Lunch with the FT: Adair Turner

Over sea bass and ravioli, the former head of the FSA talks about Brexit, his mistake with the euro and why George Osborne is ‘a bit of a gambler’

Listen to this article

00:00
00:00
© James Ferguson

I arrive at Cecconi’s on time, just after 1pm, to find my guest is already seated, drinking a Virgin Mary. It is a fitting venue. Cecconi’s, in the heart of Mayfair, is a celebrated meeting house for barons of finance and politics, the two worlds in which my guest’s career has evolved. Jonathan Adair Turner, or Baron Turner of Ecchinswell to give him his title, is the UK’s technocrat for all seasons, a British version of a French énarque. He embodies the international economic and policymaking elite — at a time when many Brexiters and Donald Trump supporters see this as the ultimate term of abuse.

Even before ordering, we have to touch on the Brexit campaign. At the time of our lunch, polls still put the Remain camp in the lead. Michael Gove, one of the more articulate advocates of Brexit, has just been lampooned for citing Albania as a model for a possible looser relationship with the EU. “Gove must be kicking himself for having mentioned Albania” Turner says and agrees with me that, at this moment, the Leave campaign “seems not to be in good shape”. But, he rightly adds: “You can’t assume that will last.”

We catch the eye of a waiter. Turner chooses a watercress salad, followed by sea bass. I choose quail eggs and crab ravioli. Neither of us drinks wine at lunch. Turner, who is 60, has been a banker, a director of the McKinsey management consultancy, director-general of the Confederation of British Industry and head of the Financial Services Authority, the now-disbanded financial regulator. I suggest that leading the CBI, which he did between 1995 and 1999, was one of the world’s worst jobs. “The CBI, when I took it over, was in danger of going bankrupt,” he says. “It employed 300 people, but only needed 200. So I worked out how to run the thing with 225 people, increased pay, invested in IT, renegotiated the lease, and persuaded the top 50 members to pay five years of subscriptions in advance.”

He adds: “I was terrified that the Telegraph, which was sniping at the CBI for being too pro-European, would find out that we were also struggling financially and would write articles about it before I solved the difficulty.”

“Incompetent CBI going bankrupt” stories? “Yes, not only pro-European, but incompetent.”

In 2000, a year after he stepped down from the CBI, Turner became a vice-chairman at Merrill Lynch, which, like the rest of Wall Street, was then enjoying boom times. “To be blunt, these extraordinary roles at investment banks are entirely ambassadorial: they pay ludicrous amounts of money for opening doors,” he says. It was around this time that he started to become engaged in public policy, ending up as chairman of the Low Pay and Pensions commissions that advise the Labour government.

So what does he think of the current chancellor George Osborne’s decision to introduce a higher “living wage”?

“There is some opportunity to increase the level of the minimum wage,” Turner says. “But I would be cautious. The answer to inequality at the low-wage end has to be a combination of the minimum wage and in-work benefits. Also, I disagreed with the process . . . ”

Osborne could have asked the Low Pay Commission to consider this option, I argue. “Yes, precisely.” The chancellor, he agrees, is “very high-handed. And he likes gambling. I was amazed to learn that his uncle [the late John Aspinall] used to run Aspinall — the casino. I’ve often said George was a bit of a gambler but I didn’t literally mean it.”

By now, we are eating our second courses. What, I ask, are the most important ways in which his views have changed? He starts with his earlier support for the euro. “In terms of economics I went through a move in one direction that went far too far. That led me into making the biggest mistake that I’ve made, which was supporting joining the euro. Then I moved back.”

He goes back further, to the mid-1970s, when he obtained a double first in history and economics at Cambridge. “I was undoubtedly a Keynesian. I thought his General Theory of Employment (1936) was fascinating. I was also wrong then on some things. I believed in prices and incomes policies and I now think those simply don’t work. And I went through a sort of drying-out process in the early 1980s.” He became convinced, he explains, that macroeconomic stability could be secured by rigid rules and “so what matters is supply-side efficiency. The euro was going to make it easier for people to invest without exchange-rate risk and so would produce a higher level of allocative efficiency [when production reflects the preferences of consumers]. That was clearly wrong.

“Actually, I changed my view on that much faster than people may have realised. In 2003 I wrote an article asking, ‘What happens inside the eurozone if we have a banking and deflation crisis?’ Then the financial crisis drove me back to thinking about the macroeconomics of money and debt and, in the process of doing that and also researching my book [Between Debt and the Devil (2015)] I found myself returning to things that I had thought about 40 years ago.

“I’d never believed in the efficient market hypothesis or the rational expectation hypothesis. But I’d forgotten that banks create credit, money and purchasing power and that they can create too much. But once you return to the fundamentals, you realise that it’s very dangerous to construct a currency union that doesn’t have enough of a political union to make it work.”

Should they dismantle the eurozone?

“Break-up would create major disruption,” he replies. “I still hope it will stay together and go down the required federalisation route. But, if it doesn’t, then maybe it should break up.”

How far, I wonder, should the euro disaster be part of the Brexit debate?

“I don’t think it should,” he says, “because we are not in the euro. What I do think is that, as long as we stay in the European Union, we need to be much clearer than we were in the past that there are at least two layers to Europe.

“In the past, there was a deep schizophrenia in British politics about Europe; not wanting to be part of a federalist project, but almost trying to stop them. But there was a crucial speech by George Osborne three years ago that said: the eurozone must federalise, we’re very happy for you to do that.”

I turn to migration. He shares my view that it is problematic if unlimited. “If immigration were the only issue, I could be a Brexiter,” he says. “The British population is forecast to go up from 63m to 74m by 2040. If you ask people what is the biggest determinant of their standard of living, often it is the length of their commute. Some people say, ‘Oh, we’ll just build on the greenbelt.’ But people love the greenbelt. I think large-scale immigration of people who are willing to work in unskilled jobs also probably reduces the wage rate of the people who are there already. And you can’t control your borders, unless you’re out.”

Nevertheless, he concludes, “I think the economics, apart from immigration, are clearly for staying in. I think there’s a political case that, however frustrating it can sometimes be, we should be part of a Europe attempting to get to joint points of view on the environment, and so forth.”


Turner inherited an interest in politics from his father, a Labour supporter who during the second world war was a conscientious objector. “He just had a logical argument, which he showed me. It was a statement of pacifism. He maintained that from 1939 to 1941. He then said, ‘Look, I’ve changed my mind. Will you now conscript me?’ And they said, ‘Well, we can’t because you’ve got an unconditional discharge.’ So he then volunteered and was in the navy for the last four years of the war. The way he used to put it, jokingly, is that by 1941 he was beginning to get worried Hitler might win.”

At Cambridge, Turner was president of the Union, chairman of the Conservative Association and a member of the Tory Reform Group, the “wet” end of Toryism. “I was a Tory because I was an anti-socialist.” This was between 1974-78, just before Margaret Thatcher won the first of her elections in 1979. “I felt that trade unions were too powerful. My views haven’t changed that much. I’m not a socialist, I don’t believe in a planned economy. I believe in a market economy, but I believe we need to do lots of things to make the market economy work, socially and environmentally.”

So does he now think trade unions are too weak? “Yes I do and actually I think that’s one of the ways my views have evolved. I’ve ended up believing that one of the things you do need for a balanced society is more balance in labour-market negotiations.”

Did he see himself, at university, as a future prime minister? “No,” he responds. “But I thought I might be in the group of people who were considered for that. But then, in 1981, I left the Conservative party and I joined the Social Democratic party. It wasn’t that Thatcherism was more hardline than I’d expected. It was that the SDP was where I’d probably have gone if it had existed four or five years before.”

He adds: “The way I decided I couldn’t be a politician was that, later in the 1980s, when there was the split between the Owenites [followers of David Owen] and the Ashdownites [followers of Paddy Ashdown], I made the mistake of going with David Owen into a space so pure that the entire party could agree with itself, but there were about 10 of us.”

I ask what really keeps him up at night. “One thing we don’t often talk about is population. If you look at the UN forecasts, from 2008 onwards, of the 2100 population of the world, it keeps on increasing. They had it down at around 9bn and it’s now up at around 11bn. The place where population growth has come down more slowly than anticipated is Africa. I’m very worried about Nigeria, which has gone up from a population of about 40m to 180m now. By the end of the century, it could be 600m.

“If you were to take Central and South America’s population growth over the past 50 years and ask what percentage of that increase moved to North America, and apply the same percentage to the forthcoming increase in the African population, you could believe there would be net immigration flows into Europe of three to five million a year, decade after decade. So I think that is a huge issue.”

I order a double espresso. Turner has a macchiato. He has just become chairman of the Energy Transitions Commission. Its aim, he explains, is to help deliver even greater reductions in emissions than agreed at last December’s climate conference in Paris, while ensuring emerging countries are still able to grow quickly. Has he been surprised by the stubborn persistence of climate scepticism? “Yes,” he replies. “They were hanging their hat on the supposed pause, which was always explicable by the fact that 1998 was an extraordinary peak. This then created an artificial pause. Any classical statistical technique shows that this is evolving pretty much as the climate models say it will.”

In the long run, the solution must be solar energy, he suggests. “But I don’t think there’s a silver bullet in the short term. You have to do lots of nitty-gritty things. Several billion people are going to move to cities over the next 50 years and whether they’re designed in dense high-rise with public transport systems running on clean electricity or American-style suburban sprawl, would make a huge difference.”

We turn to finance. Turner once described some of its activities as “socially useless”. As the person who took over at the FSA at the height of the financial disaster in September 2008, can he tell the public that we’re not going to have to live through another crisis like this?

“The likelihood of something very much like 2007-08 is appreciably diminished. The financial system itself is significantly more robust than it was then, essentially because we significantly increased the amount of capital. People sometimes fail to realise how big this is because we started with almost nothing.

“Was it enough? The answer is that, if I were the benevolent dictator of a greenfield economy and had to worry neither about agreeing with all my international counterparts nor about the transition from A to B, I’d set bank capital at about 20 to 25 per cent of the balance sheet. In my ideal world, banks would normally run with over 20 per cent equity . . . if they fall below 20 per cent, we intensify supervision; if they fall below 15 per cent, the government has the right to nationalise them without compensation.”

But macroeconomic stability still depends on creating more debt than we can easily handle. “Precisely,” he says. “We are in the absurd position where we have so much debt that we can only afford it by having interest rates at zero, which creates an incentive to create some more debt.”

Overall, he concludes, “the financial system is safer, with the exception of the Chinese financial situation”.

It is the next shoe to drop, I suggest. He agrees. “The counterargument is that at the moment most of it is within China, but the more they liberalise the capital account, the more that huge debt pile links to the rest of the world.”

So if he were tsar of the world economy, what would he want to do? “If one could do it on a co-ordinated basis, one should do a co-ordinated, simultaneous, money-financed fiscal stimulus. I would definitely do it in Japan.”

Ultimately, Japan, “one of the richest countries on earth”, doesn’t worry him too much. “Whereas the eurozone really does worry me because it is a society of large and imperfectly integrated ethnic, religious and cultural minorities, large and to a degree uncontrolled migration flows, still-too-high unemployment and huge internal imbalances.”

I stress my growing concern about the west’s political fragility. Will “the centre”, famously discussed in Yeats’ “The Second Coming”, hold, or will extremes again take over?

“I think the fragility of a liberal order is the other thing I’ve learned,” he responds. “I was once a confident optimist and rationalist. I also used to believe that everybody could be persuaded by rational argument. I’ve increasingly realised that people need mythologies, people need nationalisms and people need religions. How people get identities that provide emotional enrichment, without ending up with dangerous forms of extremism, is quite problematic.”

He asks me whether I have read Steven Pinker’s optimistic book on the decline of violence. I reply that we’re one big nuclear war away from this turning out to be completely wrong. “Absolutely,” he responds.

After this sobering end, I ask for the bill. While I am paying, Turner says he has to run. I pay and then run myself.

Martin Wolf is the FT’s chief economics commentator

Illustration by James Ferguson

Letter in response to this article:

Eat, drink and keep up the culinary spirit of Lunch with the FT / From William Seccombe

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.