U.K.'s Lingering `Lost Decade' Pushes Carney Into Marx's Arms

  • British wages since crisis in longest slump since the 1860s
  • BOE governor says benefits need to be spread to avoid tragedy

Mark Carney

Photographer: Chris Ratcliffe/Bloomberg

The mid-19th century was a period of social and political upheaval in the U.K. economy that saw an international financial crisis and technological revolution. Sound familiar? Mark Carney thinks so.

The Bank of England governor described the economy as experiencing its “first lost decade since the 1860s” in a speech this week. Citing wage growth that’s at its slowest since that period, he said globalization for some has come to be associated with low pay, job insecurity and inequality.

“Substitute Northern Rock for Overend Gurney; Uber and machine learning for the Spinning Jenny and the steam engine; and Twitter for the telegraph; and you have the dynamics that echo those of 150 years ago,” he said.

Not even the Great Depression or two world wars produced a period of falling real wages like the present one, BOE data show.

Carney’s speech comes at the end of a year that has seen rising disquiet about the state of the world economy since the banking crisis. The backlash against the status quo helped propel Donald Trump to victory in the U.S. presidential election and boosted support for the U.K.’s exit from the European Union.

In the 1860s it was the downfall of lender Overend, Gurney and Company that helped fuel public agitation for political reform. 

“Fear of war in central Europe, a general stock market collapse, a fall in cotton prices and long period of high interest rates contributed to a series of business failures,” the BOE wrote in a case study of the lender in its quarterly bulletin earlier this year.

The repeal of the Corn Laws, which had kept U.K. grain prices high, had also led to decline of agriculture by opening the country to cheaper imports. It bolstered industrialists by allowing for lower wages, since workers could afford to feed themselves for less.

Winners and Losers

“That previous era of globalization created winners and losers,” said former BOE policy maker Andrew Sentance in an interview. “When we’ve got changes in technology, changes in trade, you’re going to get those swings and roundabouts.”

Carney said economists need to acknowledge the “realities of uneven gains from trade and technology” as well as improve the balance of reform, monetary and fiscal policy and move to a more inclusive model where “everyone has a stake in globalization.”

Yet while the governor -- who has been criticized for overstepping his mandate and politicizing the the three-century old central bank -- may be comfortable identifying the issues at stake, his recommendation for greater reform fell short of detail, according to Sentance.

“You can make these comparisons with the 19th century and you can talk about some of the trends we’ve seen,” Sentance said. “But the ultimate value comes from analysis to come up with some policy proposals.”

Carney noted in his speech that the economic upheavals of the mid-19th century produced Karl Marx, who argued that the only way for workers to throw off the yoke of wage labor is revolution. Carney said the key is to redistribute the benefits of globalization and do more to ensure workers have the right skills to thrive.

    Before it's here, it's on the Bloomberg Terminal.