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April 26, 2012 7:23 pm
We are told the process of selecting a new governor of the Bank of England to succeed Sir Mervyn King, who retires in mid-2013, will not begin until the autumn. Predictably, this has only heightened speculation about his identity. I am afraid I agree with the shadow chancellor, Ed Balls, that the planned job designation is so far-reaching that only superhumans need apply. But as the job has to be filled, I will present my selections now.
A Financial Times article on April 21 named the leaders in the field as Paul Tucker, a deputy governor and career BoE official, and Lord Turner, chairman of the Financial Services Authority, followed by Lord O’Donnell, until recently cabinet secretary. Bringing up the rear are Mark Carney, governor of the Bank of Canada, and Sir John Vickers, an Oxford economics professor who headed the recent independent inquiry into banking. I know slightly – and rather like – the first three of the five, although the feeling might not be reciprocated by the time they finish this article.
There is still time for others to enter the field. But on present evidence I would award the palm to Mr Carney, who was appointed Canadian governor in 2008 and was deputy governor before that. He also chairs the international Financial Stability Board. Canadian economic performance since the onset of the credit crunch has been by far the best of the G7 leading industrial countries. This owes something to the plethora of minerals in the country, and successive Canadian governments have played a role. But some people make their own luck.
The main obstacle is that he would have to forgo his last two years as Canadian governor. Let us get out of the way the fact that he is a “foreigner”. Foreignness is a matter of degree, whatever the Home Office may say. Least foreign are people from the Old Commonwealth. Mr Carney not only has an English wife and studied in the UK. He has also forsaken golden US opportunities to return to his native Canada. A few decades ago Harold Wilson’s economic adviser, the Hungarian Thomas Balogh, vainly tried to persuade the then prime minister to appoint to the Bank of England “Nugget Coombs” of the Reserve Bank of Australia. An American would be regarded as somewhat more foreign, perhaps a little less so than the right kind of Scandinavian. However, if George Osborne tried to appoint an Italian or French person, or above all a German, he could not expect to remain in office for more than 24 hours himself.
But let us come to the serious question of why the next governor is to have so many responsibilities thrust upon him – monetary policy, financial regulation including much of insurance, credit for small and medium-sized companies, mortgage and credit-card repayments and heaven knows what else. We have come a long way since a postwar Labour chancellor said the BoE was his “creature”.
One way to explain the award of such far-reaching powers is “the Fabian-Benthamite theory of government”, a phrase coined by another Canadian, the late professor Harry Johnson. This assumed that ministers and public officials were disinterested, knowledgeable guardians of the public interest. Under this model there would be one person at the top – be it the prime minister or chancellor – to whom a few top officials, including the bank governor, would report. They in their turn would have other officials reporting to them – and so on.
An alternative model, however, is the competitive one in which, just as businessmen struggle for profits, public officials continually compete for votes, power and influence. This is not as cynical as it may seem; and public policy might benefit from such competition. The overlooked aspect of such “creative tension”, however, is that it cannot be created at will. Attempts to do so often end in disaster – as with Wilson’s ill-fated attempt in the 1960s to set up a Department of Economic Affairs to offset the Treasury but with inadequate powers.
The important thing is to resist the civil service instinct to tidy things up, and to accept the tensions and rivalries that naturally arise. This is especially so when we have no widely accepted model of how the national or international financial system works. The danger of the proposed expansion of the BoE governor’s responsibilities is that we will end up with a bureaucratic chairman figure, dependent on advice from below that will reflect the conventional wisdom of the moment. The alternative of a dictatorial figure, who claims to know it all, might be even worse.
An unlikely but welcome combination of the Treasury committee and the Labour opposition might trim some of the absurdities of the financial legislation now going through parliament. But appointing a governor from outside the British power struggle might do even more.
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