Weaponizing the Bank of England Is Bad Politics
(Bloomberg Opinion) -- There were howls of outrage when the Labour Party said earlier this year that it would force the Bank of England to set a target for productivity if it won power. Monday's announcement by the Conservative government that Andy Haldane, the central bank's chief economist, will head a new Industrial Strategy Council is similarly distasteful.
The new body “has an important role to play holding the government to account by monitoring its success delivering the Industrial Strategy and its impact on the economy,” Business Secretary Greg Clark said in a statement announcing the appointment.
But here's the rub. The “success” or otherwise of the government's efforts to update the nation's industrial strategy can't fully be captured in objective metrics. It's largely a qualitative judgment outside of the scope of data and statistics which, for example, the Office for Budget Responsibility uses in its work in holding the government accountable for its economic policies.
In the press release, Clark stresses the political: “Record levels of investment in R&D, the fastest growth in infrastructure spending in the G7, the biggest shakeup to technical education in a generation,” are his touchstones.
That degree of politicization makes the role wholly inappropriate for a supposedly independent guardian of monetary stability, which is Haldane's primary responsibility.
You can almost hear Bank of England Governor Mark Carney's teeth gritting as he dictated his I-have-to-be-supportive-but-I'm-not-entirely-comfortable-with-this quote for the press release (emphasis mine):
Productivity is an important determinant of the Monetary Policy Committee’s forecasts for economic growth and inflation. Understanding the impact of the Government’s policies on the outlook for productivity is therefore of great importance to the Bank’s work. Andy’s new role will help both to deepen that understanding and, consistent with our remit, to support the Government’s objectives for growth and employment.
Note the nuance. Carney's emphasis is on understanding the productivity puzzle and remaining within the boundaries of the existing central bank mandate. Clark's focus is on championing the government's alleged policy achievements.
Haldane – for all that he is eminently qualified to explore both the causes of and remedies for the U.K.'s faltering productivity – will struggle to serve two conflicting masters in his new role.
When Carney finally hangs up his brogues at the BOE, Haldane will be a leading contender to succeed him in the top job. It would be a real shame if he was deemed to have been too politically tainted to ascend to the governorship.
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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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