Mark Carney decries ‘unfair’ economic growth
Last week, however, Carney waded back into controversy when he delivered a thoughtful address in Liverpool University.
The governor pointed out that while globalisation and the digital revolution have produced many benefits, they have also caused “staggering wealth inequalities”.
He went on to observe that “every technological revolution mercilessly destroys jobs and livelihoods and therefore identities well before the new ones emerge”.
This year will be remembered as the year of the populist political movement and of the overturning of liberal establishments across advanced economies.
We have been witnessing the revenge of the forgotten people, those who have been largely passed by.
Taking note of this, Carney warned that people are going to turn their backs on free and open markets unless something is done to help those most impacted by technology and by the global financial crisis.
To many citizens, “measures of aggregate progress bear little relation to their own experience.”
And he added: “Globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities.”
And the response ? A move by governments to redistribute wealth so that the benefits of growth can be spread more widely.
“Redistributive fairness also means turning back the tide of stateless corporations. Companies must be rooted and pay tax somewhere. Businesses operating across borders have responsibilities.”
He reminded us that not so long ago, many of our business leaders had their paws out looking for bailout money and the ordinary citizens had to pony up.
“The masters of the universe became minions. Shareholders, taxpayers... paid a heavy price.”
The tepid nature of the recovery has added to the problems posed by globalisation and innovation.
The UK economy, for example, is 16% off the level it was on track to reach prior to the crisis.
But recovery is indeed under way as is made clear by the latest Economic and Social Research Institute report which seeks to provide a longer term perspective on the economy.
Given the looming icebergs ahead, the report’s authors stick their necks out in suggesting that up to 2025, the sustainable growth rate for the Irish economy is around 3% a year.
This is well ahead of the US and UK where the sustainable growth rate is put at 2% , while for the eurozone as a whole it is put at between 1% and 1.5%. Stagnation, in effect.
In the authors’ view, “the key factor driving growth” is a continued expansion of the labour force of around 2% a year made up of natural population increase, a rise in female participation and a return to net immigration — in part driven by that old familial homing pigeon instinct.
Our economy is almost as open as a beach hut and right now the winds are blowing hard.
Of course, foreign direct investment has been the key driver, assisting Ireland over the huge post-crash hump.
Without US investment, it is certain that we would never have achieved the economic rebound which attracts favorable comment from within the EU establishment.
How ironic that arguably the greatest threat to Ireland’s foreign direct investment strategy is coming from within that establishment and from large EU nations like France which are eyeing the State’s corporation tax revenue base.
The ESRI, in its report, highlights the plan for the implementation of a Common Consolidated Corporate Tax Base — CCCTB —across the EU. It considers that the prospect of the introduction of the new system represents the potential for a large negative shock for the Irish economy.
The EU certainly surpasses itself when it comes to the invention of clunky names and acronyms. Is it any wonder that the citizens are turned off the great European project? However, CCCTB is certainly a wolf lurking in sheep’s clothing from an Irish perspective.
Its supporters insist it is all about ensuring tax payments are simplified and about limiting the ability of multinationals to move profits so as to avoid taxes.
A curb on such activity should be welcomed. Certainly, the pressure is being stepped up as is evidenced by the recent Apple ruling. In October, the CCCTB project was relaunched following a five-year hiatus.
The ESRI estimates that, should it be introduced, it would represent a double whammy for Ireland.
First, it would result in a reduction of almost 5% in foreign investment flows into the country and there would be a drop of close to 6% in the revenue from the investment that was actually attracted.
Under the tax reform proposal, sales location would be relevant in determining the divvy out of the revenue. This would favour larger, consumer markers at the expense of countries such as Ireland where productive activity takes place and where the headquarters is typically located.
Interestingly, the ESRI estimates that France, followed by Spain and Greece, would benefit most from the changes while Holland, Denmark and Ireland would suffer the most.
One suspects that battle lines are only beginning to be drawn. Of course, a lot more is going on.
The impact of innovations from driverless cars to artificial intelligence is only beginning to be felt. Administrative jobs are being hollowed out much as factory assembly work was a generation ago.
Conventional economics is somewhat at sea when it comes to the analysis of such developments and educational systems are struggling to cope.
Mr Carney certainly agrees, citing the warning of his bank colleague, Andy Haldane, that up to 15m jobs currently in place in Britain could be automated over time. Accelerating technological innovation is causing people’s attitude to free trade to harden.
“Economists need to clearly acknowledge the challenges we face,” said Carney.
“There is a need for a rebalancing of monetary and fiscal policy and structural reforms. We need to move to a more inclusive form of growth where everyone has a stake in globalisation.”
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