BOE’s Iconoclast Laments Great Divide Between Bosses and Societyby and
Haldane says too much distrust is as bad as cholesterol
High executive pay can reduce investment, damage economies
Bank of England Chief Economist Andy Haldane warned that everyone from bankers to politicians and even his own profession have a long way to go to regain trust at a time when the gap between the haves and have-nots is widening.
In a speech covering in part the devastation of economic, physical and social capital during the global financial crisis, Haldane said there is now a “Great Divide” between the “echo chamber of the elites and the voting chamber of wider society.”
“It would be easy, too easy, to point the finger at finance alone,” he said in London on Wednesday. “For this Great Divide exists not just between the financial elites, but between elites generally and wider society. It is not just bankers who have suffered a loss of public trust. In varying degrees, this is also true of big business, government and, yes, politicians and central banks.”
Addressing the New City Agenda, an institution that reviews culture in banking, Haldane said high payouts to executives erode social capital and have implications for company growth and long-term investor returns. Money routed to bosses means less available to invest in physical and human capital -- and this is helping to “drive a wedge between management and their employees,” he said.
“There is a mountain to climb on this front, not just for banking but for business generally,” said Haldane, a long-time critic of the bonus structure at banks, who has in the past publicly sided with Occupy protesters. “If not at an all-time low, public trust in
big business is plumbing the depths.”
The danger is that such an unhealthy predicament might just get worse, Haldane said.
“It was writer Norman Douglas who said that ‘distrust of authority should be the first civic duty,”’ he said. “As someone sometimes described as an iconoclast, I have sympathy with that sentiment. But, again rather like cholesterol, it is possible to have too much of a good thing. Taken too far, distrust can be corrosive rather than regenerative.”
Among the solutions offered, Haldane sees a need for change in the psychological culture of banking so it better serves society as well as improvements in communication. The BOE itself may also need to work on this. In six tests of linguistic complexity, the bank fares poorly. As does Haldane himself, he admits.
“Having assessed my own speeches, including this one, the conclusion is much the same,” he said. “They, too, are likely to be impenetrable to most.”
Haldane also says there must be improvement in education of financial matters such as borrowing costs and pensions. Ironically, with an MA in economics, Haldane describes himself as one of those in need of education.
“I consider myself moderately financially literate,” he said. “Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing -- that they have no clue either. That is a desperately poor basis for sound financial planning.”