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Bank of England’s Chief Economist on populism, QE and the “lost decade”

Speaking at the Institute of Government, the Bank of England’s Chief Economist, Andy Haldane, discusses the state of the UK economy, technology, populism and our time of “extraordinary” monetary policy

The last ten years represent a “lost decade for productivity in the UK,” according to the Bank of England’s chief economist Andy Haldane. Speaking in conversation with the chair of the Institute for Government, Bronwen Maddox, Haldane covered a broad range of economic themes, including AI, business management and central banking perception.

Having referenced the common perception that money printing is responsible for higher economic inequality, Haldane addressed a question from Glint Perspectives on whether the money printed by QE, led to a rise in populist politics around the world:

“If I answered ‘Yes’ to the question ‘has QE caused populism,’ there’s my headline right? So the answer’s ‘no’. The answer is an honest one from a central banker. I was genuinely open minded about this question of ‘has QE had seriously adverse inequality/distributional implications for certain cohorts?’ With all the data, very, very granular household data, not just on their finances but on their happiness and their subjective well-being – many months and many exhaustive searches later – I am convinced, admittedly for myself, that our actions have not been a big contributor.”

One plausible suspects for a rise in populism is technology he said: “In fact, one reason why inequality in the UK, both wealth and income, has not worsened on most measures is partly because the penetration of industrial robots in this country is far less – so technology has been a cause of inequality but not so much in this country… but for perversely bad reasons.”

Other reasons, according to IMF research are globalisation and the financial crisis itself. “After every recession we tend to have a populist lurch right and after every financial crises that is particularly long-lasting.”

However, a blurry comprehension of the impact of QE remains. Haldane referenced the bank’s “understanding problem” and the perception of inequality that pervades in society following the financial crash and the extraordinary coping methods of money printing which, on the surface at least, appear to not to have aided those in the economy’s lower echelons.

“It would be astonishing if more questions were not being asked of institutions,” said Haldane. In response to the charge that QE had fuelled a house-price bubble while supressing wages and increasing living-costs for the majority, he said that all policy measures represented a level of distribution, “either between you and I today, or you and I today and someone else tomorrow”. “Of course, when we change the interest rates it alters distribution of income between borrowers and savers. Of course, when we exercise QE, that has a wealth effect. That’s how it’s meant to work.”

In defence of QE, Haldane said unemployment rates would still be at 8% and 1.5 million jobs would not have been created without it. “If I could send you a personalised score card of how the loosening of monetary policy over the last 10 years affected your income, your employment and your happiness… I could tell you how much happier the Bank of England have made you.” But Haldane conceded good communication of where and how money was being spent was lacking.

The UK’s growth goblins

The Monetary Policy Committee member highlighted continued sluggish growth at around 1.5% since the financial crash, underpinned by low productivity and a problematic output gap. “Current projects are at 1% productivity growth – at one level that’s even a titch optimistic.”

However, Haldane did extend the slowdown to other economies and to an overall ongoing productivity drop in effect since the 1990s. In the UK he picked out a disparity in management skills, as the reason for repeated poor growth figures.

This has led to “superstar” companies which have become global leaders and a distinctly unlean middle tier of poorly led companies and management creating a “significant impediment” to discovering how they could remedy their unproductivity. By contrast he complimented company boards diverse in experience and the digital infrastructure of some firms who could digitally clone themselves in order to test business models.

Distribution dividends

Haldane emphasised the importance of a cohesive industrial strategy in public policy and of robust infrastructure; while also saying recent proposals by Labour’s Shadow Chancellor John McDonnell for firms to give employees shares had merit in debate: “We know that firms that are employee led perform relatively well compared to those that [are] not. Do we think that the current balance of interests within a firm, are appropriately weighed in our model of a modern PLC? We’ve repeatedly asked questions about whether it is and whether a more plural sense of purpose for a company might not make some sense: For example, to try and encourage more profits to be retained in the business, invested, rather than distributed to shareholders.”

“I think there’s a set of open questions around governance and recognising the plurality of stakeholders – shareholders, clients, workers and wider society – that bears careful reflection.”