Accessibility links

A big mistake was made after the Second World War. The UK Government and its officials convinced themselves that they could co-ordinate a peacetime economy just as well as they had a wartime economy. Except now the goal was to be stable prices, a strong Pound and full employment instead of military victory. In short, the Government was to play the central role in delivering a sound and growing economy for the good of the country and its citizens. It all unraveled in the 1970s as the British economy tanked and by the 1980s many of the features of this post-war approach were being ditched.

But it didn't die entirely. Politicians believed that one lever still worked: control of money and interest rates which could be used to prevent inflation at times of growth and to stimulate the economy when things were slow. Then it was decided that that approach was flawed because politicians couldn't be trusted not to mess around with interest rates to win votes so the lever was handed over to the Bank of England in 1997. That seemed to work reasonably well until we got to 2008 when all hell broke loose.

Last night Mark Carney, the Governor of the bank of England, signaled the next stage of this long search for economic stability. It was a mightily important speech (much more important than the short term measures George Osborne will announce today).  Carney says that the Bank will no longer focus solely on prices but will have a much broader remit. It will deliver sound money; it will ensure individual banks are trustworthy; it will prevent systemic crises like that of 2008; and it will help British banking to drive national and global growth.  The bank will also use the "synergies" between these different goals to achieve its overall mission to "contribute to the good of the people".

So effectively we have come almost but not quite full circle. The economic levers are now being pulled in Threadneedle Street rather than Whitehall and the focus is not as broad as those of the post-war governments but the notion that officials working for a central institution can have a major impact on the general health and direction of the economy is back.

Sadly, the view is even more wrong-headed today than it was in 1945.  This is a world where power is drifting away from big, centralised institutions not to them. As Moises Naim has charted with exceptional clarity, growing complexity, mobility and individualism mean governments, corporations, armies and churches are failing to achieve what they want far more regularly than in the past.

Central Banks can't escape this trend.  The recent rise of crypto-currencies, dark pool trading, peer to peer finance, and the rise of new financial centres show that the world of money is no more protected from the growth of creative and disruptive micro-powers than any other area.  Rewriting missions, shuffling your top team and streamlining your committee structure won't change this truth.

I fear Mark Carney is an analogue Governor for a digital era as David Cameron was fond of saying in a different context.


Be the first to write a comment

Please login to post a comment or reply.

Don't have an account? Click here to register.