Posts Tagged ‘Economy and Society’

Pushing the BoE to the limit: what a no-deal Brexit will mean for UK exchange and interest rates

The absence of a trade agreement between UK and EU will yield further depreciations of the pound relative to leading currencies, explain Michael Ellington and Costas Milas. This will then lead to a sharp cut in the Bank of England’s policy rate and to another round of quantitative easing. In other words, a no-deal Brexit will push the Bank of England to the limit.

Prime Minister Theresa May has warned “it’s either my [Chequers] deal or no deal”. With betting odds implying a probability of 62.5% on no deal being reached before April 1st 2019, May’s warning appears to be contradicting her previous view that a no-deal Brexit would not be the end of the world, as well as Foreign Secretary Jeremy Hunt who warned of a sharp fall in sterling in response to such an outcome.

One way of looking at the impact of a no-deal Brexit is to consider its consequences in terms of an economic policy uncertainty shock. There are good reasons why such uncertainty affects the economy. Policy uncertainty motivates agents to delay investment and hiring decisions, and so leads to a decline in investment employment and total output. Further, in the presence of rising economic uncertainty, monetary policy becomes less effective. This is because agents tend to postpone decisions until more precise information becomes available, and this cautiousness makes them less responsive to changes in the economic environment, including the interest rate. Last but not least, credit rating agencies respond by downgrading the credit profile of countries hit by rising policy uncertainty.

We measure economic policy uncertainty based on articles from The Times and The Financial Times regarding policy uncertainty. We count the number of articles containing the terms uncertain or uncertainty, economic or economy, and one or more policy-relevant terms. Following from the EU Referendum result, policy uncertainty recorded an unprecedented spike in June 2016 (see Figure 1). Since then, policy uncertainty has somewhat receded; nevertheless, it remains elevated compared to its pre-2015 levels.


In new research we assess the impact of economic policy uncertainty on the effective exchange rate and interest rate differentials between the UK and our main trading partners (namely the Euro area and the US) prior to, during, and in the aftermath of the EU Referendum. This is done in the context of so-called time-varying models which are flexible enough to track the changing nature of key economic variables over time. Two key results emerge.

First, the influence of a policy uncertainty shock to the interest rate differential between the UK and our trading partners had been more persistent and contractionary in the run up to the referendum. For a given value of our trading partners’ policy rate, a shock to economic policy uncertainty a year before the referendum remained prominent 20 months after the shock was observed.

Second, the depreciation of the sterling effective exchange rate was substantially more persistent and contractionary in June 2016 than the year prior to and following the vote. In June 2016, a shock to economic policy uncertainty caused the exchange rate to depreciate by 15.8% in the year after the shock occured. Notice that in the year after the referendum the actual sterling depreciation was 9.3%.

Our results highlight the importance of economic policy uncertainty for monetary policy stance as well as for exchange rate movements. What our findings also emphasise is that, in order to hinder the influence of policy uncertainty, the UK needs to agree on a trade deal prior to its departure from the EU.

Mark Carney has warned MPs that “[f]rom a monetary perspective, we would look to do what we could to ease that [no-deal] scenario but there are limits to what we can do,”. Under the assumption that the impact of an economic policy uncertainty shock during June 2016 is a ‘best-case’ scenario of what might happen to monetary policy stance and exchange rates, the absence of a trade agreement looks set to yield further depreciations of the pound relative to leading currencies, together with a sharp cut in the Bank’s policy rate and another round of quantitative easing. Loosening the monetary policy lever through quantitative easing will also look to hinder possible downgrade pressures on the UK’s national debt, something that will most certainly be transmitted to the private sector. In other words, a no-deal Brexit will push the Bank of England to the limit.


Note: the above draws on the authors’ longer paper available here.
About the Authors

Michael Ellington is Lecturer in Finance at the University of Liverpool.




Costas Milas is Professor of Finance at the University of Liverpool.




All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay/Public Domain.

How culture theory can help us to better design and implement social impact bonds

Social impact bonds – arrangements that bring together the public, private and voluntary sectors in order to address complex social issues – are often characterised by tensions. Ruth Dixon explains how culture theory can be used to explain the dynamics between the various partners in order to improve this useful policy tool.

During a recent conference on outcomes-based commissioning and social impact bonds, I noticed some positive examples, as well as some tensions that can arise in such arrangements. Tensions, for example, between:

  • rigorous performance management vs a collaborative, cooperative approach;
  • a user-focused, flexible attitude vs working to pre-determined outcomes targets;
  • a short-term focus on cashable savings vs an innovative, preventive outlook.

Alec Fraser and colleagues from the Policy Innovation Research Unit have already pointed out the potential tensions arising from competing public and private organisational values. Here I explore how fundamental differences of outlook between the different stakeholders can go some way towards explaining such tensions.

What is cultural theory and why is it relevant?

In the 1970s and ’80s, the anthropologist Mary Douglas carried out a comprehensive characterisation of ‘worldviews’, known as the Cultural Theory of Risk. She identified four distinct worldviews based on the dimensions of ‘group’ and ‘grid.’ ‘Group’ describes the cohesiveness of a society or organisation; ‘high-group’ is tightly knit and cooperative, while ‘low-group’ is less trusting and more individualistic. ‘Grid’ describes the extent to which the organisation is based on rules: ‘high-grid’ is based on rigid rules while ‘low-grid’ has norms or conventions that are more flexible and negotiable. The combination of grid and group dimensions leads to the four distinct types shown in Table 1.

Douglas argued that societal groups tend to polarise into one of these four types rather than converging on the middle ground. This is because each type defines itself by the perceived risk of adopting other worldviews. These ideas were extended by other scholars such as Thompson and co-authors in their book Cultural Theory that was published in 1990, and others have been applied to environmental risk and public participation. Christopher Hood also discusses the potential benefits and pitfalls experienced by public organisations that embody these cultural types in his book The Art of the State: Culture, rhetoric, and public management.

Considering different stakeholders 

So how might cultural theory apply to the stakeholders involved in social impact bonds (SIBs)? Social Finance argue that SIBs align the “interests of non-profit service providers, private investors, and governments” to address complex social issues and improve the life chances of disadvantaged citizens. But what if the partners to a SIB contract do not share a world view? Can their interests be easily aligned? To put this in more concrete form, we can consider the typical worldviews of the various SIB stakeholders. The following discussion is certainly an oversimplification but serves to illustrate the potential issues.

Credit: Department for Digital, Culture, Media & Sport

The commissioner 

Consider first the commissioner, normally a central or local government organisation. Budgetary pressures and rigid procurement rules, often combined with rapid turnover of post-holders, tend to make such organisations more comfortable with a hierarchical, rule-based structure and uncomfortable with lots of flexibility and re-negotiation. Such preferences are not easily overturned despite the rhetoric of cooperation and collaboration. The ‘SIB team’ within the organisation may be convinced of the advantages of collaboration but can find it difficult to change the outlook of other parts of the organisation.

The service provider 

The service-provider, in contrast, is typically a non-profit organisation from the voluntary, charitable or social enterprise (VCSE) sector. SIBs are intended to enable more of these smaller – often local –organisations to provide public services rather than the traditional large outsourcing companies. However, the ‘worldview’ of VCSE organisations is likely to be more egalitarian and less rule-based and hierarchical than that of the government commissioner (or of large private contractors). Evaluations often highlight the tensions caused by the performance management regime that the SIB structure imposes on service providers. Furthermore, the provider may be more inclined to tailor their service to the client’s perceived needs than to the outcomes pre-determined by the commissioner.

The investor or intermediary

What about the investor (and/or the investor-linked intermediary)? The SIB rationale is that the investor pays for service provision and is reimbursed by the commissioner when outcomes are achieved. If the investor represents the private sector (though it should be noted that this is not always the case), we would expect their world view to be essentially individualistic (low-grid, low-group). The investor is meant to bring ‘market discipline’ to the contract, supporting the service provider to achieve payable outcomes. And, like the service provider, the investor may wish to renegotiate the outcomes with the commissioner if they are found to be unachievable or inappropriate.

Thus, we find in the contracting parties at least the possibility of three contrasting worldviews (hierarchical, egalitarian, and individualistic). Perhaps it is not surprising that the process of setting up a SIB is often characterised by a prolonged negotiation period and that the development of trust between contracting parties takes a great deal of time and effort.

The front line worker

So far I have not mentioned the fourth quadrant of the table. This is the ‘fatalistic’ (low-group, high-grid) world view, where rules are fixed but trust and cooperation are low. Occupants of this quadrant are powerless to alter the rules for which they are held to account, thus they tend to view the world as arbitrary and unfair. Here, it might be argued that we could find clients and (in some cases) front-line workers of SIBs. The whole success of the SIB depends on the outcomes such as jobs, qualifications, and reductions in anti-social behaviour that are achieved by the clients through their own efforts and those of the front-line staff, yet these stakeholders often have little influence at the design stage. The target outcomes tend to be set by the government commissioner and contract negotiations normally take place at a high managerial level. If the input of operational staff is not sought until a later stage, they may be faced with a fait accompli– things have already been decided – and expected to make the arrangement work anyway. And clients who do not value the same outcomes as the commissioner are less likely engage with the programme.

Of course, the previous paragraph paints a very pessimistic picture, highlighting the dysfunctional aspects of fatalism that could arise. Qualitative SIB evaluations in fact often report positive experiences of both clients and staff showing that fatalism is not inevitable or even usual. For example, in the final report for the HMP Peterborough SIB shows that a personal ‘risk and needs assessment’ for each enrolled prisoner resulting in a more responsive, flexible, and individualised service. Nonetheless, other SIB evaluations point to difficulties encountered by front-line staff being held accountable without the power to adjust or negotiate the rules of engagement even if those rules were found to be inappropriate or irrelevant in practice. Thus stakeholders who might wish to be egalitarian could find themselves pushed towards fatalism by the inflexibility of the partnership structure.

Can cultural theory help us to better design and implement SIBs?

So how does the cultural theory framework help us to understand existing SIBs and to better design and implement new ones? In my view, this framework highlights the fact that cooperation is difficult, particularly between organisations with different traditions and outlooks. Organisational culture is difficult to alter, at least in the short term, and the interests of stakeholders with different worldviews are difficult to align.

Nevertheless, there are huge potential advantages of bringing together organisations with different outlooks both in order to benefit from the insights and expertise that each can provide and to overcome the inherent disadvantages of each cultural type. By recognising and accommodating these culture clashes, SIB partners may be able to work together more effectively to address intractable public service challenges.


Note: a version of this article first published on the Blavatnik School’s GO Lab blog and is reposted here with thanks.

About the Author

Ruth Dixon is Research Fellow at the Blavatnik School of Government, an associate member of the Department of Politics and International Relations, University of Oxford, and a college lecturer in Biochemistry at The Queen’s College.



Disciplinary neoliberalism: coercive commodification and the post-crisis welfare state

Fiona Dukelow and Patricia Kennett examine the post-2008 welfare states in Ireland, Britain, and the US. They explain how each of these countries experienced an acceleration in the operation of disciplinary neoliberalism – through punitive regimes of surveillance and sanctions – and consider the implications of these contemporary welfare policies.

The Great Recession saw the unravelling of a financialised growth model into a full-blown crisis by 2008. In the aftermath, what is apparent is that financialised capitalism in unison with neoliberalism not only survived but thrived. The current configuration and integration of neoliberalism and financialisation, and their penetration into every aspect of everyday life, is contributing to a transformation of prevailing societal norms within Anglo-liberal capitalism.

In our research we suggest that coercive commodification is a social policy tool that is becoming increasingly embedded in how the instabilities of the Anglo-liberal model are governed and in how disciplinary neoliberalism evolves. Focusing on Ireland, the UK, and the US, we highlight the ways in which these processes are playing out in these three countries.

Disciplinary Neoliberalism, coercive commodification, and financialisation: making the connections

A key starting point for explaining the reconfiguration of contemporary norms is Stephen Gill’s notion of disciplinary neoliberalism which distinguishes between two specific but interrelated and reinforcing faces of power. One operates at a macro/transnational level and is associated with the structural power of capital to impose discipline on public institutions and to make governments accountable to markets. The other operates at a micro/local level, as a form of behaviour power through which individuals are controlled and disciplined.

The forms and techniques of disciplinary neoliberalism emerging from these two dimensions of power can be demonstrated in a number of ways. The mobility of capital, governance and transactional complexity have facilitated the creation of Global Wealth Chains which are a manifestation of the emerging schism between where value is created, the allocation of profits and wealth, and the differential sets of rules applied to the domestic sphere compared to the `internationally mobile people, entities and assets’. Government intervention following the onset of the Great Recession reflected and reinforced the logic of disciplinary neoliberalism and the disparities between the global and the local spheres. As is now well-known, despite the US and the UK’s latitude around monetary policy, financial markets and financial capital were favoured under quantitative easing. Particularly marked in the case of Ireland, without control of monetary policy, the ECB essentially acted as an agent of disciplinary neoliberalism whilst its wider use of quantitative easing proved a boon for the financial sector.

For our focus on the welfare state, what is significant is the way that this macro imposition of disciplinary neoliberalism has implicating effects on discipline at the micro level and the ways in which social policy is evolving post-crisis as part of the ‘fix’. The concept of coercive commodification resonates with how welfare states, and particularly liberal welfare states, have evolved and the rise, crisis, and further entrenchment of disciplinary neoliberalism post recession. For Esping-Andersen in his work on de-commodification, the emphasis was on the absence of compulsion from the way that individuals engage with the market and sell their labour. Pierson focuses on re-commodification and the dismantling of those aspects of welfare states that provided some protection from market pressures. However, he also identified that dismantling social security operates in tandem with market buffers such as tax credits/in work benefits for example, policy instruments that do not detract from the shift back to commodification, but facilitate it by mediating market exposure.

As restructuring has progressed under disciplinary neoliberalism, and driven by the way the power of (financial) capital has altered market imperatives, the state’s role in commodifying welfare has become an increasingly coercive process. Contemporary welfare policy and practice in Anglo-liberal welfare states may now more aptly be denoted as coercive commodification through which a nexus between housing, work, and welfare is being forged.  It is increasingly an orbit that is closing down any vestiges of choice and stripping back subsequent policy buffers. At the same time this is a process that is evolving with varying degrees of intensity and ideological fervour, longevity, and historical trajectories across the US, the UK and Ireland.

Embedding coercive commodification and disciplinary neoliberalism

As neoliberal ‘heartlands’, both the US and the UK’s recent evolution of coercive commodification embed already existing regimes laid down in the 1990s. The Irish case is a more novice turn, following the severity of its recent phase of disciplinary neoliberalism, which has reduced its capacity to implement compensatory social policies that tended to exist alongside a more explicitly neoliberalised economic regime. Nonetheless, in each case, the intersecting evolution of housing, work, and welfare policies erode both choices and buffers, and ‘lock in’ coercive commodification, loading insecurity on the low paid, a status which cross cuts with other bearers of inequality including age, lone parenthood, and membership of black and minority ethnic groups. And, as social safety nets evolve in more punitive ways, with distinctions in eligibility made between those in (low) paid work and those without work, an emerging opposite effect is the ‘lock out’ of marginalised individuals from access to decent work, welfare or housing that protects them from destitution.

Such patterns are most extreme in the US where the commodification of housing support has reached a point where publicly provided housing has practically disappeared and much of the welfare regime rests on income and housing tax credits which favour those in work. Yet such measures hold people within insecure situations given the fact almost half of all renter households count as rent burdened whilst the US economy’s sizeable low paid sector shows no sign of abating. Conversely, ‘extreme’ poverty is now a phenomenon in the US amongst people no longer eligible for welfare and essentially locked out of the system.

Trends in the UK track elements of the US experience, as the erosion of the benefit system since the 1980s has been replaced by an increasingly punitive regime of surveillance, sanctions, and deterrence whilst the recent evolution of tax credits to the universal credit system heralds a tougher regime. Such changes intersect with the coercive commodification of the social housing system, where housing need is increasingly channelled into the private rental sector under a tightened Housing Benefit regime, with reforms under the Localism Act 2011 diminishing the security traditionally attached to publicly provided housing.

Though not as punitive as the US or UK examples, recent changes in Ireland bear the imprint of coercive commodification. Not least of which is the shift to reliance on a poorly regulated and increasingly financialised private rental market in place of publicly provided housing. This has heaped housing risk and insecurity on renters and is directly fuelling growing homelessness. At the same time, a more coercive turn is emerging in the social protection system including a new sanctions regime instituted in 2010 to address what was considered a poorly policed system.

Resisting disciplinary neoliberalism

Of course, none of what we have identified here is occurring without conflict. Whilst disciplinary neoliberalism attempts to shrink the space and opportunity for resistance, it is also a driver of conflict between classes, cultures and lifestyles, and political groupings, generating macro- and micro-level revolt against global elites and institutions, as well as localised responses to and protest against single issue campaigns.

In all three countries, both traditional and new social movements have given voice to alternate narratives of ‘austerity capitalism’. In the UK and the US, Brexit and the election of Trump are, amongst other reasons, associated with increasing distrust and disjuncture between international institutions, domestic political elites, and the erosion of public services, and particularly to the increasingly obvious bifurcated and exploitative nature of Anglo-liberal globalisation. Through such dynamics, forms of protest are emerging to destabilise and disrupt contemporary Anglo-liberal capitalism and with the potential to shape its future trajectory.


Note: the above draws on the authors’ published work in Critical Social Policy.

About the Authors

Fiona Dukelow is Lecturer in Social Policy at University College Cork, Ireland.




Patricia Kennett is Professor of Comparative and International Policy Studies at the University of Bristol.





All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

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