The politics of competence: Covid-19 and the ERM.
| Author | Telesca, Giuseppe |
On 16 September 1992, 'Black Wednesday', the Conservative government abandoned the European Exchange Rate Mechanism (ERM), a system in which each country committed to maintain its exchange rates within a target bandwidth around a centrally defined parity. On that day alone, in order to maintain the parity of the pound, the Bank of England and the Treasury had already spent $28 billion of reserves on buying up sterling to defend its value. They had raised the interest rate from 10 per cent to 12 per cent - and had even considered a further rise to 15 per cent. (1) This desperate attempt to maintain parity within the ERM proved financially costly and politically humiliating. From mid-September 1992 onwards, the Labour Party acquired an advantage in the polls that, far from narrowing, grew into the landslide victory of 1997. There is a consensus that the consequence of the ERM mishandling was the Tories' loss of one of their most precious electoral advantages: the reputation for competence. Anthony King, in the wake of the 1997 general election, wrote:
The Conservative Party throughout most of its history, especially during the present century, has had a reputation for solid competence. The party might be dull and uninspired, it might be out of touch with the needs of ordinary people, its values might not be desperately attractive; but at least the Conservatives know how to run things...The history of Britain's financial crises in the twentieth century fed the Tories' reputation. Between 1900 and 1992 there were four full-blown financial crises involving the British government, and Labour administrations were implicated in all of them...The two parties' contrasting reputation alone gave the Conservatives a substantial inbuilt electoral advantage...What happened on 16 September 1992 - Black Wednesday - was that a Conservative government threw all that away. (2) The ERM crisis was evoked in the early stages of the current pandemic, when it became apparent that the British government was failing in its response to the COVID-19 crisis. (3) The delayed lockdown, the failure to provide personal protective equipment to NHS staff and to protect the care homes, the shortcomings of the test-and-trace system and a series of U-turns - from free children's meals during school holidays to the exams fiasco - reinforced the feeling that, as in the case of the ERM crisis, the Tories might have lost their reputation for competence. At the time of writing Britain has passed the milestone of 100,000 coronavirus deaths, with many more likely to follow. The government's failure to learn the lessons of the first COVID-19 surge indicates that the theme of competence could mark the political debate in the months, even years, to come.
Political scientists argue that voting decisions are not only determined by policy distances between parties, but also by the capacity of the latter to present themselves as able to deliver on their policy agendas. Scholars distinguish between a generalised competence - the degree to which parties are trusted across the policy agenda - and a competence for specific issues. Political parties tend to develop a good reputation on certain policy issues and are expected to benefit electorally when these issues are on the electoral agenda. If competence is considered a necessary condition of electability, a low degree of political polarisation is usually associated with a high relevance of the competence factor, as voters facing similar political offers will decide on the basis of the parties' perceived capacity to deliver on them. (4)
Comparisons need to be handled with care in order not to trivialise history; differences of context, circumstances and protagonists between 1992 and now are evident. Yet, thinking analogically can provide insights if one concentrates on the differences between the two crises. This article demonstrates that the set of policies that defined economic competence back in the 1990s is not the same three decades later. The politics of competence, which has occupied a central space in the Labour
Party under Keir Starmer, cannot then be conceived as a mere return to the 1990s, and should be combined with a programme of radical economic policy.
The ERM crisis
Margaret Thatcher's government joined the ERM on 8 October 1990, following a decade of infighting within her administration. Thatcher was forced to join the ERM because of the perceived need to contain inflation, which had (again) spiralled out of control at the end of the 1980s. (5) There was also a political rationale behind her move, as joining the ERM was the only way for Britain to have a say in the process of monetary integration, which was taking its first steps within the European Community (EC) after the publication of the Delors Report and German reunification. (6) More generally, it has been observed that the decision to join the ERM was part of a strategy based on the principle of 'depoliticisation', which British governments had implemented since the early 1990s in different fields. Applied to monetary policy, this strategy implied the adoption of a rule-based policy that the government could not easily reverse. A rule-based monetary policy would maintain confidence in sterling, prevent inflationary wage settlements and cap public expenditure - three goals that discretionary forms of economic management (Keynesianism in the 1960s/1970s and monetarism in the 1980s) had failed to achieve. A rule-based monetary...
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