned, the Council has made clear recommendations. The expansion of renewable energies is the only path that is being discussed. However, without even mentioning the critical points. The need to build mass storage for electrical energy is not addressed, nor are the external effects that would be associated with a massive expansion of onshore wind power. When it comes to the topic of “climate policy support”, the expansion of renewable energies is also seen as a panacea and Carbon Contracts for Differences are recommended – i.e. exactly the instrument that the Scientific Advisory Board at the BMWK recently rightly described as unusable.

What is truly astonishing is what is not included in the report. There are no considerations of allocative efficiency or cost efficiency in climate protection, emissions trading (after all, the central European instrument of climate policy) is also not mentioned and the interaction between ETS and the EEG is certainly not mentioned. Waterbed effect? Double regulation? All missing. These are just individual examples. In summary, one can say that when reading the report one gets the impression that the SVR has completely lost its regulatory model. It was replaced by ad hoc analyzes that were strung together more or less without any internal connection. Of course, not everything is bad about the report, but overall the quality is significantly lower than in the previous two years – in which the reports already showed a clearly noticeable loss in quality.

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How could this happen? The SVR was originally planned as a neutral expert committee that would advise the government on assessing the overall economic situation. However, the neutrality of the scientists was not completely trusted. Therefore, the unions and the employers were each given the right to appoint a council member. How unrestrictive this rule was for a long time can be seen from the fact that Wolfgang Franz, a member, was initially appointed by the unions and later joined the council on the employer’s ticket. The focus of the appointments was on the professional orientation and scientific expertise. As a result, this led to high-quality reports, which, from a political perspective, were more of a nuisance than welcome advice because they were usually in strong contradiction to current economic policy. An exception was the 2010 Agenda of the Schröder/Fischer government. Wolfgang Franz once summarized this in the following quip: “Why is it called Agenda 2010? Because the Advisory Council made 20 suggestions, Schröder took 10 of them.” There’s something about that. In the early 2000s, Germany was plagued by extreme unemployment and the Council actually came up with 20 proposals to improve the situation. Some of these were incorporated into the Harz reforms. The SVR has by no means always been without influence.

In recent years, the selection of members has become increasingly politicized. The signs of this are clear. After long-standing members such as Christoph Schmidt, Lars Feld, Peter Bofinger and most recently Volker Wieland left, positions remained vacant for an unusually long time. Politicians found it increasingly difficult to agree on how to close the gaps that had arisen. It was rumored that there were significant conflicts between the parties over the appointment of new members. It should also not be overlooked that gender distribution has played a significant role in appointments in recent years. The fact that the majority of the council is now female is no coincidence, but corresponds to political desire. The ever-increasing influence of politics on the composition of the Council – my impression after reading the reports – has not done the SVR any good. The current dispute over Ms. Grimm suggests that there could also be problems in the interpersonal area – but that is of course speculation.

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Against the background of this development, the question arises as to whether the German model, a (seemingly) independent advisory body appointed by politicians, is really a good form of organizing political advice. Neutrality cannot really be achieved if there is a political dispute about who is allowed on the council and who is not. What alternatives are there? There is the American model, which calls for neutrality right from the start and gives the respective president the right to put together his own “Council of Economic Advisers”. Behind this is the expectation that it is in the interest of every president to receive the most competent advice possible, because the economic situation of the country is of crucial importance for re-election: “It’s the economy, stupid”.

Personally, I would prefer a different model, which I have explained in detail in the book “Simply too easy.” In a sense, it is the opposite of the American model because it completely deprives politicians of access to the composition of the SVR. The proposal is to let science itself decide who should sit on the council. Only technical and scientific criteria may play a role. It’s about making the best selection that cannot be influenced by politics. A committee composed in this way would achieve a significant gain in reputation, which would significantly increase the weight that the word of science has in public perception. Making such choices is nothing new for scientific communities. For example, the DFG review boards are elected by scientists in the respective disciplines. This procedure could be used as a starting point and further refined and improved. People in our country have a relatively high level of trust in science – far more than in politics. That’s why truly politically independent advice would be invaluable, especially in times as complicated as the ones we’re currently living in.

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Otto-von-Guericke University Magdeburg

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