Haldane’s new political economy?

Andrew Haldane’s vision is crucial to looking beyond our broken financial system, but it will take a collective effort to realise it

Andrew Baker
Andrew Baker

Andrew Haldane, Executive Director for Financial Stability at the Bank of England, has been referred to as the ‘darling of the intelligentsia’. He is without doubt one of the heroes of the financial crisis.

Haldane is one of the principal driving forces behind ‘macroprudential regulation’ – a new form of regulation that uses a combination of intellectual concepts, analytical techniques, data sets, and experimental policy instruments, in an effort to restrain the excesses of the financial system.

The Bank of England, and Haldane, have been at the forefront in developing this regulatory capacity. They have played a crucial role in cementing this approach as the way forward.

Consequently, much of the world’s financial governance machinery (both national and international) has been reconfigured to prioritise macroprudential research, analysis and policy development. In Haldane’s words, there is now a group of ‘benign and enlightened planners,’ who stand ready to ‘avert future tragedies of the financial commons’.

As a project proposed by technocrats, macroprudential regulation is considered ‘respectable’ by most politicians. Trenchant political opponents are few and far between. Those who are opposed on principled political grounds (the unreconstructed parts of the banking lobby and some populist libertarians) have largely been out gunned and out argued by a growing macroprudential analytical capacity. Political battles continue, however, over points of detail.

We live in an era in which the financial crash of 2008 and its reverberations have resulted in a crisis interpreted by radical and prescient technocrats. They’ve had far more to tell us about the way forward than politicians. And they’ve also been more radical than politicians, who’ve been left standing by comparison.

On the one hand, this is not surprising. It’s a complex situation and expertise is needed. On the other hand, it’s disappointing. The current era calls for bold, brave politicians interested in ideas. Instead, it is Haldane and his fellow technocrats who’ve stepped into the void and provided the radical voice.

This is because they’ve had the most direct exposure to the sharp end of the broken Anglo-liberal growth model with its zombie banks and their defunct business models that continue to act as a drain on the wider economy.

Haldane and his peers have challenged the prior ‘efficient markets’ orthodoxy and highlighted fundamental weaknesses within the current system.  Without them the current financial policy landscape would be a good deal bleaker.

In the face of this, critics have pointed out that Haldane’s contributions have to date displayed two weaknesses. First, they’ve failed to connect to politics and people (as previous radical public intellectuals such as Keynes and Beveridge did).  Because of this they lack popular legitimacy and political workability. Second, they’ve been too narrowly focused on technical issues of finance and the banking system, rather than the wider growth model and a future vision of what the economy and society as a whole might look like.

Haldane has a considerable back catalogue of papers but his most recent contribution – ‘A Leaf Being Turned’ – is also his most important from a political economy perspective.  In it he addresses both of the issues raised by critics. It’s also his most radical and interesting contribution.

For the first time, Haldane connects with a political movement. Not a mainstream political party but ‘Occupy.’ And here he is unequivocal. Occupy has put arguments that have helped ‘win the debate’ and policy makers such as him will need their ‘continued support in delivering radical change’.

This is a very important acknowledgment.  History reveals that technocrats are only successful in exercising interventions and governance when their arguments chime with wider public sentiments and moods. In the absence of such support their projects get overturned by legitimacy deficits, cognitive overconfidence and the politics of backlash. In earlier eras, the ideas of Veblen and J K Galbraith, advocating a role for technocratic price engineers, fell out of favour, for precisely these reasons.

In another first, Haldane also explicitly links the financial crisis to the rise of inequality. An inequality-induced crisis resulted in further crisis-induced inequality. Just as importantly, he articulates a vision of a reformed banking system generating more sustainable and locally oriented political economies, partly as an outcome of macroprudential policy.

Can macroprudential regulation be genuinely transformatory in this way? Haldane doesn’t provide definitive answers, although he does suggest the most radical reformation of the financial system for 80 years is underway.  New banking models will certainly be an essential foundation for any new growth model.

Probably the best example of what a new banking model might look like is provided by new UK market entrant (the first for 100yrs), Handelsbanken. It provides only basic banking services – mortgages and small business loans in tightly defined local catchment areas. Rewards are then deferred and distributed equally among staff.

But success will depend on people voting with their feet and providing custom for the Handelsbanken model. This can be helped and catalysed by politicians recognising the benefits that will accrue for their communities, and providing moral support and encouragement.

In ‘A Leaf Being Turned,’ Andrew Haldane has begun the process of sketching an analytically informed normative vision of the future. He is, without doubt, optimistic, possibly excessively so, about the transformatory potential of the macroprudential turn. However, as he also acknowledges, without support from citizens, voters, taxpayers, politicians, activists and consumers, public interest regulation will founder, as will alternative visions of a more sustainable and equitable future political economy. As a society we cannot afford to let that happen.