The appointment of Mark Carney, the governor of the Bank of Canada and chairman of the G20’s financial stability board, as the new governor of the Bank of England is welcome. I don’t agree with much of anything the Chancellor does but this time is different. I congratulate George Osborne for getting his man. The appointment is a triumph for him.
The Labour Party was rightly supportive. Carney has a degree from Harvard and a Master’s and doctorate from Oxford. He previously lived in the UK for a decade, so he is no stranger. He will move to England with his British wife and four daughters and will apply for British citizenship, which one suspects won’t be a problem. He has had a distinguished career, including time at Goldman Sachs and the Canadian department of finance, and his actions appear to have played an important role in helping Canada perform better than any other G7 country during the financial crisis. Unlike the UK, Canada has a small population and relatively little investment banking, but Carney appears to have the training and the smarts to learn fast.
Little white lies
Just like me, he did not apply for the job he eventually got at the Bank. The announcement came as something of a surprise but we had an inkling of what was coming on 26 November when, with an hour’s notice, Jim Flaherty, the Canadian finance minister, called a press conference for exactly the time Osborne was making his announcement. Carney had denied he was interested but that is understandable, as it was potentially market-sensitive information, especially if he didn’t get the job. Central bankers have to be able to tell white ones with a straight face.
Bringing in an outsider was always the right thing to do, as Alistair Darling recommended months ago, given the failings at both the Bank of England and the Financial Services Authority. The failure of Northern Rock and the Royal Bank of Scotland appears to have been a complete surprise, and the Bank failed to spot a huge asset bubble and acted too late to prevent disaster.
The last thing we needed was for the bookies’ favourite, Paul Tucker, deputy governor of the Bank, to get the top job. He had failed to spot the recession or the double dip and was finally done in by his problems over the fixing of the LIBOR rate. Other contenders did not have Carney’s credentials; none would have received the universal acclaim that greeted his appointment.
Carney faces a huge task, not least because the economy remains in the doldrums. On 26 November, the OECD predicted that the UK economy will contract by 0.1 per cent this year, which implies no growth in the fourth quarter (and this may well be optimistic). It seems unlikely that much will have changed by the time the new governor takes over in June.
The biggest task that Carney faces will be to bring together financial regulation and monetary policy under one roof. How this is to be done, including how the Financial Policy Committee will operate, has yet to be determined. He has to create most of the new structures from scratch.
One of his great strengths, in contrast to the present governor, Mervyn King, is that he is said to be a half-decent manager of people. Carney will have to devolve power and, I hope, encourage dissent and bring in his own people. Groupthink needs to be tackled at the Bank of England. Carney’s problems are only just beginning. I wish him all the best.
David Blanchflower is economics editor of the New Statesman