If there is one historical personage that all finance ministers – or treasury secretaries – need to know, he is Jacques Necker (1732-1804). He was the finance minister of France in the 1780s. He was credited with popularizing the phrase ‘public opinion’ (opinion publique). What was his central insight? He noticed that the attitude of the French public to the king of France determined whether or not they purchased the treasury bills issued from time to time by the king. It they had a favorable opinion of the king they bought his bills; if not, they did not buy his bills. In other words, the financial health of the kingdom and the power of the king depended on opinion publique.
Necker pointed out that the same was true of the finance minister. He was clear that the finance minister ‘stands in most need of the good opinion of the people.’ He pointed out that fiscal policies needed to be pursued with ‘frankness and publicity,’ and that the finance minister must ‘associate the nation’ with his plans, including the obstacles he had to surmount. Necker practiced what he preached, launching a systematic management of public opinion. In 1792, he declared:
“Only fools, pure theorists, or apprentices fail to take public opinion into account.”
I tell Jacques Necker’s story in order to set up a standard by which to measure the finance ministers handling the global financial crisis. Have they taken public opinion into account? Have they taken public opinion seriously? Have they carried the people with them? The evidence that they have not done as good a job as they might have done is in the seething rage that has been provoked almost everywhere regarding the handling of the global financial crisis.
Necker’s lesson is that finance ministers must work at shaping public opinion…because it matters. The reason this is not happening to the extent that it should is because it seems the conclusion has been reached by those who appoint finance ministers that the only requirement for the job is technocratic excellence in finance. Finance ministers can be as wooden and as inarticulate as a park bench it’s all right…so long as they get finance. Well, that is wholly and entirely mistaken.
There are two crucial reasons why a finance minister – apart from understanding finance – must be a skilled communicator. First, public sentiment, as we all now know, sways markets. A finance minister must explain what he is doing and why he is doing it to his public with compelling force; otherwise, the public will exhibit behaviors that will destroy the most laudable goals of the finance minister. Second, at the heart of reform efforts has to be a sustained attempt to improve the economic competence of citizens. For if citizens are not intelligent consumers of the financial services the locusts will visit their farmlands. Finance ministers, and the regulators, must lead that work.
For drawing attention to these matters in Chapter 9 of The Road from Ruin (‘We are the change’), the authors, Matthew Bishop and Michael Green, deserve high praise. Economists rarely do this, if ever. In that chapter, they discuss in detail the role of public opinion in financial markets, the role of both the media and citizen behavior in bringing about the financial crisis, and the fundamental role of citizen competence. The analysis is as frank as it is illuminating. And there are excellent ideas contained therein regarding what remedial action might look like.
My take is simple. There should be a new template for finance misters: The Technocrat and the Impresario.
Charlie Rose: Matthew Bishop Interview
Time: 23:24
The Wisdom of Jacques Necker: A Note on “The Road from Ruin”
by Sina Odugbemi
Read the entire original article at worldbank.org
If there is one historical personage that all finance ministers – or treasury secretaries – need to know, he is Jacques Necker (1732-1804). He was the finance minister of France in the 1780s. He was credited with popularizing the phrase ‘public opinion’ (opinion publique). What was his central insight? He noticed that the attitude of the French public to the king of France determined whether or not they purchased the treasury bills issued from time to time by the king. It they had a favorable opinion of the king they bought his bills; if not, they did not buy his bills. In other words, the financial health of the kingdom and the power of the king depended on opinion publique.
Necker pointed out that the same was true of the finance minister. He was clear that the finance minister ‘stands in most need of the good opinion of the people.’ He pointed out that fiscal policies needed to be pursued with ‘frankness and publicity,’ and that the finance minister must ‘associate the nation’ with his plans, including the obstacles he had to surmount. Necker practiced what he preached, launching a systematic management of public opinion. In 1792, he declared:
“Only fools, pure theorists, or apprentices fail to take public opinion into account.”
I tell Jacques Necker’s story in order to set up a standard by which to measure the finance ministers handling the global financial crisis. Have they taken public opinion into account? Have they taken public opinion seriously? Have they carried the people with them? The evidence that they have not done as good a job as they might have done is in the seething rage that has been provoked almost everywhere regarding the handling of the global financial crisis.
Necker’s lesson is that finance ministers must work at shaping public opinion…because it matters. The reason this is not happening to the extent that it should is because it seems the conclusion has been reached by those who appoint finance ministers that the only requirement for the job is technocratic excellence in finance. Finance ministers can be as wooden and as inarticulate as a park bench it’s all right…so long as they get finance. Well, that is wholly and entirely mistaken.
There are two crucial reasons why a finance minister – apart from understanding finance – must be a skilled communicator. First, public sentiment, as we all now know, sways markets. A finance minister must explain what he is doing and why he is doing it to his public with compelling force; otherwise, the public will exhibit behaviors that will destroy the most laudable goals of the finance minister. Second, at the heart of reform efforts has to be a sustained attempt to improve the economic competence of citizens. For if citizens are not intelligent consumers of the financial services the locusts will visit their farmlands. Finance ministers, and the regulators, must lead that work.
For drawing attention to these matters in Chapter 9 of The Road from Ruin (‘We are the change’), the authors, Matthew Bishop and Michael Green, deserve high praise. Economists rarely do this, if ever. In that chapter, they discuss in detail the role of public opinion in financial markets, the role of both the media and citizen behavior in bringing about the financial crisis, and the fundamental role of citizen competence. The analysis is as frank as it is illuminating. And there are excellent ideas contained therein regarding what remedial action might look like.
My take is simple. There should be a new template for finance misters: The Technocrat and the Impresario.