The political speech of the year was made by a banker, not a politician
If you want to understand the rise in populism, just listen to what the governor of the Bank of England has to say, writes Jody Corcoran
THE most relevant political speech of the year was made last week not by a politician, curiously enough, but by Mark Carney, the governor of the Bank of England. It should be required reading for all politicians.
As a former Goldman Sachs economist, you might expect that Carney would have little or nothing in common with the rise of the socalled populist movement at home and worldwide.
But this former civil servant, who is also chairman of the G20’s Fiscal Stability Board, understands the causes behind the rise of populism better than any politician has demonstrated to date.
In a word, Carney has linked the rise in populism to the rise in income and wealth “inequality”,
There are those who tend to throw their eyes upwards at mention of that word, and then wilfully misdiagnose the reasons for the current political upheaval.
But Carney is no dyed-in-the-wool socialist, forever bleating about “inequality”, far from it; he does have access to global economic data to make his case, however.
Before we get in to that, I should also refer to two reports published last week by the Central Statistics Office (CSO), and by the European Union statistical agency, Eurostat.
The Eurostat report revealed that one in six employees in the EU is a low-wage earner. In the case of Ireland, one in five earns less than two-thirds of median gross hourly earnings.
In 2014, the median gross hourly earnings in Ireland was €20.20. Eurostat revealed that 21.6pc of workers in Ireland are earning less than €13.40 an hour for their work.
Meanwhile, the latest CSO Consumer Price Index has shown that house and car insurance has increased by 7.6pc and 11.6pc in a year to November; that local authority rents rose on average by 3.9pc; that secondary education costs rose by 2.7pc and rail travel costs increased by a further 2.1pc.
Therefore, almost a quarter of the workforce here is earning less than two-thirds of the median hourly wage in Europe at a time when the cost of essentials are rising significantly year-on-year.
If that is not a recipe for political “populism”, I do not know what is.
Now let us return to what Car- ney had to say in a speech on monetarism in Liverpool last week.
He focused on the underlying causes and consequences of weak real income growth and inequality across the advanced world.
Many citizens in advanced economies were facing “heightened uncertainty”, he said, lamenting a loss of control and losing trust in the system. To them, measures of aggregate progress bore little relation to their own experience.
Fine Gael could confirm as much: its call earlier this year to “keep the recovery going” fell flat with a large majority of voters.
Rather than a new golden era, according to Carney, globalisation was associated with low wages, insecure employment, stateless corporations and “striking inequalities”.
To remind you, these are not the comments of a typical guest on Tonight with Vincent Browne, but those of the governor of the Bank of England.
Carney said these anxieties had been compounded by the twin crises of solvency and integrity at the heart of finance.
When the financial crisis hit, he said, the world’s largest banks were shown to be operating in a “heads-I-win-tails-you-lose” bubble; widespread rigging of some core markets was exposed; and masters of the universe became minions. Few in positions of responsibility took their responsibility, he said. Shareholders, taxpayers and citizens paid the heavy price.
As a consequence of these developments, public support for open markets was “under threat”. Turning our backs on open markets would be a “tragedy”, he said, but it was a possibility. It could only be averted by confronting the underlying reasons for this risk upfront.
He said that over the past decade real earnings had grown at the slowest rate since the mid-19th century. Yes, the mid-19th century.
Weak income growth in this lost decade has focused growing attention on its distribution.
In the past, during general prosperity, inequalities were tolerated: for example, Michael McDowell asserted in 2004 that inequality was an incentive in the Irish economy.
But inequalities can be felt more acutely when economies stagnate.
In recent decades, Carney said, as global inequality has fallen markedly, it has edged ever higher in most advanced economies. But such high income inequalities were dwarfed by “staggering wealth inequalities,” he also said.
The proportion of the wealth held by the richest 1pc of Americans increased from 25pc in 1990 to 40pc in 2012; globally, the share of wealth held by the richest 1pc in the world rose from one-third in 2000 to one-half in 2010.
For both income and wealth, some of the most significant shifts had happened across generations. A millennial in the UK [as in Ireland] earned £8,000 less in their 20s than their predecessors; and since 2007, those over 60 have seen their incomes rise at five times the rate of the population as a whole.
Moreover, Carney said, rising real house prices between the mid-1990s and the late 2000s have created a “growing disparity between older home owners and younger renters”.
At the same time, evidence suggested that equality of opportunity remained “disturbingly low,” he said, potentially reinforcing cultural and economic divides.
We should pause here to consider another finding in Ireland last week, in relation to access to education, noted to be a key determinant in the fight against widening inequality.
According to data on feeder schools to universities and third-level colleges, social class remains a major factor in the performance of schools, especially in the Dublin area.
Figures show students in more affluent areas in the capital are progressing to college at a rate of up to four times those in disadvantaged areas.
All of this matters, according to Mark Carney. Given these development, the challenge was how to manage and moderate the forces of innovation and integration which foster isolation and detachment for substantial proportions of the population.
In the balance of his remarks, Carney focused on three priorities: First, economists must clearly acknowledge the challenges, including the realities of uneven gains from trade and technology.
Second, economies must be grown by rebalancing the mix of monetary policy, fiscal policy and structural reforms.
Third, there was a need to move towards more inclusive growth where everyone had a stake in globalisation.
I do not have space available this week to further go into what I believe to be the most relevant political speech of the year; other than to say that what was set out to be a speech on monetary policy was overtly political and entirely the better for it. It is about time somebody of the stature of Mark Carney said such things.
‘Richest 1pc of US households received 20pc of all income’