Leaders with economics for troubled economies

New research shows economically-troubled countries need more likely to be led by those with economics training

The finance ministers of economically-troubled nations such as Greece and Portugal are more likely to be highly educated in economics than their peers in other countries, including the UK, according to new research presented at the 2011 Dahrendorf Symposium in Berlin this week.

The research by Dr Joachim Wehner |of the London School of Economics and Political Science (LSE) and Professor Mark Hallerberg of the Hertie School of Governance in Berlin looked at the education of the political leadership of twenty-seven European countries and eleven non-European OECD countries since 1973.

They found that while 69 per cent of Greek and 55 per cent of Portuguese finance ministers have had a PhD in economics, this was not true of a single Chancellor of the Exchequer.

On average, across the countries looked at, 31 per cent of finance ministers have had an advanced degree in economics.

At degree level just seven per cent of Chancellors of the Exchequer have done an undergraduate degree in economics. This compares with 56 per cent of finance ministers in Greece and 64 per cent in Portugal.

Professor Mark Hallerberg of the Hertie School of Governance said: ‘While it might be tempting to read our research as showing that economists are the cause of some of these countries’ financial problems, we believe that it’s probably the other way around – that countries appoint an economics specialist because they are in trouble. Countries that already have high debts, like Greece, Portugal and Mexico, face more pressure from the markets to appoint people that, at least in terms of their education, appear to be competent.

“And we see the same trend at prime ministerial level. In Greece, for example, many people are predicting Lucas Papademos, a former vice president of the European Central Bank (ECB) who has a PhD in economics, will become interim prime minister.

“For more economically stable countries such as the UK or Germany, being an economics specialist might be seen to be less important than being a skilled politician. Studying history, for example, was no barrier to Gordon Brown or George Osborne becoming Chancellor of the Exchequer”

The researchers believe that this pressure from markets also accounts for their findings that there are more finance ministers in office with advanced degrees in economics during periods where there was a banking crisis. During a crisis 58 per cent of finance ministers had an PhD in economics in comparison with 46 per cent during more stable times.

In addition euro-zone policy-makers were consistently less likely to have advanced degrees in economics than those in non euro-zone countries. Among accession countries, economic policymakers were better trained before accession than after it. And during a crisis, left wing parties are more likely to appoint prime or finance ministers with advanced economic degrees.

EU finance ministers are more likely to have had legal training rather than economics training in comparison to their counterparts in OECD countries.

Dr Joachim Wehner of LSE said: “We didn’t look at cause and effect but our findings do lead us to wonder whether a lack of economics training among prime ministers and finance ministers has led to decisions in the European Union that focus more on legal issues rather than economic sense. While it is true that ministers sit atop ministries with many trained staff, in crisis situations where time is short these differences could have an effect on the decisions leaders make.” (LSE)