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‘Constrained Discretion’ in UK Monetary and Regional Policy

2007; Routledge; Volume: 41; Issue: 2 Linguagem: Inglês

10.1080/00343400601056961

1360-0591

Eric McVittie, John Swales,

Fiscal Policies and Political Economy

Abstract McVittie E. and Swales J. K. (2007) 'Constrained discretion' in UK monetary and regional policy, Regional Studies 41, –. H. M. Treasury claims that the notion of 'constrained discretion', which directs the effective operation of UK monetary policy, applies equally to other delegated and devolved policies, such as the use of Regional Development Agencies in the delivery of English regional policy. A 'transaction cost politics' perspective is used to argue that the delegation of responsibility for monetary stabilization raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration. In particular, the effectiveness and transparency that characterize present-day monetary policy cannot be expected in regional policy. Further, the institutional arrangements that accompany the operation of Regional Development Agencies in England should be critically reviewed. McVittie E. et Swales J. K. (2007) La notion de 'discrétion entravée' dans les politiques monétaire et régionale au R-U, Regional Studies 41, –. H. M. Treasury (le ministère des Finances au Royaume-Uni) prétend que la notion de 'discrétion entravée' qui pilote efficacement la politique monétaire au R-U, s'applique aussi à d'autres politiques déconcentrées et décentralisées, tel l'emploi des Regional Development Agencies (des agences publiques chargées du développement économique régional) dans la mise en oeuvre de la politique régionale en Angleterre. On se sert d' une 'politique axée sur les coûts d'opération' afin d'affirmer que la délégation des compétences quant à la stabilisation monétaire pose des questions concernant l'agent principal qui se distinguent de celles posées pour ce qui est de la délégation des compétences quant à la reconstruction régionale. En particulier, on ne peut pas s'attendre à ce que l'efficacité et la transparence, qui caractérisent la politique monétaire d'aujourd'hui, soient présentes dans la politique régionale. En outre, on devrait faire la critique des dispositions institutionnelles qui vont de pair avec le fonctionnement des agences en Angleterre. Agences publiques chargées du développement économique régional Politique axée sur les coûts d'opération Politique régionale Délégation McVittie E. und Swales J. K. (2007) 'Erzwungene Vorsicht' bei der Finanz- und Regionalpolitik des Vereinigten Königreichs, Regional Studies 41, –. Das Finanzministerium von Großbritannien behauptet, dass der Begriff einer 'erzwungenen Vorsicht', der die effektive Handhabung der Finanzpolitik des UK bestimmt, gleichermaßen auf andere übertragene und in Auftrag gegebene Politiken zutrifft, wie etwa auf den Einsatz der regionalen Entwicklungsagenturen (Regional Development Agencies = RDAs) zur Ausführung der englischen Regionalpolitik. Die Autoren bedienen sich einer Perspektive der 'Transaktionskostenpolitik' (transaction cost politics), um den Standpunkt zu vertreten, dass die Übertragung der Verantwortung für finanzielle Stabilisierung Fragen der Hauptvertretung aufwirft, die stark von denjenigen abweichen, auf die man bei der Delegation der Verantwortung für regionale Regenerierung stößt. Vor allem können die Effektivität und Transparenz, welche die heutige Finanzpolitik kennzeichnen, nicht von der Regionalpolitik erwartet werden. Außerdem sollten die institutionellen Einrichtungen kritisch besprochen werden, die den Einsatz der RDAs in England begleiten. Regionale Entwicklungsagenturen Transaktionskostenpolitiken Regionalpolitik Delegation McVittie E. y Swales J. K. (2007) 'Discreción limitada' en las políticas monetaria y regional del Reino Unido, Regional Studies 41, –. El Tesoro británico reclama que la noción de 'discreción limitada' que dirige la operación eficaz de la política monetaria del Reino Unido se aplique equitativamente a otros políticas delegadas y descentralizadas, tales como el uso de las Agencias de Desarrollo Regional (ADR) en la entrega de la política regional inglesa. Usamos una perspectiva de 'políticas de costes de transacción' para argumentar que delegar responsabilidades con respecto a la estabilización monetaria plantea problemas con los agentes principales bastante diferentes a los que ocurren al delegar la responsabilidad de regeneración regional. Especialmente, la eficacia y transparencia que caracteriza la política monetaria actual no puede esperarse en la política regional. Asimismo deberían revisarse concienzudamente los acuerdos institucionales que acompañan la operación de las ADR en Inglaterra. Agencias de desarrollo regional Políticas para costes de transacción Política regional Delegar Keywords: Regional development agenciesTransactions cost politicsRegional policyDelegation ACKNOWLEDGEMENTS The authors would like to thank Grant Allan, Alex Christie, Julia Darby, Janine Graham, David Learmonth, Peter McGregor, Pauline McLaughlin and the participants at the 'Regional Policy in the UK' seminar, London School of Economics, November 2003, organized by the ESRC Urban and Regional Economics Seminar Group, for comments on this and related work. J. K. S. also acknowledges financial support from the ESRC (Grant No. L219252102) under the Devolution and Constitutional Change Research Programme. Notes 1. The authors are aware that this ignores the question of whether the government's Social Welfare Function fully reflects society's interests (McVittie and Swales, Citation2003). 2. Technically the MPC has been given instrument, but not goal, independence (Debelle and Fischer, Citation1994). 3. Development Agencies generally have a much longer track record in the presently Devolved Administrations of the UK. The Highlands and Islands Development Board was created in 1965; the Scottish and Welsh Development Agencies in 1975. These agencies were dissolved in 1990 and their powers transferred to, and extended within, new statutory bodies. In Scotland these bodies adopted the new names 'Highland and Island Enterprise' and 'Scottish Enterprise'. Invest Northern Ireland, the Northern Ireland Development Agency, was created in 2002, taking on the functions previously carried out by a number of independent agencies and the Business Support Division of the Department of Enterprise Trade and Investment. However, in July 2004 the Welsh Assembly announced that the Welsh Development Agency was to be abolished and its functions taken over by the Assembly government. 4. For a more detailed account of the other key players in English regional development and their interaction with the RDAs, see McVittie and Swales Citation(2004) and Sandford Citation(2005). 5. Central to this account is the idea that imperfections or rigidities in the labour market mean that the 'natural' rate of unemployment (or NAIRU) is higher than the optimal rate in the eyes of both the government and the electorate. 6. However, Eddie George, previous Governor of the Bank of England, was rather an exception to this dictum in that he was more likely than H. M. Treasury to raise concerns about unemployment. 7. Monetary policy objectives are determined by the government and are subject to revision. Moreover, Section 19 of Bank of England Act 1998 gives H. M. Treasury legal authority to take back operational control of monetary policy under exceptional circumstances. This can occur if it is judged by the Chancellor, after consultation with the Governor of the Bank (and subsequent ratification by Parliament), to be 'required in the public interest and by extreme economic circumstances'. 8. The present paper does not investigate the important interaction between the English RDAs and their corresponding Regional Government Offices. 9. The difference in behaviour is likely to reflect both the internal procedures in place in the different organizations and the level of risk aversion of their employees, which should be mirrored in recruiting criteria. 10. For a more detailed discussion of the pitfalls involved in such comparisons, see Royal Statistical Society Working Party on Performance Monitoring in Public Services (Citation2003, pp. 17–18). 11. However, in 2001 Locate In Scotland was amalgamated with Scottish Trade International to create an organization called Scottish Development International that has a much wider focus and, therefore, less credibility as a commitment device. 12. H. M. Treasury might be delegating regional policy delivery to RDAs in order to maintain its macroeconomic credibility for non-interference. In this case, the effectiveness of regional and overall macroeconomic policy might be traded off against one another. 13. These are the government's long-term interests. Recall that the effectiveness of delegation in this case is that it rules out the use of monetary policy to generate temporary activity increases that might serve the government's short-run interests. 14. An additional, rather curious, target is 'to establish Elected Regional Assemblies in regions which vote in a referendum to have one' (H. M. Treasury, Citation2004, ch. 5, p. 1). 15. Although the government sets the MPC an inflation target, recognition of the time lags inherent in the operation of monetary policy means that effectively the MPC attempts to set interest rates so that its inflation forecast hits the appropriate target. Under these circumstances the actual inflation rate should only miss the target through the intervention of clearly identifiable exogenous disturbances. To be effective such inflation forecast targeting requires complete transparency in both the policy actions and the forecasting model (Drazen, Citation2000, p. 152). 16. The lack of agreement over the determinants of regional development in general will make identifying the counterfactual – what would have occurred had there been no regional policy – uncertain. Therefore, even ex-post evaluations of the effect of policy in attempting to achieve clearly measured targets might be legitimately challenged (McVittie and Swales, Citation2003; Taylor, Citation2002). 17. This argument also extends to the UK level where the position of the devolved authorities in delivering UK regional policy is unclear.