When a former governor and former deputy governor of the Bank of England almost simultaneously publish books arguing that there is something profoundly awry with the economy as it is now, it is either comforting or deeply alarming. Comforting because here are two experts at the heart of the economic establishment confirming what many others have said for some time and thought for longer, so maybe there is hope for change. Alarming because if these two key figures couldn’t fix what is broken, how on earth is that change going to come about?
Between them these two books portray an extensive landscape of wreckage caused by global capitalism going off the rails. I know both authors, and was somewhat surprised by the sense of moral outrage manifested by these sophisticated, well-connected, and highly influential people.
Some sections of each book read as though written by those more likely to have been marching on the streets during the Occupy movement, rather than by such consummate insiders. They bring different perspectives: Minouche Shafik focuses more on social relations and the global south, Mark Carney on the global financial system and corporate governance, along with climate change (the former Bank governor is now the UN special envoy for climate finance).
In What We Owe Each Other, Shafik begins by defining what she means by the social contract, namely the collective actions and decisions that determine the distribution of benefits everyone can expect in life. In other words, it is broader than the welfare state, the set of tax and benefit mechanisms for pooling economic risk.
One lens she applies is need, with chapters on children (and thus women), the elderly and intergenerational fairness (the environment and pensions). The other is provision, covered by chapters on education and health systems and work. How to redesign the social contract is a big question, so the book ranges widely, from regulation of the gig economy labour market in the OECD group of rich nations to paternity leave in middle-income countries, from the possibilities offered by digital medicine to the need for more progressive taxation.
It is difficult to get the focal length right when the panorama is so broad, so there is a brisk flavour to some parts of the discussion. “Technology can help,” Shafik writes, speaking of the scope for caring for the elderly more efficiently (carebots in Japan) and the potential for digital medicine (home-based health monitoring through wearables). But what about the human need for other people, the reader interrupts? What about the people who can’t afford a smart watch with the latest apps and who will collar the profits? Still, the message of the book is clear: “We owe each other more,” Shafik concludes.
The era of leaving it to private action and markets to deliver social outcomes must end, the author argues. A coalition with the courage to face challenges and the sense of unity to devise collective action solutions needs to develop. As she notes: “Social contracts are deeply political,” and while diplomatically silent about the state of politics in any specific country, points out that change occurs at critical junctures — such as pandemics — and a coalition for positive change might therefore be feasible.
Mark Carney’s Value(s) has a narrower frame and hence more detail, particularly the sections about money and finance, where we get tantalising glimpses of life as a central banker — gilt chairs at a G20 summit in Riyadh in early 2020 as those gathered grappled with the realisation that they were facing a major pandemic, weekend phone calls with the first hint of financial markets seizing up in 2008.
The book starts with a section that canters through the history of economic thought on the theory of value and money, where Carney aligns himself with some authors admired by the heterodox economics community, such as Branko Milanovic, a scholar of inequality influenced by Marxism, and Hyman Minsky, the late US economist known for his theory of cyclical financial instability in capitalism.
Carney is very interesting on the dynamics of financial instability and on the possible implications of cryptocurrencies and stable coins, seeing the former as sources of financial instability, while suggesting that central banks might think about issuing their own digital currencies as a stable future-proof form of money.
However, this first section is quite dense and readers with less interest in what economists think could jump to the second part, which begins with the financial crisis and subsequent efforts to create a safer and fairer financial system. Perhaps not surprisingly, he argues that post-2008 reforms have successfully made the system more stable, so what is needed now is constant vigilance.
The book then moves on to two profound challenges: recovery from the Covid-19 crisis, with already-deep inequalities even more entrenched, and climate change. As Carney writes: “The revealed values of the citizens in the midst of the Covid pandemic have been those of solidarity, fairness and responsibility.” So the challenge for policymakers is to live up to those high standards, and “pay particular attention to distribution”. The book invokes Lloyd George’s “England Fit for Heroes” programme of postwar socio-economic rebalancing. If the government fails to tackle inequalities, it hints, the legitimacy of the state will be undermined.
The third part moves on to what to do, particularly in the arenas of corporate governance and finance. Carney’s prescriptions on these specifics as on the broader issues are a mix of the ur-practical (develop standard metrics for companies’ environmental, social and governance performance; ensure executive pay is aligned with long-term performance and corporate aims) and moral (leadership must be values-based; effective government or governance require social solidarity).
Both books therefore share a fundamental message, and it is the opposite of Margaret Thatcher’s notorious claim that “There is no such thing as society”. On the contrary, each of us is nothing without society. This year of enforced social isolation has driven home the failures of individualism. But can we expect the significant changes in values and behaviours the two authors call for? Their books offer a persuasive diagnosis of the present social malaise and offer plenty of suggestions about what policymakers could do. But as both acknowledge, a new social contract, a values-based society, are ultimately matters of politics.
I remember attending an event in the City of London during the 2015 UK general election campaign, when the assembled financiers were ruefully certain they would face tax increases from a Labour-Liberal coalition as the chickens from the financial crisis finally flew home to roost. Instead, a Conservative government won an outright majority and the austerity policies of George Osborne, chancellor of the exchequer, ushered in even greater inequalities.
It is still astonishing that the 2008 crisis changed so little even if — as Carney claims — the global financial system is a little safer and was better prepared for the pandemic. Perhaps the world is more primed 13 years and a pandemic later for revolutionary, systemic change. These two impressive technocrats are certainly ready; all we need now is that values-based political leadership.
What We Owe Each Other: A New Social Contract, by Minouche Shafik, The Bodley Head, RRP£18.99, 256 pages
Value(s): Building a Better World for All, by Mark Carney, William Collins, RRP£30, 608 pages
Diane Coyle is Bennett Professor of Public Policy at the University of Cambridge and author of ‘Markets, State and People: Economics for Public Policy’
Data visualisation by Steven Bernard
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