Hello Governor

In choosing Mark Carney as the next Governor of the Bank of England, George Osborne appears to have adopted the strategy employed by Roman Abramovitch, the owner of Chelsea Football Club, when selecting managers.

Mr Osborne scoured the world for someone who (i) was respected as a monetary policy expert in order to be effective as Chairman of the Monetary Policy Committee, (ii) understood the global banking industry to maintain and develop the role of London as a major force in the world’s financial structure and (iii) was a very effective executive to deal with what has been identified as a very inflexible culture and hierarchical structure in the Bank of England.

In Mr Carney, he appears to have found the man that best meets those criteria.  However, he is not British, though he does have a British wife and he says he will take on British nationality, and he is expensive.  These concerns, which would have counted against him very strongly in previous times, are outweighed by his reputation in the global markets and the application of more money.  Mr Carney’s basic salary will be almost 60% higher than Lord King’s and with other elements could end up being more than double what the current incumbent earns.

Mr Carney’s time at the Bank of Canada is lauded.  He was at the helm when the Canadian economy went through the financial crisis and under him it returned to a reasonable level of growth, without a banking sector meltdown, and without resorting to zero per cent interest rates or Quantitative Easing.

However, it is also true to say that much of Mr Carney’s success at the Bank of Canada is down to the work of his predecessors.  The Canadian banking system was much more tightly controlled in the lead up to the global crisis (having gone through its own meltdown in the early 1990s), with the result that neither the banks nor the Canadian consumers became over-leveraged as was the case throughout most of the rest of the G7.  Mr Carney took over at the Bank of Canada a few months before the crisis occurred, so no blame could be attached to him, and the problems he faced were far less severe than those found in the UK or the US.  He did not need to take the aggressive easing measures required elsewhere, and when Obama embarked on the huge fiscal stimulus in the US in 2009 and 2010, the Canadian economy was a natural beneficiary of the extra demand this generated.

Napoleon famously remarked that he preferred lucky Generals over clever Generals, and Mr Osborne would doubtless agree with Napoleon. Mr Carney has, it could be argued, been a little lucky.  The Governor of the Bank of England’s newly expanded role is a huge job, requiring economic policy dexterity to deal with a weak economy dependent upon an over-sized banking system that is undergoing major structural change in an institution with an out-of-date culture.  He is the best man for the job, but it will be a hugely difficult one – perhaps like managing Chelsea?

 

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