Sunday 30 May 2021

Warning signs

A running theme throughout this blog has been the quality of governance, particularly in the UK. As concerned citizens this is something we should all care about but as an economist this normally has only tangential relevance for the way in which mature western economies operate – at least in the short-term. But the alleged failings in the handling of the biggest health crisis in a century has had a huge economic impact, with only Spain amongst the major economies registering a worse output collapse in 2020 than the UK. There is also some evidence to suggest that the quality of national governance has an impact on corporate social performance. Good governance therefore continues to matter.

Pandemic pandemonium

Having spent much of the spring reporting on allegations of corruption in government, the British press had yet another field day this week following the testimony by Boris Johnson’s former adviser Dominic Cummings before a parliamentary committee on the handling of the Covid crisis. One of the unremarked ironies of the saga was that those media outlets which have been criticised for giving Johnson an easy ride over issues such as Brexit were happy to directly report Cummings’ allegations that the government mishandled the process from the start which resulted in many thousands of excess deaths. He was scathing of the competence of many members of government, including the prime minister (“he made some terrible decisions, got things wrong, and then constantly U-turned on everything”) and the health secretary (he “should’ve been fired for at least 15-20 things, including lying to everybody on multiple occasions”).

As much as people might wish to believe Cummings’ version of events, the fact that he was effectively sacked from government last November suggests he has an axe to grind. Whilst revenge is as good a motive as any to stick the boot into someone else’s political career, we should be very wary of taking his seven-hour testimony at face value. It is indeed ironic that many of those who had previously viewed Cummings as the devil incarnate were quick to accept his version of events, largely because they have an even bigger problem with Johnson. As the journalist Jonathan Freedland points out “Cummings is an unreliable witness”, as anyone who listened to his risible defence as to why he flagrantly breached lockdown rules last year will recall.

Nonetheless, the many independent fact checks (here and here for example) that have been conducted into Cummings’ claims conclude that there is some truth to them. The single most damning is that Johnson failed to take mounting evidence of the pandemic sufficiently seriously and that the government reacted too late. It is possible that in January and early February 2020 the government was basking in the glow of finally having delivered Brexit which may have caused it to take its eye off the ball (not that this is any excuse). Moreover, the advice from the SAGE committee was not as unequivocal as is often remembered today (as I pointed out in this post).

One of the bigger criticisms which Cummings failed to bring up was that many senior politicians believed there to be a trade-off between protecting the economy and protecting the health of the nation. This has been widely debunked. The greater the ring fence that can be put up to prevent the virus from taking hold, the smaller the hit to the economy – as Germany has demonstrated. It is certain that all these issues will be debated again when a public inquiry into the handling of the pandemic is established. However, since its terms of reference will be decided by the government it is a safe bet that it will not be allowed to undermine the government’s position (for one thing it will deliver its report sufficiently far in the future that it is unlikely to derail Boris Johnson’s front line career in politics).

The bigger picture

Much of what we learned from this testimony merely repeats what has been said at various times by other people. It was given added significance by the fact that Cummings was in the room when the decisions were made. Aside from the political points scoring, the evidence reveals that the political culture in which we now operate is one in which truth has become an elastic concept. As Freedland points out, Cummings is one of the fathers of this culture, particularly since he knowingly plastered the false claim on the side of the Brexit battle bus that the UK would save £350 million per week by leaving the EU. It is therefore ironic (to say the least) that he should accuse the health secretary, Matt Hancock, of lying.

All of this intrigue makes for good copy and has kept journalists busy in recent days but as we discovered with the furore surrounding financial impropriety allegations at the heart of government, this may not have much cut-through with voters. But there is evidence to suggest that governmental culture matters for the way in which the economy is run. In particular, there is solid empirical evidence to suggest that the quality of overall governance matters for corporate social performance. The authors of the study[1] identify a series of good governance attributes (accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption) and explore the relationship between these factors and corporate social performance for a number of OECD countries. They find a positive correlation between the two and conclude that “policymakers that want to stimulate the transition toward a more sustainable society should consider their country’s overall governance quality.” What is significant about this study is that it does not simply focus on emerging markets where this pattern has long been observed – it holds for the industrialised economies too.

It is important to stress that the UK is not some ungovernable basket case economy. Like (nearly) all western economies, it retains a strong institutional framework that is able to impose some checks on the way in which government operates. But the warning signs flashed by efforts to prorogue parliament in 2019 or the NAO’s findings that the pandemic “laid bare existing fault lines within society, such as the risk of widening inequalities, and within public service delivery and government itselfsuggest there is clear room for improvement. Mounting concerns about the cost of Brexit in those areas which were initially most enthusiastic (notably farming and fishing) have done little to enhance trust in the government’s operating methods.

We should discount some of the more rabid media commentary which focuses on personality rather than policy. But there are creeping signs that a decade of fiscal austerity, a pandemic and the bitter Brexit fall out are eroding the quality of governance. This trend needs to be nipped in the bud for otherwise we will all pay the price.


[1] Kaufmann, W. and A. Lafarre (2020) ‘Does good governance mean better corporate social performance? A comparative study of OECD countries’, International Public Management Journal, DOI: 10.1080/10967494.2020.1814916

 

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