Trust the politician or the technocrat?

May 16, 1997

Politicians who base their election campaign on their claim to be trustworthy and then surf a political earthquake to enjoy record majorities in the legislature, do not usually feel the need to spend their first ten days in office on confidence-building measures. But New Labour has done just that in monetary policy, European diplomacy and Northern Ireland - speaking volumes about how government in the new century may have to work.

Gordon Brown's first act as Chancellor was to give the Bank of England operational independence over setting interest rates to meet an inflation target that he will continue to set. Intended to build short-term confidence in the markets, it worked.

Confidence-building measures are a way to build trust with those who do not share any identity with you. Such strategies are usually provisional, and, over time, become background factors as experience, reputation and shared identities develop. Brown presumably hopes that in a few years, experience of his fiscal policy will have gained such trust that the Bank can keep interest rates low.

What is intriguing about the New Labour confidence-building measures is what they suggest voters, investors and businesses trust politicians and technocrats respectively actually to do. The case for operational independence for the central bank rests on the idea that bankers and economists can better be trusted to anticipate the future and make policy decisions.

In fact, the track record of independent central bankers and economists in anticipating the future and devising robust policies is rather mixed. Montague Norman - the nearest thing the Bank of England has had to an independent governor - was at least as great a disaster as any Chancellor of the 1970s and 1980s in controlling inflation; for every Bundesbank, there is a counter-example. But the point is that we now make these trust decisions, not on the basis of experience and reputation, but rather on the basis of symbolic hostage giving.

Independent central bankers, independent utility regulators, school standards assessors and lottery regulators are contemporary signs of these trust processes. Yet the very things that grow to underpin their trustworthiness are to do with their dependence, rather than their independence.

These include a clear mission - which the Bundesbank has, the Federal Reserve has not, and we do not know whether the Bank of England will have - and the system of accountability, not to a committee of university economists but to a Parliamentary select committee. Beyond this, we must rely on our experience of the quality of their anticipation and of their resistance to the vested interests and expectations of the forces of inflation (or, in the case of other regulators, the producers) they are supposed to combat.

Increasingly and rightly, in monetary policy as in crime, health and employment policies, we expect executive government to anticipate problems and prevent them, rather than provide cures - usually of limited effectiveness - after the event.

For now, we may be content with the symbolic claim that independence from politicians signifies ability to anticipate and exercise dispassionate judgment.

In the medium term, politicians will have to offer us more powerful reasons to trust them, than simply confidence-building measures of a kind that decentralise blame to technocrats.

Only when they begin that re-engagement with our experience, rather than with our distrust, will our politicians regain our confidence that they can solve the problems we elect them to tackle.

Perri 6 directs research at the independent think-tank, Demos.

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