Does Depoliticisation Work

Does Depoliticisation Work? Evidencefrom Britain’s Membership of theExchange Rate Mechanism, 1990–92Steven Kettell

The concept of depoliticisation has become increasingly popular in recent years, but empiricalstudies into depoliticisation policies have been less prevalent. Absent from the literature, too, areany clearly delineated criteria by which the success or failure of such policies might be assessed. Thisarticle attempts to address these issues through an examination of Britain’s membership of theExchange Rate Mechanism from 1990 to 1992. In contrast to the conventional view of this episode,in which it is seen as a policy disaster, it is argued that as a policy of depoliticisation ERMmembership was a relative success.

Keywords: depoliticisation; Exchange Rate Mechanism; economic policy;Conservatives

IntroductionIn recent years the concept of depoliticisation has become increasingly popularthroughout the social sciences. As a theoretical device for explaining a variety ofpolicies and modes of governance with diminished democratic content, its congru-ence with the spread of neo-liberal orthodoxy and the increasing marketisation ofthe public sphere has assured it a place in mainstream scholarly debates (for areview see Flinders and Buller 2006). To date, however, the general focus of thisattention has been centred on conceptual deconstruction, disaggregating thevarious meanings and forms of depoliticisation as well as the methods by which itcan be deployed. Although useful for extending our understanding of these issues,this theoretical pursuit contrasts with the relative lack of attention given thus far toresearch into specific depoliticisation policies themselves. The result has been toleave open the question as to whether, how and to what extent depoliticisationactually works in practice. By way of an attempt to address some of these issues, thisarticle examines the question of depoliticisation in relation to Britain’s membershipof the Exchange Rate Mechanism (ERM) from 1990 to 1992.

As one of the most tumultuous episodes in 20th-century British politics, member-ship of the ERM is almost universally considered to have been a complete policydisaster. According to received wisdom, the decision to join the regime at a mis-takenly overvalued exchange rate compelled the Conservative government tomaintain onerously high levels of interest rates at a time of steep recession, com-pounded the severity of the downturn and dealt a fatal blow to the governingcredibility of the Conservative party—epitomised in the events of Black

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Wednesday—from which it has still fully to recover. While this traditional narrativehas become a deeply entrenched part of British national life, it is neverthelessproblematic. A key reason for this is its overly narrow reading of the economic andpolitical motivations that are said to have underpinned the policy. Alternatively, ananalysis of ERM membership as a policy of depoliticisation facilitates a ratherdifferent view of events. As we shall see, for all the economic turbulence enduredduring Britain’s participation in the regime, the political effects of membership werefar more beneficial for the government than is usually recognised. Albeit tran-siently, ERM membership provided the Conservatives with a credible frameworkfor economic management and an effective means of displacing political responsi-bility for economic affairs, enabling them to deal with a variety of governingproblems with fewer difficulties than would otherwise have been the case.

Depoliticisation and its OriginsThe concept of depoliticisation deals with the process of state management and theinvolvement of the state in societal affairs (Burnham 2001). Typically, this is posedin a dyadic relation to a politicised form of governance in which elected officialsassume direct control and responsibility for particular issues and policies. Whiledoing so grants direct access to the levers of power, and allows state managers toderive the political kudos from any policy success, it can also expose officials tobroader societal pressures and leave them open to the political consequences of anypolicy failures or difficulties that may arise. In contrast, a depoliticised form ofgovernance, in which state managers directly relinquish policy control over par-ticular issues, delegating their day-to-day management to ostensibly non-politicalinstitutions or rule-based frameworks (albeit while retaining an ‘arm’s-length’regulatory influence over proceedings) can, if deployed successfully, provide dis-tinct advantages. By constraining the discretionary abilities of state officials, a policyof depoliticisation can refract the overtly political nature of the decision-makingprocess such that the issues involved come to be seen as essentially technical,apolitical matters, effectively displaced from the political agenda, or at least dimin-ished in political salience. The result is to reduce the culpability of state officials foradverse events and socioeconomic conditions, providing them with a greater degreeof governing autonomy than would otherwise be possible. In Peter Burnham’s(2001, 128) oft-cited dictum, depoliticisation is here ‘the process of placing at oneremove the political character of decision-making’. Or as Jacques Rancière (2007,11) puts it, ‘the art of suppressing the political’.

This politicised/depoliticised dichotomy is not, of course, a binary condition, a stateof affairs in which all issues fall on one side of the divide or the other at any givenmoment. The political landscape is not black or white, but is painted in more subtlehues. As Alan Blinder (1997, 116) observes, in absolute terms it is ‘neither possiblenor desirable to depoliticize government. Policymaking in a democracy must bepolitical’. This is to say, in other words, that in a democratic polity, where thepolitical legitimacy of government derives from the pursuit of the ‘national interest’and in which policy-making must therefore display at least a semblant of aconnection to the views and wishes of the electorate, it is not possible for govern-ment to abjugate entirely its social and economic responsibilities. Nor is it possible,

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given the sheer scale and complexity of modern social life, for all aspects of it to becompletely politicised and under state control. A democratic polity, then, willinvariably comprise elements of both politicisation and depoliticisation, an ongoingprocess in which issues are simultaneously and continually subject to processesof depoliticisation and (re)politicisation; of their (re-)incorporation into, and(re-)ejection from, the public sphere (Burnham 2006; Hay 2007).

Contemporary academic engagement with the concept of depoliticisation draws ona long stream of debate regarding the boundaries and content of the political realm.For the most part, from Ancient Greece to philosophers of the Enlightenment suchas Locke and Rousseau, conceptions of the ‘political’ and the valence of the ‘publicsphere’ were rooted in the virtues of active citizenship and the beneficence ofpolitical institutions. Politics, in this instance, was hailed as a participatory andempowering form of activity, a thriving civic forum being as much an end in itselfas a means to the social good (Boggs 2000, ch. 4). The dawning of modernity,however, and in particular the rise of the nation state, predicated on an institutionalseparation from the market and on the respective constitution of distinct ‘public’and ‘private’ spheres, marked the beginning of a distinct transformation. At thecentre of this was a growing concern, evident in both liberal and socialist thought,with balancing a desire for efficiency with the increasing pressures for democraticrepresentation and the provision of public welfare, a not insubstantial matter asrecurrent pressures for social and electoral reform showed. Max Weber’s (1978[1922]) dystopian vision of a bureaucratised public sphere, stripped of its demo-cratic and participative content, forewarned of the dangers present in an uncheckedtechnocracy and an over-privileging of the former, though for others a limitedpublic sphere was seen as an essential guarantor of liberty and freedom, a bulwarkagainst political or economic interference, either from the mob or its electedrepresentatives (Tant 1993).

The backdrop to the contemporary debate on depoliticisation stems from the crisisof western liberal democracy during the 1970s. The particular form of this disjunc-ture, marking the apparent limits of a post-war expansion of the public sphere amida perception of overload and ungovernability (King 1975; Rose 1979; Beer 1982),lent credence to an analytical prescription based on the view that the expandedstate was itself the central cause of the crisis. In a sign of the politicised times, so thenarrative went, a competitive bidding war for votes between the main politicalparties led successive governments to pander to the demands of unelected sectionalinterest groups (a generic code, in practice, for trade unions), a state of affairswhich, combined with expansionary pressures from the bureaucratic public sector,created a mode of governance characterised by excessive policy activism, ever-risinglevels of state spending and a surfeit of effective government. Accordingly, thesolution to this crisis, certainly as far as those on the New Right were concerned, laywith an institutional reordering of the state, which was to be divested of itspost-war social accretions in favour of a smaller, less activist and marketised model(Hay 2007). Throughout the 1980s a prolific debate about the nature of thesechanges, epitomised by the spread of privatisation, an erosion of trade union powerand the ubiquitous rise of globalisation, resounded across the halls of the academy.The state, variously considered, was now seen to be in ‘retreat’ (Strange 1997), to

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be ‘hollowing out’ (Holliday 2000) or, in an assortment of different ways, to havebecome increasingly segmented, decentred, pluralised and multilayered (Rhodes1997; Marsh et al. 2001).

One of the main theoretical tributaries in this debate, in so far as it related to thetheme of depoliticisation, flowed from the issue of ‘rules vs. discretion’ in the fieldof economics. This was based on a rational choice model of policy-making behav-iour, consisting of a multi-stage interaction between self-maximising groups ofpublic and private actors. At the centre of this was the question of whether a systemof policy-making based on the discretionary reactions of state officials or a frame-work of formal constraints would produce the most optimal results in terms ofeconomic variables such as output, inflation and employment. In Finn Kydland andEdward Prescott’s (1977) classic formulation of the issue as the ‘time inconsistency’problem (see also Barro and Gordon 1983; Giavazzi and Pagano 1988), the drivingassumption was that state officials had an inherent temptation to ‘cheat’ the marketby pursuing surprise (i.e. unanticipated) inflationary policies in order to boosteconomic growth and improve their electoral popularity (a similar point had pre-viously been made by Friedman (1968)). The gains from such a monetary expan-sion, however, were also believed to be temporary. Given the lack of anyimprovement in the ‘real’ economy, indicators such as output and employmentwould soon return to their original positions, while the higher-than-anticipatedrate of inflation would lead to an even higher rise in the inflationary expectations(and hence wage and price-setting behaviour) of private actors as they soughtcompensation for their previous losses and to protect themselves against anyunwelcome future surprises. The net result of discretionary policy-making, then,was seen to be a higher rate of inflation, a loss of trust in the governing authoritiesand a greater degree of political and economic instability.

In contrast, a system of policy-making based on clearly defined, well-known,credible and enforced rules would, by regularising the decision-making process,produce lower and more stable expectations, and thus yield more optimal economicoutcomes. Such rules ranged from ‘domestically’ constituted frameworks such as aself-imposed inflation target and/or the handing control of monetary policy over toan independent central bank (with an anti-inflationary remit), to exogenousmechanisms bound up with broader international commitments, such as partici-pation in a multilateral exchange rate system. The more credible, and hence, ceterisparibus, the most effective rules, would, it was assumed, be those that were morecostly and difficult to break; a dynamic leading some to assert the inherent supe-riority of ‘externally imposed’ constraints, the breaching of which would haveramifications far beyond the antagonism of the domestic populace (Giovannini1993).

Although the issue of rules vs. discretion was concerned less with the political thanwith the economic consequences of a ‘rule-based’ policy approach, the politicalproblems of a discretionary framework and the advantages of depoliticisation have,from the 1990s, and particularly since the turn of the millennium, been increas-ingly prevalent in debates across the social sciences. These have included policiesand governance issues in areas as diverse as international development (Feldman2003; Philips 2006); the National Health Service (Baggott 1994); economic and



monetary policy (Burnham 1999; Kettell 2004), as well as more broad-rangingdiscussions about the changing nature of statecraft more generally (Burnham 2001;Buller and Flinders 2005); the concept of democracy (Rancière 2007); and thedemocratic implications of new structures of governance based on neo-liberalreform of the public sector (Blinder 1997; Boggs 2000; Pettit 2001 and 2004;Anderson et al. 2002; Roberts and Devine 2003; Blühdorn 2006).

Assessing DepoliticisationDespite its obvious popularity, however, scholarly treatment of depoliticisation hasremained underdeveloped. In an attempt to address this problem, recent inroadsinto this area have sought to disaggregate depoliticisation in terms of its variousforms as well as the various mechanisms that are available for its pursuit. Here,Matthew Flinders and Jim Buller (2006, 298–311) provide a typology based on ‘anorderly and graded series of refined categories’ for outlining the mechanisms ofdepoliticisation based on its associated principles, tactics and tools. In this, threemain ‘forms’ (or tactics) of depoliticisation are identified: (i) institutional, in whichministers pass the day-to-day management of a particular issue (such as interestrates) over to an agency (such as a central bank) which operates autonomouslyfrom, but within parameters set by, state managers; (ii) rule based, in which statemanagers adopt an explicit framework of technocratic rules, such as monetarytargeting, as a policy-making cornerstone; and (iii) preference shaping, wherebyofficials seek to promote a public discourse, such as that surrounding the lack of anyviable alternatives to globalisation and the pursuit of a neo-liberal policy agenda,that effectively absolves them of responsibility for core governing matters.

In a similar fashion Colin Hay (2007, 82–89) also identifies three forms of depoliti-cisation, albeit of a different specification. These consist of the displacement of anissue: (i) from the realm of deliberation to that of ‘necessity and fate’ (such as aprocess of de-secularisation); (ii) from the public sphere to the private sphere (suchas passing the responsibility for dealing with environmental degradation on toconsumers); or (iii) from elected officials to the market (via privatisation) or toquasi-public or transnational bodies (such as the Eurozone). Of these, the secondand particularly the third form are the most definitionally useful in terms of theanalysis of state management. This represents ‘the effective demotion of issuespreviously subject to formal political scrutiny, deliberation and accountability to thepublic yet non-governmental sphere’, or, more generically, a process in which suchissues ‘are displaced to less obviously politicised arenas’ (Hay 2007, 82–89).

While theoretical refinements such as these are to be welcomed, the current stateof play on depoliticisation nevertheless remains far from problem free. One notabledifficulty is that, for all the work in this area to date, there remains a lack of detailedempirical studies into specific depoliticisation policies themselves. This is not to say,of course, that scholarly work involving depoliticisation has made no use of empiri-cal material (obviously it has); rather, that the general aim of most studies has beento use the concept as an explanatory tool for illuminating other, usually broadermatters, such as contemporary American culture (Boggs 2000), or the changingnature of British governance throughout the post-war period (Burnham 2001;

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Buller and Flinders 2005), rather than to evaluate the success of an individualpolicy. To the extent that inquiries into the internal processes and dynamics ofdepoliticisation can benefit from real-world empirical results, then the constructionof a body of material evidence on the success or failure of depoliticisation policies,as they are deployed in different times and contexts, would clearly serve to deepenunderstanding in this area.

This point leads to a related issue, namely that at the present time there are nowell-defined criteria within the literature by which such policies themselves mightbe judged. At first glance this may seem to be something of a curious point to make.After all, it is perfectly obvious that, since depoliticisation is generally concernedwith the displacement of political responsibility for certain issues, the extrapolationof an effective criterion with which to measure this should be a fairly straightfor-ward task. Carl Boggs (2000, 47–48), for example, positing that ‘[t]he broadestmeasure of a depoliticised society ... is the overall decline of civic consciousness’,points to (though does not systematise) a series of indices based on declininginterest in and knowledge of political issues, rising political alienation, falling voterturnouts and the like. This is all to the good, but for assessing the success of aspecific policy of depoliticisation, such broad-based indices are clearly too bluntto be of any real use. A further problem here also concerns the determinationof ‘success’ (and conversely ‘failure’) itself. Rule-based depoliticisation policiesmay have a propensity to break down—their inflexibility in the face of changingconditions rendering them prone to eventual collapse and to a possible‘re-politicisation’ of the issue to hand—but does such a breakdown invariablyconstitute failure? If so, then all such policies must be considered doomed from theoff, and the question of success reduced to a pointless measurement of policylongevity, as if the ability to last was all that mattered. On the other hand, if degreesof success and failure contain more shades than black and white; if they are insteadmore nuanced and contingent upon the actual events and circumstances relating toa policy during its period of operation, then questions of criteria and evaluationbecome more apposite. In respect of this, the effectiveness of a policy of depoliti-cisation needs to be examined in two main areas, categorised in objective/subjectiveterms as (i) material effects, and (ii) the impact on perceptions.

The first of these concerns the specific aims of those officials who are directlyinvolved in the construction and pursuit of a particular depoliticisation policy.Simply put, this criterion involves the actual, material objectives that underpin thepolicy. This, for instance, may include economic or social goals such as the controlof inflation, raising productivity, reducing wage growth and so on, though clearlyany achievements here will also need to be set against the scale of any costs, suchas higher unemployment, lost economic output or increased industrial unrest, thatare incurred in the process. The second of these categories concerns the extent towhich perceptions about how policy decisions are made, and hence about wherethe political responsibility for them resides, were effectively redirected, by thepolicy, away from state officials. In this, any assessment of the perception-alteringeffects of a depoliticisation policy needs to bear two key factors in mind. The firstand most straightforward of these concerns the level of interest that is generated bythe particular issues involved, namely whether or not the adoption of a depolitici-sation policy reduced the amount of interest in those issues which it was designed



to address. In this instance, then, a reduction in the level of interest (say, over thesetting of interest rates) would be equated with a successful policy of depoliticisa-tion, while a rise in the level of interest would indicate the reverse. The second andmore important factor in this, however, concerns the particular form and character ofsuch interest. Given that the primary aim of a depoliticisation policy is to displacepolitical responsibility away from state officials, it is thus possible to judge a policyas having been a success, even if the quantitative level of interest increased, so longas state managers were no longer considered to be primarily responsible for theissues involved. In this case, then, a degree of political controversy over a particularissue (or set of issues), such as the level of interest rates or unemployment, couldstill be positively correlated with a successful policy of depoliticisation if the over-riding perception was altered such that the chief responsibility for such matters wasnow seen to rest with forces other than government officials.

The matter of determining whether such a shift has occurred, then, centres on thequestion of whose perceptions are deemed to be most relevant, and the extent of theshift that is required. Does depoliticisation occur, for instance, if an issue is nolonger considered to be within the entire purview of government control, or if it issimply deemed to be less important, less political, than it once was? Similarly, candepoliticisation be said to have taken place if the media, or sections of it, turn theirattentions elsewhere? If members of the political class no longer consider an issueto be at the top of the political agenda? If the respective interest groups ceaselobbying on the matter? Or is it the view of the general public that forms the mostfundamental and important body of opinion? In addressing these questions, and inrecognising the heterogeneous nature of political opinion within a modern society,it may be useful to disaggregate the ensemble of national political life, as it were,into its main constituent groupings, into the key segments of political opinion thatare capable of providing effective ciphers, or barometers, of what constitutes themain political issues of the day. The strength with which these groupings register aparticular issue as being of political concern can thus provide an indication as to itsdegree of (de)politicisation. The main elements in this classification, as shall bedefined here, are: the court of public opinion (encompassing the electorate and keyopinion formers from within academia, the media and other organisations); themajor interest groups which are directly involved with the relevant issue(s), such asthe Trades Union Congress (TUC) and the Confederation of British Industry (CBI)in the case of economic or industrial policy; and the political class (consisting of themain parliamentary parties and any relevant sections of the civil service).

Setting out the key groupings in this way is clearly not without its problems. Who,for example, counts as a ‘key opinion former’? Is it useful to treat the ‘political class’in such a unified manner? And to what extent does an issue need to be regarded bythese groups as ‘political’ before it counts as such? Would the ‘general public’ alone,or a substantial portion of it, suffice? Or do all three groupings, or some combina-tion of them (and if so, which?) need to be of a like political mind? Moreover, theconstant interactions and reciprocity between and within groups complicatesmatters even further. Continuous media reporting on an issue, for instance, mayelevate its political standing among the general public, while the concerns of theelectorate may, in turn, have spillover effects in terms of the views of the politicalclass, the causal directions all the while being complex, multi-linear and

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indeterminate. The key problem with questions such as these, however, is that theyare, and will remain, inherently insoluble, certainly to a degree of any satisfaction,at an abstract theoretical level. While the above categorisation draws attention tothe multifaceted nature of political perceptions and the associated problems ofmeasurement, analysing the actual effects of a depoliticisation policy can only beachieved through a process of considered debate and reasoned discussion of theempirical evidence as it relates to the specific context of the policy itself. Here, then,at the limits of purely conceptual inquiry, is the need for an empirical analysisfound. It is to this end that we shall now turn.

Analysing the ERMBritain’s membership of the ERM, a monetary system in which participants com-mitted to maintain their exchange rates within target bandwidths (either 2.5 percent or 6 per cent) around a centrally defined parity (Gros and Thygesen 1992), istypically thought to have been driven by a narrow range of concerns, mainlycentring on the provision of a sound monetary framework for reducing inflation. AsChristopher Johnson (1994, 89) puts it, the reduction of inflation was, for officials,‘the main priority at the time of entry’ (see also Brittan 1991; Smith 1992; Barrellet al. 1994; Eichengreen 1996; Stephens 1996; Cobham 1997). In this standardformulation, political factors are generally excluded from the analysis, permitted tointrude only as adjuncts to these overriding economic ends, either as a means ofenhancing Britain’s influence within the European Community (EC), or of unitingthe Conservative party on the issue of European integration (Howe 1994; Thomp-son 1995 and 1996). Assessed against these criteria, it is hardly surprising that theERM policy is seen as a dramatic failure. The conventional view is that Britainjoined both at the wrong time, namely on the verge of a recession, and at the wrongexchange rate, with sterling, by most estimates, thought to have been around 10per cent overvalued. This, it is argued, required onerously high interest rates tokeep the pound within its ERM bandwidths, severely compounded the effects of thedownturn and ultimately eroded the credibility of the government’s commitmentto the regime itself, leading to sterling’s ejection from it on ‘Black Wednesday’ inSeptember 1992. In sum, Britain’s membership of the ERM stands ingrained in thenational psyche as a profound policy error. As Alan Budd (2005, 15) explains, ‘Thecommonly held view is that our membership of the ERM was a disaster and wasalways doomed to fail’. Or, as Helen Thompson (1995, 248) puts it, joining the ERM‘brought no benefits to the UK at all’ and was ‘unequivocally a policy disaster’.

In contrast to this attenuated and wholly negative version of events, a smallnumber of less conventional commentaries have sought to explain ERM member-ship as a policy of depoliticisation. From this viewpoint, joining the ERM wasdesigned to achieve interwoven political and economic goals; to simultaneouslyimpose tight monetary discipline on the British economy while insulating statemanagers from the adverse political consequences by shifting the responsibility onto an externally constituted regime—in this case a system of policy rules bound upwith broader European commitments. The degree to which this strategy is consid-ered to have been a success, however, remains a matter of some debate. Accordingto Buller (2003, 13), governmental hopes that the policy ‘would shield the Major



leadership from the unpopular consequences of ERM membership did not mate-rialise’ (also see Buller and Flinders 2005), though for Werner Bonefeld and PeterBurnham (1996, p. 5) the policy is considered to have been a success ‘at leastinitially’, since it allowed the government ‘to distance itself politically from theconsequences of austerity by arguing that its hand was forced by internationalcommitments’. More serious than this lack of agreement, though, is the limitednature of the evidence on offer in support of these claims. Buller and Flinders(2005), for instance, offer little empirical material beyond the events of BlackWednesday to support the view that the attempt at depoliticisation failed (similarlysee Buller 2003; Flinders and Buller 2006); while Bonefeld and Burnham, focusing,paradoxically, on the economic effects of the regime, similarly fail to demonstratethat a displacement of political responsibility on to international commitmentsactually took place (see Bonefeld and Burnham 1996 and 1998; see also Bonefeldet al. 1995). To show that such a shift did in fact occur is the purpose of theremainder of this article.

The Background to EntryThe decision to join the ERM was set against a background of deteriorating eco-nomic performance and rising political discontent with the government. By themid-1980s the Conservatives’ initial flirtation with policy rules in the form ofmonetarism had been abandoned in favour of ad hoc mechanisms based aroundmarket deregulation and cheap credit. While helping the Tories to a third successiveelection victory in 1987, the resulting inflationary boom presaged a return tostringent monetary policies and to the onset of a recession by the end of the decade.By September 1990 almost a quarter of the British electorate considered the state ofthe economy to be one of the main issues facing the country (compared to just 8 percent in 1987), while levels of satisfaction with the government’s economic policyhad reached a nadir of minus 21 per cent (from plus 18 per cent two yearspreviously). Discontent with the government’s handling of the economy had alsohelped to send the prime minister’s satisfaction ratings plummeting to an all-timelow of minus 43 per cent (from an average of plus 6 per cent during the latter halfof 1987), and that of the government as a whole to a record of minus 50 per cent(calculated from MORI Political Monitor, http://www.ipsos-mori.com/polls/trends).

Against this backdrop joining the ERM began to look increasingly attractive. Whilethis had been a governmental bone of contention throughout the 1980s (withThatcher’s resistance to membership despite broad support for the move frominside Westminster and beyond having led ultimately to the resignation of theChancellor, Nigel Lawson, in 1989), credible alternatives were now decidedly thinon the ground. In contrast, the advantages of joining the ERM were readilyapparent. By locking the value of the pound into an externally constituted systemof rules, ERM membership would subordinate core economic policy decisions to themaintenance of the exchange rate and rule out currency depreciation as a means ofaccommodating slack economic performance. This would send a clear signal ofintent regarding the government’s anti-inflationary credentials and put pressure onproducers to improve competitiveness by cutting costs and raising productivity

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http://www.ipsos-mori.com/polls

(Lawson 1992; Howe 1994). In this, the credibility of the regime would therefore becrucial. An internal Treasury paper noted that while reducing inflation was ‘boundto be costly’ in terms of unemployment and lost output, especially given therigidities of the British labour market, the costs would be reduced if expectations,and hence economic behaviour, could be adjusted to fit the contours of the regime.‘[T]he more the authorities could persuade people that they would take toughaction if necessary’, it explained, ‘the less tough the action they would actually haveto take’ (HM Treasury 1993, ERM Project Paper [hereafter Project Paper], 40–41).

In this, the exogenous nature of the ERM was considered to be particularly useful.As was observed in the Treasury, the ‘total subordination of economic managementto the maintenance of sterling’s position within the bands’ would provide ‘acredible external discipline’ (Project Paper, 11; HM Treasury 1994, Reflections on theUK’s Membership of the ERM [hereafter Reflections], 2). The expectation, too, was thatthese constraints would be enhanced by the inflationary pressures resulting fromGerman reunification, since interest rates in Germany and throughout the ERMwould thus be ‘likely to rise substantially’, a situation that would make it easier toresist domestic calls for cheaper credit. ‘[S]ome rise in German interest rates—which might reduce that pressure’, it was noted, ‘might not be unwelcome to us’(Project Paper, 25–28). Naturally, electoral considerations were also evident. As JohnMajor, the Chancellor since Lawson’s departure, put it, the key governing dilemmawas to square the circle between preventing a fall in the exchange rate (needed to‘maintain the downward pressure on inflation’), while simultaneously cuttinginterest rates to boost the popularity of the government. Since lowering ratesoutside the ERM would lead to a fall in the pound and a rise in inflationarypressures, the growing consensus within senior government circles was that ERMmembership offered the only viable means of providing cheaper credit while main-taining anti-inflationary credibility. The expectation, then, was that the ERM wouldprovide a framework in which inflation could be reduced while facilitating avirtuous circle of rising consumer spending and renewed economic growth (Major2000, 153–160).

In July 1990, with Thatcher’s political authority in terminal decline, the primeminister finally assented to joining the ERM within the 6 per cent fluctuation band.With Treasury officials favouring entry during September or October in order togive time for British inflation to start moving towards the ERM average, and tothereby help with ‘the domestic political handling of the entry decision’ (Reflections,1), the only remaining question was the rate at which the pound would join theregime. On this, the general view in Treasury, ministerial and Bank of Englandcircles was that a suitably high parity would be needed to buttress the government’santi-inflationary aims (Thatcher 1993, 721–722; Major 2000, 158–165). The ‘keyconsideration’, as was again noted in the Treasury, was ‘the desire for a challengingdis-inflationary rate’, since joining at a depreciated parity ‘would make it harder tosecure a rapid decline in inflation’ (Project Paper, 29–35; Reflections, 3). While anexchange rate of DM2.75 in April was deemed to be ‘comfortably above’ the levelbelieved to be necessary to ‘maintain downward pressure on inflation’ (ProjectPaper, 32–35), on 5 October the government announced its intention to join theERM at DM2.95.



Defence MechanismThe decision to join the ERM was widely welcomed. The City, the CBI, the TUC andthe mainstream press all declared their support for the move, while the Labourparty, having long been in favour of membership, could now only snipe about thetiming (Observer, 7 October 1990; Financial Times [hereafter FT], 6–8 October 1990).Set against this, however, was an accompanying cut in interest rates from 15 percent to 14 per cent, a move instigated by Thatcher in an attempt to boost thefortunes of the Conservative party, but one that now put sterling under immediatepressure. To assuage fears that the government was trying to engineer a mini‘boomlet’ as the prelude to a snap general election, Major wasted no time inhighlighting the constraints that ERM membership would now impose on thegovernment’s policy-making discretion. Insisting that interest rates would nowneed to be ‘allocated to maintaining the exchange rate’, and that this wouldpreclude any monetary loosening ‘until it is prudent to do so’, the Chancellor addedthat membership would now also rule out ‘a more active fiscal policy’ and wouldthus ‘impose an extra discipline on the Government’s conduct’ (Guardian, 8 and 12October 1990; FT, 19 and 23 October 1990; The Times, 16 and 19 October 1990).Concurring, the Governor of the Bank of England, Robin Leigh-Pemberton, pointedout that ‘[t]he maintenance of a strong sterling exchange rate’ was now the key to‘maintaining a firm counter-inflationary policy’ (FT, 19 October 1990; Observer, 14and 21 October 1990). Blunter still, the line from the Treasury was that an eco-nomic slowdown was ‘a necessary prelude to the reduction in inflation’ (The Times,31 October 1990).

In November the ousting of Thatcher and her replacement by Major gave theConservatives a much-needed (if short-lived) boost in the polls, but with therecession starting to bite, political pressure for a more ameliorative economic policystance was now beginning to grow. Calls from the CBI and the TUC for fiscalchanges and lower interest rates (FT, 10 December 1990, 14 January 1991) wereaccompanied by similar calls from the Labour party as well as from several high-profile observers, most notably John Biffen (the Chief Secretary to the Treasury inthe first Thatcher cabinet), and, via an open letter to The Times, a disenchantedcoterie of monetarist economists (including Alan Walters, Patrick Minford and TimCongdon), who urged devaluation or withdrawal from the ERM altogether (TheTimes, 5 and 7 November 1990; FT, 10, 14 and 30 January 1991). In response,officials re-emphasised the constraints of the ERM. Norman Lamont, the newChancellor, effused that there could be ‘no question’ of a reduction in interest rateswhich was ‘not fully justified by our position within the ERM’ (Guardian, 14February 1991), while Major insisted that membership had enabled the recentturmoil within the Conservative party to be weathered with less instability thanwould otherwise have been possible. Had sterling been outside the ERM during thistime, he argued, the ‘political uncertainties’ would have forced interest rates up ‘tooffset the inflationary consequences’ (FT, 13 December 1990, 7 and 21 January1991; Observer, 9 December 1990, 20 January 1991).

But while the ERM provided a justificatory device for resisting these early pres-sures for a more relaxed economic policy, lower interest rates neverthelessremained key to the Conservatives’ political strategy. Although mindful of the

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need to avoid any impression that this was being politically driven, in Februaryofficials judged conditions to be sufficiently safe, with inflation now falling, tostart reducing interest rates, cutting them in stages to 10.5 per cent by earlySeptember. The cuts, however, improved neither the Conservatives’ standing inthe country nor the condition of the economy. By the summer unemploymentwas nearing 2.4 million (more than a third higher than at the time of ERMentry), the housing market was in a state of crisis, business confidence was col-lapsing and Labour party, trade union and business pressures for a loosening ofeconomic policy were refusing to abate. Remaining steadfast, officials againturned to the political defence mechanism of the ERM. The Treasury and theBank of England repeated warnings about the inflationary dangers of a prema-ture cut in interest rates (Observer, 19 May 1991; The Times, 10–12 June 1991),Lamont remained adamant that rates would continue to ‘be set to honour ourcommitment to stay within the ERM band’ (The Times, 24 June 1991), whileMajor maintained that the scope for greater reductions was now ‘very consider-ably more limited’ (The Times, 13 July 1991).

For all the economic difficulties faced, by the autumn the view from the Treasurywas that the first year of Britain’s ERM membership had ‘delivered substantialsuccess; more than most of us expected’ (Reflections, 3). Despite the recession, byOctober inflation had fallen to a three-year low of 4.7 per cent, sterling had beenmore stable during the previous 12 months than at any time during the previousdecade and interest rates were now at their lowest level since 1988 (The Times, 7October 1991). The regime had also proved its usefulness as a means of defendingeconomic stringency in the face of pressures for a looser fiscal and monetaryposition. A year after joining the ERM, the Conservatives were closing on Labourin the polls and the government’s ‘satisfaction balance’ (the mean monthly dif-ferential between satisfaction and dissatisfaction ratings) was twitching back tolife, a level of minus 27 being admittedly wretched, but marking a significantimprovement on the pre-ERM depth of minus 50. The satisfaction balance forJohn Major himself was far more striking. With an average level of plus 27, theConservative leader also remained far ahead of his Labour counterpart, NeilKinnock, both in the popularity stakes (by a ratio of almost 2:1) as well as on thespecific issue of economic management, where he held a formidable 25-pointadvantage. On this issue, too, belying their overall level of unpopularity, theConservatives maintained a considerable lead over the opposition, with a gap of17 points (42–25) compared to a lead of just 4 at the time of ERM entry (cal-culated from MORI Political Monitor, http://www.ipsos-mori.com/polls/trends;see also The Times, 7 October 1991, 4 November 1991; Guardian, 13 December1990). The government’s anti-inflationary discipline also continued to attractbroad support. The TUC eagerly anticipated that inflation would soon be reducedto German levels; a joint memo from industrialists and trade union leaders at theNational Economic Development Council called for a drive towards a rate of zeroinflation; the City remained naturally supportive of efforts to secure a soundmonetary framework; and support also hailed from the ranks of industry. JohnBanham, the Director-General of the CBI, for example, praised the government’s‘single-minded determination’ to ‘squeeze inflation out of the economy’ (TheTimes, 4 November 1991).



http://www.ipsos-mori.com/polls/trends

A Political SuccessBritain’s second year within the ERM began with renewed calls for lower interestrates from the CBI, the TUC and the City (FT, 15 November 1991; The Times, 9September 1991), provoking renewed insistence from state officials that this wasnot possible given the constraints of the ERM. Lamont remained adamant thatfurther rate cuts were not yet warranted by sterling’s position within the regime(FT, 16 September 1991), an argument also deployed by Major, who insisted thatthe positive indicators on inflation and interest rates were ‘a vindication of ourentry into the ERM’ (The Times, 10 September 1991). Leigh-Pemberton, too, wasquick to offer the Bank’s voice of support, warning that a precipitate loosening ofcredit would ‘invariably’ lead to rising inflation (FT, 19 September 1991, 3 Decem-ber 1991). In December, the government sought to further bolster its commitmentto the ERM by signing up to the tough convergence criteria and binding proceduresof the Maastricht Treaty.

Nonetheless, by the end of the year the pressure was starting to intensify. Atightening of credit conditions across Europe led to a weakening of the pound andprompted a renewed series of anti-ERM attacks. Leading the calls for devaluation orwithdrawal were the disgruntled monetarist academics, now aligned with Con-servative party backbenchers (the most prominent being Nicholas Ridley, theex-Secretary of State for Trade and Industry), though discontent from business andlabour groups was also evident (The Times, 24 December 1991, 7–8 January 1992).Peter Morgan, the Director-General of the Institute of Directors, warned that a‘realignment’ of the pound might now be required to allow for a fall in interest rates(FT, 31 December 1991), while the CBI and the TUC reissued calls for more activistmeasures to ease the effects of the recession, the former calling for tax cuts, thelatter calling for higher public spending (The Times, 8 January 1992). The electoralsituation, too, was looking grim for the Conservatives. The Labour party remainedahead in the polls, satisfaction ratings for the government had fallen back to minus33, and while the popularity of the prime minister remained strong (at plus 19), thiswas also in decline (calculated from MORI Political Monitor, http://www.ipsos-mori.com/polls/trends).

But the response, once more, was unyielding. Major dismissed calls for looser creditor devaluation as ‘quack remedies’, claiming that rates may have been up to 5 percent higher had Britain remained outside the ERM (The Times, 2 and 8 January1992); while Leigh-Pemberton roundly criticised the ‘short-termism’ of thoseseeking cheaper credit or a lower exchange rate, adding that membership of theERM had already enabled interest rates to be reduced to lower levels ‘than wouldotherwise have been feasible’ (Leigh-Pemberton 1992). In turn, Lamont derideddevaluation as ‘fool’s gold’, warning that this ‘might actually lead to higher interestrates since the markets would have no guarantee that a government prepared todevalue once would not do so again’ (The Times, 31 December 1991; FT, 2–3January 1992). Summarising the situation, John Maples, the Economic Secretary tothe Treasury, emphasised that the government would ‘continue to pursue interestrate policies that are consistent with maintaining our position in the ERM’, aconstraint, he claimed, from which there was ‘really no escape’ (FT, 29 February1992).

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An inopportune backdrop, then, for the general election of April 1992. Yet, with thecampaign dominated by the issues of tax, health, unemployment and education,the issue of monetary policy was markedly absent. Moreover, as far as most peoplewere concerned, responsibility for the recession lay not with the current ministerialcohort (blamed, according to one poll, by just one in ten voters), but with thecurrent state of the world economy and the economic policies of Lawson andThatcher (FT, 6 April 1992). Discontent with the government’s economic policies,now at the relatively minor level of minus 4 per cent, had, by this time, reached themost positive levels for four years (MORI Political Monitor, http://www.ipsos-mori.com/polls/trends).

Although it remains impossible to determine the extent to which this displacementof responsibility was due to the depoliticising aspects of the ERM, two points standout as being particularly worthy of note. First, while it could be argued that thestrong public preference for the Conservatives on the question of economic man-agement was due to discontent with the Labour party rather than satisfaction withgovernment policies, Labour’s sustained lead in the polls on almost every otherissue clearly warns against making such an assumption. The significant improve-ment in the government’s ratings for handling the economy since joining the ERM,and this at a time of steep and worsening recession, is hard to reconcile with a viewof ERM membership as having been a political disaster. Second, while it is alsopossible to argue that the ongoing pressure for a relaxation of economic policydemonstrated that the issue was not depoliticised, the real point here is one ofrelativity. Given that pressure for a more accommodating economic policy isentirely unremarkable at a time of recession, and given the impossibility of displac-ing extreme conditions such as a chronically high level of unemployment from thepolitical agenda by any method yet to be devised, the key issue is not so much thatthe government found itself under pressure to take ameliorative measures at thistime, but rather that this failed to have any significantly adverse effect on itseconomic strategy, or, more importantly, on the general perception of its politicalculpability for economic conditions as a whole.

The outcome of the election, a fourth consecutive victory for the Conservatives,immediately prompted a rise in economic confidence, strengthening the pound andallowing interest rates to be reduced to a four-year low of 10 per cent. Thisoptimism, though, proved to be short-lived, and during the summer the crisis thatwould lead to sterling’s departure from the ERM began to develop. The dynamicsof this are well known: growing uncertainty over the future of the ERM, followingDenmark’s rejection of the Maastricht Treaty and the announcement of a Frenchreferendum to follow, combined with rising German (and European) interest ratesto counter the inflationary effects of the post-reunification boom. This latter situ-ation posed a particular difficulty for the British government, with the tightening ofcredit conflicting with the domestic need to avoid anything that might furtherprolong what had now become the longest recession since the 1930s (FT, 29 June1992, 14 July 1992; Guardian, 20 and 25 June 1992).

In this context, opposition to the ERM policy began to intensify. Business concernsabout the constraints on the government’s ability to cut interest rates were becom-ing increasingly strident, as were the concerns of the labour movement, with






several high-profile trade union leaders now calling openly for a devaluation (FT,29 July 1992, 9 September 1992). Discontent within the Conservative party alsomounted as Labour moved ahead in the polls for the first time since the election,prompting Euro-sceptics to call for a complete withdrawal (FT, 17 August 1992),and with a majority of Conservative MPs now apparently in favour of devaluationto allow interest rates to be lowered (Guardian, 13 July 1992).

Nonetheless, while the political heat from the ERM rose, the Labour party, the TUCand the majority of business leaders continued to support Britain’s membership.The Director-General of the Association of British Chambers of Commerce, RonaldTaylor, for instance, slated those calling for the ERM to be abandoned just becauseit had ‘hit a spot of bother’ (FT, 24 August 1992), while the CBI’s newly appointedDirector-General, Howard Davies, insisted that the government was being ‘rightlytough on inflation’, that devaluation had ‘little to commend it’ and that abandoningthe ERM was ‘even more unattractive’ (The Times, 29–30 July 1992). In what, bynow, had become a distinctly Pavlovian response, officials too proclaimed theirstaunch support for the regime. Leigh-Pemberton declared that Britain’s commit-ment to the ERM was ‘unwavering’ (FT, 1–2 August 1992), while Major, raising thevainglorious prospect of reducing inflation ‘to nil if possible’, insisted that the ERMwould remain the cornerstone of government policy and that interest rates wouldonly be reduced ‘when we can sustain the exchange value of sterling’ (FT, 15 July1992). Lamont, announcing that rates would be put at ‘whatever level necessary’ todefend the pound, rejected proposals for lower rates, devaluation and abandoningthe ERM as ‘illusory or destined to fail’ (FT, 9–10 July 1992). More to the point, asthe Chancellor later remarked, the danger should the ERM be lost was that‘decision-making would now be seen as entirely political’ (Lamont 1996, 275).

Conclusion: Does Depoliticisation Work?As is well known, on ‘Black Wednesday’, 16 September 1992, amid rising specu-lative pressures against several European currencies, and despite desperate effortsby state officials to salvage the situation (including a dramatic rise in interest ratesto 15 per cent), sterling was ignominiously forced out of the ERM (Stephens 1996,ch. 10). The fatal damage this wrought on the governing credibility of the Conser-vative party, however, should not lead us to overlook the substantial benefits thatthe policy had provided for the government before the deluge. In terms of itsmaterial effects, ERM membership was clearly mixed. On the one hand, economicgrowth stagnated and wage growth continued to outstrip productivity despite a risein unemployment to chronically high levels. More positively, though, sterlingenjoyed a greater degree of stability in the ERM than at any other time in thepreceding decade (Chappell and Padmore 1995), enabling interest rates to bereduced by 5 per cent (prior to their last-ditch rise). Given the anti-inflationarycredibility afforded by ERM membership, and given the lack of any credible alter-natives at the time, it is almost certain that this was a larger reduction than couldhave been achieved by remaining outside the regime (Adam et al. 2001). Indeed, bythe time of sterling’s exit inflation had been reduced to its lowest level since 1986(a fall of almost 6 per cent), reaching its lowest level for 30 years by 1993 as theeffects continued, and thereafter remained consistently low, fluctuating between

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1.5 per cent and 3.5 per cent until 1997. With trade union membership alsocontinuing to decline throughout the period of ERM membership, and with morethan 50 per cent fewer new stoppages and more than 75 per cent fewer workingdays being lost from 1990 to 1992 compared to average levels over the precedingfive years, the costs of this reduction in industrial relations terms was also remark-ably low (calculated from Butler and Butler 1994).

Politically, membership of the ERM also brought distinct benefits for governmentofficials. In terms of the impact on perceptions among the main ‘barometers’ ofBritish political opinion, the ERM policy helped to ensure that the authorities werenow under less pressure over economic issues than would otherwise have been thecase. The external constraints of the regime furnished officials with a crediblejustificatory device for resisting calls for an economic policy relaxation, and pro-vided an effective means of displacing political responsibility for the downturn onto an exogenous system of rules. Despite calling for fiscal changes and cheapercredit, the main interest groups involved, namely the CBI and the TUC (as well as,it should be noted, the City and the majority of business leaders more generally)remained firmly committed to the ERM as well as its anti-inflationary goals; theBritish political class, despite complaints at the margins, remained notably insupport of the ERM until its demise was effectively complete; and the view of thegeneral public became more favourably predisposed to the Conservatives as timeprogressed. In particular, the government’s ratings on economic management andoverall levels of satisfaction improved significantly over its pre-ERM measures,facilitating a wholly unexpected return to office in the 1992 general election againstthe backdrop of a ferocious recession. Indeed, for all the claims made about thepolitically disastrous nature of ERM membership, no effective, concerted or wide-spread opposition to it began to form prior to the emergent crisis during the summerof 1992.

All of this, it should also be noted, is a far cry from the course of events that wouldhave almost certainly transpired had the Conservatives opted to remain outside theERM in the early 1990s. In this scenario, even higher interest rates would havebeen needed to shore up confidence in the pound and to avoid an inflationarydecline in the exchange rate, adding further to the recessionary pressures on theBritish economy. Reliant on discretionary measures, as they would have been giventhe absence of an alternative framework of policy rules for economic management,remaining outside the ERM would have exposed state officials to a greater share ofthe responsibility for the downturn, to a greater degree of opprobrium for its effectsand to an even higher degree of pressure for remedial action than was actuallyendured. That a discretionary form of economic management would have had farworse consequences for the Conservatives is also demonstrated by events in thewake of Britain’s exit from the ERM, the loss of a credible rule-based system beingaccompanied by a record slump in the government’s satisfaction ratings, which fellfrom an average of minus 29 for the third quarter of 1992 to an average of minus70 for the first half of 1994. Going the other way, public disagreement with thegovernment’s economic policies rose markedly, from minus 4 per cent in the springof 1992 to minus 31 per cent 12 months later (calculated from MORI PoliticalMonitor, http://www.ipsos-mori.com/polls/trends).




This analysis of Britain’s membership of the ERM is instructive on two counts. First,illustrating the way in which the constraints of the regime were used by govern-ment officials as a justificatory defence for unpalatable economic conditions showsthe effectiveness of the policy as a means of depoliticisation. For all the economicturbulence of the time, ERM membership provided a credible means of resistingcalls for a relaxation of economic policy, and enabled the governing authorities todisplace responsibility for core economic policy decisions on to an external regime.In all, ERM membership allowed state managers to deal with a range of governingproblems during the early 1990s with fewer difficulties than would otherwise havebeen possible. This assertion calls into question the conventional assumption thatthe policy was a complete disaster, and supports alternative claims that the ERMpolicy was more successful than has usually been supposed. Second, the foregoingexamination also provides empirical evidence in favour of the depoliticisation thesismore generally. By adding material content to its theoretical and conceptual frame-work, the case of Britain’s ERM membership shows how a specific depoliticisationpolicy can be unpacked, and how its effectiveness or otherwise can be assessed.Does depoliticisation work? The answer, of course, is dependent on the case inhand, but in this instance, so it would seem, it worked considerably well.

About the AuthorSteven Kettell, Department of Politics and International Studies, University of Warwick, CoventryCV4 7AL, UK, email: [email protected]

NoteI would like to thank the anonymous reviewers and the editors of BJPIR for their comments on an earlierdraft of this article.

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