That was my reaction to the Mais lecture. As well as seeming to me to be what the title of this post suggests, the relaunch was at the same time surprisingly, and almost unreadably dull, plodding through several management cliches about Oneness and synergies. And it was quite an anti-climax, after the extraordinary step of the high-profile employment of McKinsey.
Despite the grandiose theme of Bank Oneness, the changes seemed, plausibly, to have quite different imperatives.
Spencer Dale and Andy Haldane swap jobs. Imperative (1) eliminating conflict between Carney and Haldane over how to deliver financial stability. Imperative (2) stemming the momentum Haldane had built as the pre-eminent BoE thinker on financial stability. An achievement that can’t be allowed to overshadow or complicate Carney’s role as Chair of the Financial Stability Board. Imperative (3): these are the only jobs either of them would accept without leaving having lost out to Ben Broadbent/John Cunliffe respectively. Imperative (4): it solves the problem of both not having to work for (one presumes) their fellow competitors for those DG jobs.
Re-create the old International Division which existed pre-1994. [No mention of that historical echo in the fanfare]. Imperative: giving the new Deputy Governor Shafiq another directorate to make the job bigger.
Paul Fisher dropped from the MPC. Imperative: ease possible tensions with the incoming Nemat Shafiq, so she doesn’t have to experience his disappointment at not getting that job, and he doesn’t have to experience her thinking he is disappointed. And it’s pre-emptive action in case Forexgate implicates him, though it has not yet.
Orchestrate ‘single research agenda’. Imperative (1): makes the job of the Executive Director for the old Monetary Analysis directorate feel a bit bigger again to make up for having the international economics division chopped out. Imperative (2): it adds to the oneness of it all, doesn’t it?
Shafiq to be charged with executing exit from QE. Imperative: make her job look even bigger. Reality: it’s just a restatement of what would have been the task of the markets directorate anyway. MPC will decide when to unwind QE. [Barring another heist by the BoE executive, mirroring the one at the launch of QE excluding them from an input into what to buy]. When they do unwind, that directorate would have always had the hair-raising task of flogging all those gilts. Thinking about it, why weren’t the other DGs also charged with similarly sounding grand challenges? Those challenges are certainly there. Ben Broadbent presumably has to chart a course back to neutral interest rates. And Spencer Dale will have to help Jon Cunliffe figure out which lever to pull to choke off the housing boom.
All of the above: ensure no-one who was an ancien regime appointee benefits. Imperative: Mark Carney was appointed because the old regime was judged to be bad, (otherwise they would have got Paul Tucker in), so, to follow that through, anyone associated with the old regime is bad or has to be sidelined to underscore the overall purpose and reality of regime change.
Perhaps that is too much conspiracy-theorising. But, at least one could interpret the changes as following definite purposes, rather than in pursuit of an MBA-style case-study set to students in a hurry. And, remember, Mark Carney is in a hurry. Soon a year of his shortened 5 year term will be gone. A couple of years more, and he will be in campaign mode, charting his course back to a senior Government role in Canada, needing a shake-up of the BoE on his cv to justify the overseas venture.
The continued emphasis on oneness was perplexing.
The Bank embraces two separate policy committees, the Monetary Policy Committee and the Financial Policy Committee, charged with separate tasks, but where discharge of the one affects the performance of the other. The objective of the MPC is in principle clear, though MPC choose not to make it so, or, if they have (since I left) they keep that to themselves. The objective of the FPC is not even clear in principle. (That’s no-one’s fault). Despite the fact that the Committees themselves probably don’t know precisely what they are doing, nor have tried to figure out how they might systematise and share their reaction functions, we are to suppose that emphasising the Oneness of the Bank by, say, pulling together divisions with an international focus, and swapping two Executive Directors, is going to sort it all out!
Those Committees have different timetables, different agendas (one still has to work out what it’s doing and how it’s going to do it), different personalities with different expertises. They are going to want very different things from their suppliers in the Bank and there’s no amount of declared oneness that will get around that. If the Bank wants supervisory excellence in the PRA, what would this oneness mean to someone who cultivates that through a lifetime of study in financial law and balance sheets, but sees others spending their lifetime cranking DSGE models? They might slurp the same custard on their BoE canteen spotted-dick pudding, but they will not be as One.
The BoE is becoming more like its old self, before the reorganisation into two ‘wings’ after a senior management meeting to decide it all at a hotel in Ashridge in 1994. ‘International Divisions’ then was carved up between those studying the international economies through trade-linkages, and those looking at international financial exposures of UK financial institutions. I was oblivious to what was really going on there, too young to know anything or even care if I had, but the received wisdom was that this was an area that had assumed its own amorphous purposes that didn’t even overlap with the Bank’s, often much work done for the Foreign and Commonwealth Office, and uncosted. Today’s bank is very different, with two identifiable clients. So I doubt that the new directorate will sink into the (alleged) ways of the pre-1994 version. But it might still cause problems. For example, a decision about how to model the world economy in the MPC’s forecasting model could be made by the Chief Economist [executive director for monetary analysis]. Now that can’t happen. The international division can say ‘sorry, got too much global linkages and synergy stuff to focus on’. The higher up the joining of reporting lines between directorates that need to share and collaborate, the less likely they are to do it, and the more likely they are to cultivate independent capacities to substitute for their failing collaborator.
Interestingly, there’s the item of giving the Chief Economist the task of realising a ‘single research agenda’. In the old days, ‘Chief Economist’ was a misnomer, because Spencer Dale was, for example, not ‘chief’ of the economists in Financial Stability, who numbered roughly as many as those directly under his charge. Now, the title is to be given some meaning. But what a meaning! How could there be a single research agenda? There are many, distinct policy problems begging questions of research. What does it really mean that there would be a single agenda? That all the questions would be written down on a single piece of paper, owned by Andy Haldane? Would this be a single agenda with as many sub-agendas reflecting the different research going on currently? Research is in a state of crisis in the Bank, as I blogged about previously, because terms and conditions are so difficult relative to the alternatives, and despite the best efforts and new initiatives of senior management. I wonder how the motivation of researchers is going to be sustained while this ‘singleness’ is enforced. Singleness sounds like more top-down management and determination of what will and will not be researched. That would subtract from the meaningfulness of the researchers’ roles themselves, making them even more likely to leave. What is going to be offered to compensate for future ‘singleness’?
One of the silliest aspects of the day was Carney’s suggestion that we might not have had such an acute crisis or subsequent contraction [we might have had more 'Canadian' 'outcomes'] if this model of the Bank had been in place in the 2000s. This comment was made in the Q and A, so if it was a slip, it is one that can quickly be put right, but hasn’t yet. If it wasn’t a slip, well, how absurd.
Everyone surely recognises that Canadian outcomes for banks and the Canadian economy were achieved (i) because there was a fortuitous ‘backwardness’ in Canadian banking. That word in quotes because of course the conservative funding and lending practices turned out to be better than ours. Fortuitous because those practices derived at least as much from lack of competition as from financial or regulatory wisdom. And (ii) outcomes were ‘Canadian’ because of the massive commodities windfall experienced as the emerging market economies bid up the price of their raw material exports. It’s not surprising that they did ok. Their private sector was getting rapidly richer, and the banks lending to them had no fear for their loan books. Did this have anything to do with how the Bank of Canada was structured, or Mark Carney’s contribution in his short stay as Governor? It seems to invite ridicule to suggest this, but that is what Carney’s words did suggest. His staff will surely see this hubristic claim for what it is. And that will inevitably weaken the credibility of the senior management team in the Bank in realising the structural change and the ‘oneness’ in the new culture that is sought after, making it less likely to happen.
Most major changes in the Bank in the past seemed to have been driven by clear and grand ideas. 1992: (inflation targeting) target the thing you care about, and people will believe you care about it. 1994 (Ashridge) people who work for the Bank should be working for the Bank! 1997: (independence) take monetary policy out of politicians hands; (FSA) supervision is too much for one institution to do, and mistakes in the one make others needlessly culpable. 2012 (PRA); true enough, but separation loses too much expertise and nimbleness in a crisis; (FPC) we need macro pru, and more accountability in financial policy. The sad thing about this latest set of changes is that it is not driven by any clear economic or institutional ideas. Except the false one that shuffling a few chairs around would have enabled the BoE to see what almost all the rest of the economics and finance profession failed to.
Reflecting on this with an old contact, it was put to me: “in true BoE style everyone will now either ignore it or interpret it in a way that suits them best.”
In fact, there’s not a lot to what’s been done so far, and if no more is done, then it will be easy to ignore. To dig out another cliche to add to those in the Mais lecture, the devil will be in the detail.