I’m a big fan of Andy Haldane, Chief Economist of the Bank of England (BoE), although I’m reliably informed that he and Mark Carney, the BoE’s Governor, can’t stand each other. Haldane – surely destined for the top job, if talent were the only criterion – is one of the few central bankers who writes about highly complex matters not only clearly but compellingly. More important, he actually shifts from his desk and gets out and visits the UK’s regions. I think he’s more in touch with what’s really going on in the wider UK economy than anyone else today.
He’s that rare beast, an economist who knows the limitations of this pseudo-science. “Forming a picture of the whole economy from official statistics is rather like doing a jigsaw puzzle with half of the pieces missing and the other half slightly water-damaged,” he said in Port Talbot, South Wales, at the end of June.
Port Talbot is synonymous with steel. I made a TV documentary in 1985 about redundant steel workers there; another generation of them is today staring at the dole queue abyss.
Haldane really ‘gets it’. At Port Talbot he mentioned visiting a community centre in Nottingham where “I began by speaking about the UK’s economic recovery…I was stopped in my tracks by a forest of furrowed brows and a phalanx of probing questions, not all of them gentle. ‘What exactly do you mean by recovery?’ one asked. ‘My charity is dealing with 50% more homeless people than three years ago.’ Every other charity in the room had similar stories to tell. Whether it was food banks, mental health problems or drug addiction, all of the numbers were up. The language of ‘recovery’ simply did not fit their facts…The income of the already-rich has risen by just over 10%, while the income of the already-poor has fallen by 50%. Does the former really swamp the latter when it comes to the well-being of society?”
Original article published here.
Haldane’s speech is worth reading in full – it’s not long and nor is it dull. Like a lot of good sense recently, it’s got swept aside amid the hysteria. It’s also interesting for what it signals – an effective end to the austerity programme, in order to ensure the UK economy stands a chance of getting into top gear: “In my personal view, this means a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn. Given the scale of insurance required, a package of mutually-complementary monetary policy easing measures is likely to be necessary. And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August Inflation Report round,” he said.
Ignore that faux-deferential ‘in my personal view’; Haldane’s opinions may not sway Mr Carney, but they sure as hell carry weight in today’s Government.
Haldane’s views are echoed by a piece of research from McKinsey, in the form of a study of income inequality. Top line of the McKinsey study: “The real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014. Without action, this phenomenon could have corrosive economic and social consequences.” Some might say they already have had corrosive consequences. If we want a stable society, we need an economic policy that is inclusive and considers all people.
The UK is now at a turning point. The new Prime Minister, Theresa May, entered No. 10 Downing Street pledging to create “a country that works for everyone driven not by the interests of the privileged few, but by yours” – directly addressing households who are struggling. She suggested the placing of representatives of the workforce on all main British company boards, and imposing tighter controls on executive pay, which has become completely disconnected from performance. I did a double-take: was this a Conservative, or a Labour PM?
Cynics may carp at this; the proof of the pudding is in the eating. And government spending is likely to be as tight as ever, if only because Government revenues are as tight as ever. Which means those areas where the private sector can step up to the plate – through social impact bonds, for example – will be just as important as ever.
As far as impact investment more broadly is concerned we are likely to have a much more receptive audience in government, with ministers who understand that the way of creating a more united society is not just by top-down grand-standing directives or perpetuating welfare dependency, but by removing all unnecessary obstacles in the path of creative entrepreneurialism; the kind of business-building that works on behalf of society, as well as the business owners.
We face a period of almost unprecedented change; there is no alternative but to grab it firmly and run with it – and keep badgering Government about the vital contributions impact investment can make to building a fairer future.
Original article published here in Social Stock Exchange.