Anyone looking at the UK from the outside can be forgiven
for wondering what has gone wrong with a political process that the British
like to think spawned the Mother of all Parliaments (there again, many natives
are wondering the same thing). The government is weak and divided – in office
but not in power – whilst the political establishment has been rocked by
allegations of sexual misconduct. All this is happening against a backdrop of
the most critical set of negotiations since 1945, which require the
government’s undivided attention – but which it is unable to give for the
reasons just outlined.
The obvious answer is that Brexit is the culprit. According to Philip Stephens, writing in the FT, “Brexit has broken British politics."
There is certainly a lot of truth in this. As Stephens notes, “a majority of MPs think Brexit is a mistake
but feel obliged to pursue it lest they be accused of defying what the tabloids
declare to be ‘the will of the people.’” Quite what the “will of the
people” might be is hard to discern from a referendum result which produced a
near 50-50 outcome. Consequently, and unsurprisingly, treating the result of a
(legally non-binding) referendum in the same way as a winner-takes-all election
was always going to polarise already-inflamed opinions.
But a less obvious answer is that the Brexit vote was itself
the manifestation of something deeper. Arguably – and I am in speculative territory
here – it was the result of dissatisfaction with a political establishment
which has failed to adhere to the rules and standards which it expects others
to abide by. More worryingly for an economist, there has been a steady erosion
of rules- and evidence-based policy making which has contributed to hugely
sub-optimal outcomes. We can go back to 2002 and the case which the UK
government made for involvement in a military invasion of Iraq which was not
sanctioned by the United Nations. The UK Prime Minister Tony Blair put his name
to a document that argued the government of Saddam Hussain had developed
weapons of mass destruction, despite the fact that international observers on
the ground found no such evidence. Trust in UK politicians was further eroded
by the 2009 parliamentary expenses scandal in which many MPs blatantly ignored guidelines on the use of public money in
reclaiming expenses. There were rules in place but they were routinely
flouted.
A more economically relevant case is the flouting of the
fiscal rules enshrined in the Maastricht Treaty, designed to prevent
governments from running a deficit-to-GDP ratio in excess of 3%. Moreover, the
criteria for entry into the single currency in the first place was that “the gross debt total of the general
government should not exceed the reference value of 60 percent of GDP or, if it
does, it should be sufficiently diminishing and approaching the reference value
at a satisfactory pace.” With both Belgium and Italy showing debt ratios
above 100% at end-1997 (the reference date for entry into EMU), it’s safe to
say that they were nowhere near achieving this goal. Of the original 11 members
Austria, France, Ireland, Netherlands and Spain also missed the target.
I did point out in 2003, at a time when investors were
concerned that countries were routinely missing the 3% deficit target that “by failing to force governments to comply
more strictly with the 60% deficit:GDP ratio prior to the start of Emu, the
fiscal playing field has not been levelled sufficiently to allow some countries
to easily meet the Stability and Growth Pact deficit criteria. In simple terms,
the debt targets were simply not taken seriously enough.” This is not to
say that the euro zone debt crisis could have been avoided, but had debt ratios
been closer to the required thresholds in the first place, some of the smaller
countries would have had more fiscal headroom to cope with the storms which
subsequently blew in.
The banking crisis, which resulted in many financial institutions
requiring government support, is another case in point. The public’s view is
that the taxpayer has carried a heavy burden without those responsible for causing
the problem ever being held properly to account. Again, this could be seen as a
failure to apply rules – or at least the failure to apply natural justice.
Each of the examples outlined here was avoidable. Had one
occurred in isolation, arguably we could have coped better with the fallout. But
failure to consistently apply the rules erodes policy legitimacy and invokes
greater challenges to the status quo, producing an ideal breeding ground for political
discontent. The academic literature in this area explains how policies which
are initially not popular (such as Brexit) can find broader acceptance as the public
taps into various aspects of the policy (see the introduction to this paper from The Quality of Governance Institute at the University of Gothenburg).
The authors of this paper also make the point that “public opinion changes as a result of policy
implementation.” Given the UK government’s abject failure to get its act
together on many aspects of policy, this raises serious legitimacy issues. Not
only did successive UK governments fail to deal consistently with the conditions
which provoked the Brexit backlash, but the current administration is failing
to deal with the consequences. Theresa May once promised to deliver strong
and stable government. Right now, many people would settle for one or the other.
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