It is a strange sight to witness the governor of the Bank of England, Mark Carney, waltzing towards the smouldering electoral controversy of our times, as he did in a speech on the EU this week. He has defensible reasons for wanting to get involved, but he needs to tread carefully on political turf, since his authority rests upon his claim to not being a politician.
The whole purpose of the Bank’s independence is to keep it above the fray. A body of economic theory burgeoned after the inflationary 1970s to explain why any decision-maker who had to worry about elections would be tempted to duck tough decisions, and why they would furthermore be unable to make hard choices stick even where that was the sincere intent. There was a naked connection between interest rates and the political cycle; in election years like 1987, rates fell shortly before the votes were cast, then rose shortly afterwards.
The argument for leaving Bank policy “to the experts”, as the Blair/Brown reforms of 1997 purported to do, first overpowered the obvious democratic objection and then survived a collision course with catastrophe. Until 2007, it was assumed that the Bank could simply keep its eye on a single objective, inflation, and its steadying hand on the single interest rate lever. Then, in short order, came crisis and slump.
The Bank was soon creating entirely new instruments like quantitative easing, and new committees to deal with new concerns like financial stability. Mr Carney’s fast-evolving experiment with “forward guidance” involved effective targets for things like employment, arguably taking him beyond his narrow inflation mandate. Amid this flux, technocracy might have expected to run into political challenge. But no: when the shadow chancellor, John McDonnell, floated reviewing the mandate – in recognition of the fact that the one-target, one-tool era is over – he was soon forced to clarify that Bank independence would remain guaranteed. In an age when the people despise nobody more than elected representatives of the people, the case for apolitical central banking has hardened into the sort of commonsense which experience doesn’t shift.
Even if the Bank were meticulously independent on Europe, it would be duty bound to consider the economic implications of a British exit. Its initial impulse, revealed in an email mistakenly sent to the Guardian, was to do this sensitive work in secret. Word was always likely to get out, and it was best that it did. Mandarins can whisper in ministerial ears, as Bank officials do in Mr Carney’s. But the big decision here is not being taken by the governor or any politician, but instead by voters as a whole. So it is right that the Bank has – in the end – chosen to publish its tome of analysis so that it’s there for everyone.
Speaking on Europe in Oxford’s Sheldonian theatre, the governor claimed to be offering mere technical appraisal of the implications for the Bank’s day-to-day operations. But the rhetoric he used undermined that pose. He spoke of the UK having made a handsomely winning bet on “openness par excellence”, and argued that Europe was a big part of that. He called Britain the “leading beneficiary” of the four founding EU freedoms, which is provocative when one of these – freedom of movement – is the chief reason why so many wish to leave the club. He carefully noted that it was not only dynamism but also instability that flowed through Britain’s European links, but his peroration, which likened Wren’s “inspired interlocking beams” under the Sheldonian roof to a single market that upheld the “creativity of Europe”, wasn’t that of a neutral observer.
Much of the Carney analysis on Europe is correct. But his pitch strayed further from the factual than his intervention on climate change, and goes beyond the highly technical controversy about the currency that he stirred before Scotland’s independence vote. As the “unelected bureaucrats of Brussels” come under assault from British populists, an unelected technocrat in London may struggle to further the cause. It may not feel to this former Goldman Sachs man that he is saying anything political in hailing Britain’s “cooperative employment relations”, but as new restrictions on trade unions are ground through some will hear a voice of the elite.
It is not hard to imagine elite-led pitches self-defeating in a plebiscite. But even if they succeed, the Bank needs to take care not to get too political. It carries the political clout that it does only because it is presumed to be above politics.
