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Mark Carney is a globalist’s globalist. To say the least, this seems never to have held him back in the past. His luck may be changing.
Born in Canada and educated at Harvard and Oxford, he worked for Goldman Sachs in London, Tokyo, New York, and Toronto, before going into public service. His wife is British and his children have both Canadian and British passports. Reflecting his Irish ancestry, he himself holds Irish as well as Canadian citizenship. After a brief spell as governor of the Bank of Canada, he was appointed governor of the Bank of England in 2013 – the first non-Briton to hold the post in the bank’s more than 300-year history.
In the UK’s bitter so-called Brexit debate (about whether to exit the European Union), Carney has been doing Trojan work terrifying any voter who might vote Leave in Thursday’s referendum.He has warned, among things, that Brexit could tip the UK into recession, send the pound reeling, reawaken inflation, and throw countless workers on the dole. In so doing, he has provided invaluable “independent” support for an increasingly outrageous scaremongering campaign by Prime Minister David Cameron as well as finance minister George Osborne and other leaders of the so-called Remain camp (those who want to stay in the EU).Carney has even appeared on one of the big British Sunday current affairs programs to bring his Brexit warnings into every living room. This teed things up nicely for Osborne, who a few days later announced that, in the wake of a Leave vote, a punishing emergency budget would have to be enacted in a supposedly desperate attempt to shore up foreign confidence.
In pandering to the Remain camp, Carney has come in for a particularly bluntly worded – by British establishment standards – reprimand from four elders of Cameron’s own Conservative party. In a letter to the London Telegraph, former finance ministers Nigel Lawson and Norman Lamont and former Conservative party leaders Iain Duncan Smith and Michael Howard wrote: “There has been startling dishonesty in the economic debate, with a woeful failure on the part of the Bank of England, the Treasury, and other official sources to present a fair and balanced analysis. They have been peddling phony forecasts and scare stories to back up the attempts of David Cameron and George Osborne to frighten the electorate into voting Remain.”
Irrespective of which way the vote goes, Carney looks dangerously exposed. Although he claims that the Bank of England has a duty to make itself clear on the alleged consequences of Brexit, the fact is that the bank has a long tradition of staying out of political debates. In particular in the run-up to general elections, it has scrupulously avoided offering any hint of its views on the merits – and sometimes alarming demerits – of the competing parties’ economic programs. In any case, as the prominent Brexit campaigner Bernard Jenkin has pointed out, Carney’s Sunday program appearance clearly crossed a line.
If the British do vote to leave, would this prove, on balance, as bad for the British economy as Carney seems to think? Any honest answer should be prefaced by a mention of the dangers of making forecasts – particularly about the future. Carney might also mention that the Bank of England’s own forecasting record has been spotty at best.
A reasonable guess is that the many economic pluses and minuses of a Brexit decision would broadly balance out. The fact is that a post-Brexit UK would enjoy enormous bargaining power to negotiate an even more favorable free-trade deal with Brussels than that already enjoyed by such super-prosperous non-EU nations as Switzerland and Norway. Thus the Brexit option is less a matter of economic consequences than political ones, and in particular the issue of national sovereignty (and such related matters as immigration from Eastern Europe, which is a hot topic for many Britons).
The irony is that some of Carney’s predictions may prove right – but just not in the baleful way he has suggested. Carney and his colleagues have warned, for instance, that a Brexit vote could precipitate a fall in house prices. There is less here than meets the eye. House prices in the London region are already grossly inflated and are evidently in the later stages of a giant bubble. Irrespective of which way the Brexit vote goes, they are likely to take a tumble in the years ahead – and such a development would be far from unwelcome for millions of ordinary would-be home buyers who have long been priced out of the market. An additional irony is that the main reason house prices have become so inflated is that the Bank of England has been remarkably lax in controlling home loan debt.
Carney has also forecast that the pound, which has already weakened considerably in recent weeks,could take a major hit in the event of Brexit decision. Again this may be proved right – but a drastically lower pound would, on balance, prove a blessing in disguise. After all it would provide a badly needed boost to exporters and help severely challenged domestic producers compete with imports.
The pound has had a long history of overvaluation and, as is obvious to anyone who has taken a look at the UK’s now disastrous trade trend, the problem has become particularly acute in recent years. The UK’s pattern of consistent deficits dates to as far back as the early 1980s and has long run even higher as a percentage of national income even than America’s.
According to economics commentator Liam Halligan, the current account deficit had already reached a shocking 3.5 percent of national income in 2012. It rose to 4.7 percent in 2013 and to no less than 5.9 percent in 2014. As Halligan points, this latter figure was the worst performance in the UK’s history. And with the exception of the desperate circumstances of war and the immediate aftermath of war, it was probably the worst of any major nation ever. Last year’s figure, at 4.7 percent, was a slight relief but in the larger context was still disastrous.
All the evidence is that the UK has become structurally dependent on an unsustainable level of imports. Not only has this exacerbated its chronically severe unemployment problem but a further alarming consequence is that more and more of the commanding heights of the British economy are coming under foreign ownership. The implications for British sovereignty are bleak. For a telling article on the extent to which the British economy had already come under foreign ownership by 2012, click here.
What has the Bank of England been doing to raise the alarm? And, even more to the point, what has it been doing to counter the trend? The answer in both cases is next to nothing. Whereas Carney and his institution have chosen to play a central role in the Brexit debate, they have been virtually invisible on the balance of payments problem and, if anything, they have helped enable the trend. Last summer Carney pronounced the current account deficits “not an immediate cause for alarm.” A month later, Ben Broadbent, the Bank’s deputy governor for monetary policy, further fed public complacency by suggesting the UK had been savvy in borrowing abroad to fund investments.
One interpretation of Carney’s approach is that he is a doctrinaire globalist – the sort of person who cares not a whit about national interests, not even the interests of the nation that now pays him more than $900,000 a year to oversee its central bank.
One thing is clear: various vested interests that have figured in his past – and may figure again in his future – can be well pleased with his performance. Certainly he has been singing their song.
Take Goldman Sachs. Carney’s notorious former employer has been in the forefront of the scaremongers, predicting that a Leave vote would not only trigger a 20 percent devaluation of sterling but threaten banks and house-builders. It may not be a coincidence that, as the Wall Street Journal has pointed out, Goldman Sachs has a lot of skin in the game, not least because it is currently building a vast new $500 millionLondon headquarters for its European operations.
Then there is the Japanese establishment. Given that Carney’s early success dates in no small measure to a spell in Goldman’s Tokyo office, it is interesting to ask how his Japanese friends see the vote. The answer comes as no surprise to anyone with significant Japan watching experience (I worked in Tokyo for 27 years). The Japanese establishment is strongly pro-Remain. Though Japanese corporations couch their case in terms of what is supposed to be best for the UK, it is probably not a coincidence that Japanese mercantilists have found that the fractured and polyglot European Commission is a breeze to deal with. By contrast, a solidly led UK that was free to pursue its own independent trade diplomacy might not prove such a pushover. The fact is that though protectionism is integral to the Japanese economic system, Brussels never seems to have noticed. When did you last hear it protest even such an obvious scandal as Tokyo’s virtual total embargo on imports of foreign cars?
This is not, of course, to suggest that Carney has been consciously dancing to Tokyo’s tune. It is worth noting, however, that nothing is more revelatory of the depth of Japan’s commitment to mercantilism than a few years’ residence in the country. For a foreign investment banker to survive there, let alone to take his career to the next stage, it is necessary to hold tight to the mantra that “trade does not matter.” Even better, one should go around proclaiming that nations that protect their markets “hurt only themselves.” The fact that the success of the whole of the East Asian region – not only that of Japan, but of South Korea, Taiwan, and now China – stands in silent contradiction of this view must be studiously swept under the rug.
A further consideration is what the Germans think. Like Japan, Germany sees the virtues of one-way globalism: it insists that other nations open their markets to its exports while maintaining a tissue of unobtrusive barriers to imports. Although the EU was supposed to provide a level playing field, that playing field has long been quietly tipped in Germany’s favor. Thus while the UK has scrupulously opened its markets to other nations (not least to Germany), Brussels has turned a blind eye to German protectionism. Even as the UK has incurred ever greater trade deficits, Germany has racked up ever greater surpluses. So much so that Germany last year enjoyed a current account surplus equal to 8.5 percent of national income. This was one of the best performances of any major nation in history – actually little short of astounding (Germany’s surplus was nearly as high in money terms as that of China, a mercantilist nation with more than fifteen times Germany’s population).
Of course, this is not to suggest that Carney has been any more conscious of facilitating Germany’s agenda than Japan’s. But the Germans, like the Japanese, have an interest in promoting the rise to ultimate leadership of true globalists in other nations. In that regard, it is worth recalling that Carney attended the annual meetings of the pro-German Bilderberg Group in 2011 and 2012. A reasonable guess is that he would not have been invited had his views been considered problematical for German trade policy. (The Bilderberg Group was founded in the 1950s by, among others, Prince Bernhard of the Netherlands, a German-born former executive of IG Farben who displayed notable Nazi sympathies in the 1930s.)
What we are left with is a remarkable dichotomy. On the one hand, there is Carney’s almost total silence on the concrete reality of a UK balance of payments problem that is unprecedented in the history of any major First World nation. By comparison the economic management of the Ottoman empire in its dissolute last decades seems a model of economic rectitude.
On the other hand, there is Carney’s straining at the leash to forestall a Brexit vote that, while it may engender some uncertainty in the short term, will come with major long term opportunities (in allowing the UK to negotiate its own made-to-measure trade deals with, for instance, China, India, and the United States).
What explains this dichotomy? For now, almost no one seems to be asking. It is, however, a question that may bulk large in Carney’s future.
Eamonn Fingleton is a commentator on global trade. He is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999).