On 27 May, Mark Carney, Governor of the Bank of England, gave a speech on the topic of ‘inclusive capitalism’ at a conference carrying the same name. I can understand why he made it. Once invited, there are risks to turning the invitation down. Since Mr Carney is shortly (in central bank time at least) off to Canada with the presumed intent of assuming high political office, he can be taken to be already in pre-campaign mode. Such a conference is the perfect platform to stake out a cuddly but free market position, and to appear statesman like and escape the nerdiness that can hinder those who linger in finance too long. There are more genuine reasons to give the speech. The Bank of England looks to some like the friend of the City, and this is a chance to counter that. Occupy – assisted by the BoE’s new Chief Economist Andrew Haldane – charged that the financial crisis was in part caused by inequality (=exclusive capitalism). So this is a chance to answer that charge, or explain what can be done about it.
But there are costs too. Central banks don’t have questions of redistribution in their mandates. In that sense, it’s none of their business whether capitalism is ‘inclusive’ or not. When they speak on topics outside their mandate, they – to indulge in central bank speak that it is hard to shrug off – run three risks. The first is that they politicise their jobs. By which I mean that future office-holders will be selected to make sure that when they go off brief they do it in support of the sponsoring political party. The second risk is that their reputation for doing what they are mandated to do impartially is tarnished. (How can we trust this lot when they are so overtly ideological?). Risk number three is that the institution gets cut down to size in the future, in a backlash against central bank autonomy, stripping out jobs that would normally be better left inside it.
In my opinion, central bankers should stick rigidly to talking about issues that are confined to their mandate. Even if such comments are solicited – as they were of the previous Governor by the Government on fiscal policy – these invitations should be turned down.
As a parting shot, there are pecuniary costs too. I reckon it must have cost at least £50k for Mr Carney to make that speech. [Calculations at the end of this post]. Was it really worth it? In this particular case the outlay might be deemed ironic in the midst of a conference on inclusive capitalism: tax taken mostly from the poor so that someone already rich can look good! (Granted I am caricaturing here).
Anatomy of the guessed £50k spent on speaking about ‘inclusive capitalism’
Suppose annual junior staff cost, including pension, of 100k a year. 30 days holiday, leaving about 235 working days. Daily staff cost of about £425. Governor time rated at 6 times that. MPC/FPC time rated at 4 times that. Senior staff time rated at 2 times. Typical speech of this length would take 2 weeks of the Governor’s speechwriter’s time. This would include writing time, meetings with suppliers, meetings to collect comments. The Governor himself might work on it for 5 days, conservatively, including writing, commissioning, rehearsing and so on. A typical speech will involve commissions from junior staff outside the Governor’s office, that I reckon might conservatively be costed at 5 days. Such a request will cause a flurry in the local area, as this is the chance for that area to excel and draw attention to themselves. I have added 3 days for press office time, spread from the most senior to the junior lot who person the phones. And 2 days of MPC/FPC time. Supposing it takes 1 member an hour to read and comment on it. And that 8 from the two committees have a go. That seemed a fair guess from my experience. The cost includes 3 days senior staff time commenting. It’s essential to read and comment on all the speeches by the Governors. Heads of Division are fighting for promotion on a rapidly flattening hierarchy and have to make themselves visible by doing this. So this assumes that 24 of them spend an hour each doing it. Which gets us to about £25k. The true cost is probably much larger, (at least double ?) since each of these staff imposes an overhead on the organisation in terms of HR, IT, office space, etc. So that gets me to £50k. There’s a lot of guesswork here, but I am happy to be corrected. The true cost of more substantive speeches, like set piece lectures on monetary policy or financial stability would, I guess be vastly higher, by a factor of 5-10. So in this sense this one might be regarded as cheap, I suppose.