The Spectre of Monetarism
Speech given by
Mark Carney
Governor of the Bank of England
Roscoe Lecture
Liverpool John Moores University
5 December 2016
I am grateful to Ben Nelson and Iain de Weymarn for their assistance in preparing these remarks,
and to Phil Bunn, Daniel Durling, Alastair Firrell, Jennifer Nemeth, Alice Owen, James Oxley,
Claire Chambers, Alice Pugh, Paul Robinson, Carlos Van Hombeeck, and Chris Yeates for
background analysis and research.
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Real incomes falling for a decade.
The legacy of a searing financial crisis weighing on confidence and growth.
The very nature of work disrupted by a technological revolution.
This was the middle of the 19th century.
the national Exchequer's biggest source
Liverpool was in the midst of a golden age; its Custom House was
of revenue.
And Karl Marx was scribbling in the British Library, warning of a spectre haunting Europe, the spectre of
communism.
We meet today during the first lost decade since the 1860s.
In the wake of a global financial crisis.
And in the midst of a technological revolution that is once again changing the nature of work.
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 dynamics that echo those of 150 years ago.
Then the villains were the capitalists. Should they today be the central bankers? Are their flights of fancy
promoting stagnation and inequality? Does the spectre of monetarism haunt our economies?i
These are serious charges, based on real anxieties. They merit sober, objective assessment.
This evening I want to discuss the role of monetary policy in this time of great disruption. But first I will focus
on the underlying causes and consequences of weak real income growth and inequality across the
advanced world.
That's because any doctor knows the patient's
that the importance of diagnosing the underlying causes of
symptoms before administering the cure. Monetary policy has been keeping the patient alive, creating the
possibility of a lasting cure through fiscal and structural operations. It has averted depression and helped
advanced economies live to fight another day, so that measures to restore vitality can be taken.
II. The Great Disruption
During the last quarter century there have been a series of profound disruptions to the way we work, trade,
consume and live. The fall of the Berlin Wall and the reforms initiated by Deng Xiaoping led to the
integration of a third of humankind into the global labour force. Those workers are increasingly linked by
global supply chains that have spread from goods to services. In parallel, an explosion of technological
innovations has brought access, at the click of a virtual button, to the sum of human knowledge to three-and-
a-half billion people
(Chart 1).
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The deepening of the symbiotic relationship between global markets and technological progress has lifted
more than a billion people out of poverty (Chart 2), while a series of technological advances have
fundamentally enriched our lives.
Chart 1: 3 1⁄2 billion people have internet access Chart 2: 1 billion fewer people live on less than
$1.90 a day since the early 1980s
Billions of people Billions of people
3.5
2.0
1.8
3.0
1.6
2.5
1.4
1.2
2.0
1.0
1.5
0.8
0.6
1.0
0.4
0.5
Number of poor at $1.90 a day (2011 PPP)
0.2
0.0
0.0
1981 1986 1991 1996 2001 2006 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$1.90 a day is the World Bank's current
Source: Internet Live Stats. An internet user is defined as an Source: World Bank.
individual who can access the Internet at home, via any device global poverty line.
type and connection. 2015 and 2016 are estimates.
Globally, since 1960, real per capita GDP has risen more than two-and-a-half times (Chart 3), average
ii
incomes have begun to converge, and life expectancy has increased by nearly two decades (Chart 4).
Despite such immense progress, many citizens in advanced economies are facing heightened uncertainty,
lamenting a loss of control and losing trust in the system. To them, measures of aggregate progress bear
little relation to their own experience. Rather than a new golden era, globalisation is associated with low
wages, insecure employment, stateless corporations and striking inequalities.
These anxieties have been compounded by the twin crises of solvency and integrity at the heart of finance.
When the financial crisis hit, the world's largest banks were shown to be operating in a
"heads-I-win-tails-
bubble; widespread rigging of some core markets was exposed; and masters of the
you-lose" universe
became minions. Few in positions of responsibility took theirs. Shareholders, taxpayers and citizens paid
the heavy price.
As a consequence of all these developments, public support for open markets is under threat.
Turning our backs on open markets would be a tragedy, but it is a possibility. It can only be averted by
confronting the underlying reasons for this risk upfront.
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Chart 3: Real GDP per capita more than Chart 4: Life expectancy at birth up around
doubled since 1960 two decades since 1960
Index 1960 = 1 Years
75
3.0
GDP per capita (constant World life expectancy at birth, total
2010 US$) (years)
70
2.5
65
2.0
60
1.5
55
50
1.0
19601965197019751980198519901995200020052010
196019651970197519801985199019952000200520102015
Source: World Bank Source: World Bank
Real income growth has been meagre, compounding unequal distribution.
The cry for more inclusive growth starts with a crisis of growth itself. To put it mildly, the performance of the
advanced economies over the past ten years has consistently disappointed (Chart 5).
Chart 5: Global growth serially disappointing
Actual GDP growth 2011 2012 2013 2014 2015 2016
Per cent
8.0
Dotted lines = Emerging economies
Solid lines = Advanced economies
6.0
4.0
2.0
0.0
2010 2011 2012 2013 2014 2015 2016
Source: IMF World Economic Outlook. Each line shows how forecasts for a particular calendar year have evolved over time. The
diamond shows the eventual outturn.
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History tells us that recoveries from financial crisis are weak, with a typical hit of around 1 percentage point
off per capita GDP growth each year for a decade.iii Globally, we are tracking that pattern, with overall activity
9% below its pre-crisis trend nine years on.
Even by these standards, however, advanced economy recoveries have been unusually tepid, with their
current level of activity around 13% lower than the pre-crisis trend.
In the UK the shortfall, at 16%, is even worse. Over the past decade real earnings have grown at the
slowest rate since the mid-19th Century (Chart 6).
Weak income growth has focused growing attention on its distribution. Inequalities which might have been
tolerated during generalised prosperity are felt more acutely when economies stagnate.
In recent decades, as global inequality has fallen markedly, it has edged ever higher in most advanced
economies. In Anglo-Saxon countries, the income share of the top 1% has risen notably since 1980. Today,
in the US, the richest 1% of households receive 20% of all income.iv
Chart 6: Real wage growth slowest since mid-19th Century
10-year moving average, per cent
4
3
2
1
0
Forecast
-1
1850 1865 1880 1895 1910 1925 1940 1955 1970 1985 2000 2015
Source: Thomas, R. and Dimsdale, N. (2016) "Three Centuries of Data - Version 2.3", Bank of England, based on average weekly
wages and the CPI; and November Inflation Report.
Such high income inequalities are dwarfed by staggering wealth inequalities. The proportion of the wealth
held by the richest 1% of Americans increased from 25% in 1990 to 40% in 2012.v Globally, the share of
wealth held by the richest 1% in the world rose from one-third in 2000 to one-half in 2010.vi
The picture in the UK is complex but in general suggests relatively stable but high levels of overall inequality,
with sharper disparities emerging in recent times for the top 1%. When combined with low growth of incomes
and entrenched intergenerational inequity, it is no wonder that many question their prospects.
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For example, a common measure of the distribution of income, the Gini coefficient, shows that inequality
rose sharply during the 1980s and has more or less plateaued ever since (Chart 7). That suggests a large
structural shift during the Thatcher era, followed by a more modest series of adjustments thereafter.
However, possibly because of the effects of globalisation, the income share of the top 1% tripled from 5% in
the early 1980s to 15% by 2009, though it has fallen back somewhat since the crisis (Chart 8).
The distribution of wealth also appears to have been relatively flat since the mid-1990s (Chart 9), partly
reflecting the pattern of home ownership,vii though it is much less equal than for income, with the share of the
richest 1% persistently high, at around 20%.viii
For both income and wealth, some of the most significant shifts have happened across generations. A typical
millennial earned £8,000 less during their twenties than their predecessors.ix Since 2007, those over 60 have
seen their incomes rise at five times the rate of the population as a whole.x Moreover, rising real house
prices between the mid-1990s and the late 2000s has created a growing disparity between older home
owners and younger renters (Chart 10).
... yet the income
Chart 7: Income inequality in the UK rose Chart 8: share of the top 1%
notably in the 1980s, then plateaued... rose steadily to reach 15% in 2009, before
falling back somewhat
Before housing costs
Per cent
Gini coefficient
After housing costs
18
16
0.4
14
12
0.35
10
8
0.3
6
4
0.25
2
0.2 0
1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: "Living Standards, Poverty and Inequality in the UK: Source: World Wealth and income database and Atkinson,
2015", Institute for Fiscal Studies. The Gini coefficient shown is Anthony B. (2007). The Distribution of Top Incomes in the
calculated over final income, which includes direct and indirect United Kingdom 1908-2000; in Atkinson, A. B. and Piketty, T.
payments, benefits, and benefits in kind such as health and (editors) Top Incomes over the Twentieth Century. A Contrast
education. Between Continental European and English-Speaking
Countries, Oxford University Press, chapter 4.
At the same time as these intergenerational divides are emerging, evidence suggests that equality of
opportunity in the UK remains disturbingly low,xi potentially reinforcing cultural and economic divides.xii
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matters. As the community groups here in Liverpool will attest, and more formal studies of people's
All of this
happiness find, subjective well-being is significantly affected by perceptions of inequality and the sense of
community.xiii
yet
Chart 9: Wealth inequality high but broadly flat Chart 10:... it has sharply deteriorated
...
since mid-1990s across generations, largely driven by housing
wealth
Wealth
Gini coefficient
Net real financial and housing wealth (£ '000)
Income
350
1
1995
2006-08
300
0.8
2012-14
250
0.6
200
150
0.4
100
0.2
50
0
0
25-34 35-44 45-54 55-64 65+
1995 2000 2005 2006 2008 2010 2012
2008 2010 2012 2014
Age
Source: 1995-2005 is from the British Household Panel Survey Source: 1995 is from the British Household Panel Survey
(BHPS, Institute for Social and Economic Research); thereafter (Institute for Social and Economic Research); thereafter the
from the Wealth and Asset Survey (WAS, ONS). The BHPS Wealth and Asset Survey (ONS). The BHPS measure is
wealth data exclude physical and pension wealth. Income Gini adjusted for the average wedge between the BHPS and WAS
coefficient measures consistent with Chart 7. surveys to correspond to the WAS using overlapping periods.
III. The Way Forward
Given these developments, the challenge is how to manage and moderate the forces of innovation and
integration which breed aggregate prosperity for the economy as a whole but which also foster isolation and
detachment for substantial proportions of the population.
In the balance of my remarks, I will focus on three priorities for doing so.
First, economists must clearly acknowledge the challenges we face, including the realities of uneven
gains from trade and technology.
Second, we must grow our economy by rebalancing the mix of monetary policy, fiscal policy and
structural reforms.
Third, we need to move towards more inclusive growth where everyone has a stake in globalisation.
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potential solutions lie outside the Bank's remit. But
Most let me say a bit about each of these priorities
concentrating on how the Bank of England can contribute to more inclusive growth via the impact of its
policies on uncertainty, trust and inequality.
(a) Acknowledge current challenges and address them, wherever possible.
Given their recent experiences, it is not surprising that people are largely ignoring pieties about the virtues of
open markets and new technologies, and that they discount assertions that "they've never had it so good." A
more inclusive growth requires frank talk about risks and concrete initiatives to help people adjust to new
realities.
Trade and technology do not raise all boats
Consider the disconnect between economists and workers. The former have not been sufficiently upfront
about the distributional consequences of rapid changes in technology and globalisation. Amongst
economists, a belief in free trade is totemic.xiv But, while trade makes countries better off, it does not raise all
boats; in the clinical words of the economist, trade is not Pareto optimal.xv
Rather, the benefits from trade are unequally spread across individuals and time. Consumers get lower
prices and new product varieties, and, over time, benefit from the spur to innovate and higher productivity.
Some workers, however, lose their jobs and the dignity of work, or see their "factor prices" -
in plain English,
-
wages equalised downwards.
Such dynamics have been recognised by trade theory for over 75 years.xvi And they are felt by those at
either end of the great convergence. Survey evidence shows that 70% of Chinese workers believe that trade
creates jobs and increases wages,xvii US households think the opposite, and UK public opinion is
equivocal.xviii
People's attitudes towards trade shocks are being hardened by the effects of accelerating technological
innovation. As my colleague Andy Haldane has explained, up to 15 million of the current jobs in Britain could
be automated over time.xix
The fundamental challenge is that, alongside its great benefits, every technological revolution mercilessly
destroys jobs and livelihoods - and therefore identities - well before the new ones emerge. This was true of
the eclipse of agriculture and cottage industry by the industrial revolution, the displacement of manufacturing
by the service economy, and now the hollowing out of many of those middle-class services jobs through
machine learning and global sourcing.
The combination of open markets and technology means that returns in a globalised world amplifies the
rewards of the superstar and the lucky. Now may be the time of the famous or fortunate, but what of the
frustrated and frightened?
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Uncertainty is very high
From the rising spectre of global terrorism to intensifying geopolitical tensions and financial crises, for too
long, for far too many people, the world seems to be getting riskier.
They are right. Currently, on average across Europe and the US, policy uncertainty is around 1.5 standard
deviations above its historical average.xx In the UK, we expect currently elevated levels of uncertainty to cut
7% from investment over the next three years and 1% from GDP.
affect heuristic
Higher uncertainty has contributed to what psychologists call an amongst households,
businesses and investors. Put simply, long after the original trigger becomes remote, perceptions endure,
affecting risk perceptions and economic behaviour. Just like those who lived through the Great Depression,
people appear more cautious about the future and more reluctant to take irreversible decisions.
That means less willingness to put capital to work and, ultimately, lower growth.
These dynamics are clearly visible in financial markets. As one illustration, for two-and-a-half centuries, the
prices of government bonds and the prices of equities tended to move together: the typical bull market
entails rising equity prices and falling bond yields, with the reverse in bear markets (Chart 11). Since the
mid-2000s, however, this pattern has reversed and bond yields have tended to fall along with equity prices.xxi
Chart 11: The UK bond-equity correlation has turned negative for the first time ever
Correlation
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
1759 1809 1859 1909 1959 2009
Source: Thomas and Dimsdale (ibid.) and Bank calculations. Line shows ten-year trailing correlation of monthly returns on UK equities
M. (2016), "250 years of the correlation", Bank Underground, 20th
and consols. See also Roberts-Sklar, bond-equity October.
-
This unprecedented desire for safety has helped to drive down the equilibrium interest rate the interest rate
central banks must deliver in order to balance demand with supply and so achieve stable inflation. In this
sense, low policy interest rates are not the caprice of central bankers, but rather the consequence of
powerful global forces, including debt, demographics and distribution.xxii
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of these schemes'
Those same forces are contributing to deficits in defined-benefit pensions. The value
investments in equities and real estate are low relative to the level of interest rates because investors are
valuing safety much more than they are expecting faster growth.
there isn't a parallel universe of higher
Said differently, since pensions are future claims on the economy,
there isn't
interest rates, higher growth and equity prices, and lower pension deficits. That is, without real
structural reform. Blaming monetary policy avoids these hard truths.
***
Speaking hard truths is part of how central banks can reinforce the foundations of more inclusive growth.
The paradox is that one of our jobs is to reduce uncertainty by identifying risks.
This requires coming straight with the public as the Bank of England did around the EU referendum.
And it requires being clear about what we cannot do. Long-run prosperity is not in the gift of central bankers.
It depends on a much wider set of initiatives of our elected representatives, and ultimately, on the actions of
the private sector.
(b) Monetary Policy, Distribution and Equity
The second way central banks can promote inclusive growth is as part of a balanced mix of
monetary, fiscal and structural policies.
Globally, this balance has been absent since the crisis, with disproportionate weight falling on monetary
policy. What has that meant for growth and inequality?
Before answering, it is important to recognise two facts.
First, by law, monetary policy must target the national rate of consumer price inflation, while taking into
account as a secondary consideration its impact on other important macroeconomic variables, such as
growth, employment and financial stability. Monetary policy cannot target a particular region, industry or
segment of the population.
Second, all monetary policy has distributional effects, but it is rightly the role of elected governments to take
measures to offset them if they so choose.
In that context, has monetary policy worsened income distributions, made savers poorer, inflated asset
prices, or exacerbated wealth inequalities?
I want to review these claims by examining the cold, hard facts around:

the foundational contributions that monetary policy makes to the good of the people of the UK;

how effective monetary policy has been in achieving macroeconomic outcomes since the crisis; and
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
what have been the associated developments in the distribution of income and wealth - the financial
outcomes - since extraordinary monetary policies were first implemented.
Reinforcing the foundations
Any assessment of the distributional consequences of monetary policy must recognise that the negative
effects of unemployment and volatile inflation fall predominantly on the poorest in society.
inflation hurts those, typically the less well off, who don't hold equities or
High property or whose incomes are
fixed in nominal terms.xxiii
Equally, if inflation is too low in a highly indebted economy, dynamics can quickly develop that raise real
interest rates, increase debt burdens, lower wages, and reduce growth. In extreme, these can morph into
debt deflation, causing very high and persistent unemployment. Again, the highly indebted tend to be less
well off, and to pay the heaviest price.
The happy medium is a monetary policy framework with a credible commitment to low, stable, predictable
inflation over the medium term, as in the UK's tried and tested
arrangements. These give monetary policy
the space to respond to shocks, while avoiding the distortionary effects of volatile inflation.
... and incomes of the young fell most
Chart 12: Rise in unemployment among the Chart 13:
much larger than for older age cohorts...
young sharply during the recession.
16-24 25-34
16-24 25-34
35-44 45-54 35-44 45-54
% change since 2006
pp increase since 2006
55-64 65+
55-64 65+
25
8
7
20
6
15
5
10
4
5
3
0
2
-5
1
-10
0
-15
-1
-2
-20
2006 2008 2010 2012 2014 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Labour Force Survey and Bank calculations. Source: Family Resources Survey and Bank calculations.
Income deflated by the consumption deflator.
Experience shows that when the economy enters recession, the poorest are hit the hardest. During
recessions the lower-skilled, lower paid people tend to lose their jobs first.xxiv
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And recessions disproportionately affect the young (Chart 12).xxv Graduating in a recession is generally bad
someone's
news for earnings trajectory (Chart 13). The most advantaged graduates tend, over time, to
recover, but the least advantaged can be permanently affected.xxvi
In the extreme, prolonged recessions can lead to permanent labour market scarring, with potentially
devastating effects on livelihoods, identities and communities.xxvii
That is perhaps why studies of expansionary monetary actions generally find they reduce, not increase,
inequality while raising demand and supporting jobs.xxviii And there appears to be little evidence that
stimulative monetary policy makes groups worse off.
Do these lessons apply to the most recent UK recession and recovery?
Macroeconomic Outcomes
The 2008 financial crisis threatened depression and mass unemployment, with the least well-off most
exposed.
Fiscal policy quickly came under severe strain as tax revenues plunged, the costs of social benefits rose
sharply, and the huge bills for too-big-to-fail banks came due. Since then sustained austerity has reduced
the fiscal deficit from around 10% of GDP in 2010 to around 3 1⁄2 % today. While necessary, this has, on
average, subtracted around 1 percentage from demand each year. Over that time, structural policies have
boosted participation in the labour market but have been unable to return productivity growth to anything
resembling its historic average.
For seven years, in the face of severe headwinds to growth, monetary policy has been the only game in
town.
Its task has been complicated by those historically low equilibrium interest rates. These likely turned
negative in the aftermath of the crisis, meaning that monetary policy has had to run very fast just to stand
MPC
still. Given constraints on how low nominal interest rates could go, the Bank of England's had to buy
-
gilts so-called Quantitative Easing (QE).
not acted? Simulations using the Bank's main forecasting model suggest that the
What if the MPC had
Bank's monetary policy measures raised the level of GDP by around 8% relative to trend and lowered
unemployment by 4 percentage points at their peak. Without this action, real wages would have been 8%
lower, or around £2,000 per worker per year, and 1.5 million more people would have been out of work. In
short, monetary policy has been highly effective.
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Financial outcomes
So monetary policy has been highly effective in doing its job, but what have been the distributional effects on
financial outcomes? Has monetary policy robbed savers to pay borrowers? Has the MPC been Robin Hood
in reverse? In a word, no.
... as have all income quintiles
Chart 14: The poorest have gained the most Chart 15:
while all wealth quintiles have gained since
2006-8...
Lowest wealth Lowest income
Total net
Second lowest wealth Second-lowest income
wealth (%
Middle wealth Middle income
change since
Second highest wealth Second-highest income
% change since 2006
2006-8)
Highest wealth Highest income
12
60
10
50
8
40
6
4
30
2
20
0
10
-2
0 -4
2006-8 2008-10 2010-12 2012-14 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Wealth and Assets Survey (WAS, ONS) and Bank Source: Family Resources Survey (FRS) and Bank
Calculations. Calculations. Income deflated by the consumption deflator.
in part because,
That's to a large extent, the thrifty saver and the rich asset holder are often one and the
same. Just 2% of households have deposit holdings in excess of £5,000, few other financial assets, and
don't own a
home.xxix So the vast majority of savers who might have lost some interest income from lower
policy rates have stood to gain from increases in asset prices, particularly the recovery in house prices.
Alternatively, have low interest rates meant the rich get richer at the expense of everyone else? Again, no.
The data show that the poorest 20% of households have actually seen the largest proportional increases in
their net wealth since 2006 though a large part of this is due to a painful deleveraging (via lower
(Chart 14),
mortgage debt). The data do not support the idea that the period of low rates has benefitted the wealthiest
at the expense of the least wealthy. In actual fact, all wealth quintiles have experienced wealth increases.
What about the distribution of income? Similar to wealth, and although labour income has been exceptionally
weak, the total incomes of all groups have risen since 2006 (Chart 15). In fact, between 2006 and 2014, the
bottom 20% saw the largest proportional gains, in spite of a devastating recession. Moreover, all groups
have gained since 2009, when extraordinary monetary measures began to be implemented.
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Monetary policy's record
In sum, the macro-financial record of the "only game in town" is clear. It is not just that mass unemployment
and debt deflation have been avoided. Since rates were cut to their (then) lowest possible levels and QE was
launched, 2 1⁄2 million jobs have been created, the proportion of people in work has moved to its highest level
on record, nominal wages are up 17%, real GDP is up 15%, and the UK has consistently been one of the
strongest economies in the G7. All major income groups have seen their income and wealth rise.
Monetary policy has offset all of the headwinds to growth arising from private deleveraging, fiscal
People haven't been made poorer; rather
consolidation and subdued world growth (Chart 16). across major
income and wealth categories, they are better off, and at the margin, surprisingly, income inequality has
fallen a bit.1
doesn't it feel like the good old
Why, then, days? Because anxiety about the future has increased, because
productivity hasn't recovered, and, as a consequence of the latter, because real wages are below where they
-
were a decade ago something that no-one alive today has experienced before.
The underlying reasons for the 16% shortfall of the UK's productive capacity, relative to trend, are poorly
understood.
What is clear is that the influence of monetary policy on productivity is limited. It can only stabilise demand
the economy's
around potential; it cannot increase it.
Boosting the determinants of long-run prosperity is the job of government's structural, or supply-side policies.
influence the economy's investment in education and skills; its capacity for
These government policies
research and development; the quality of its core institutions, such as the rule of law; the effectiveness of its
regulatory environment; the flexibility of its labour market; the intensity of competition; and its openness to
trade and investment.
The Chancellor's recent Autumn Statement begins the process of rebalancing policies. While fiscal
prudence will continue, the degree of fiscal drag will be reduced somewhat, and major investments in the
structural drivers of productivity including R&D and strategic infrastructure are planned.
1
To be clear, these improvements in financial distributions were not explicit objectives but; but welcome outcomes.
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Chart 16: Productivity explains all of the shortfall of GDP; while monetary policy has offset all
headwinds to it
pp deviation from 1993-2007 trend
10
5
0
-5
-10
-15
-20
Headwinds Monetary policy Productivity GDP
-25
2008Q1 2010Q1 2012Q1 2014Q1 2016Q1
Source: Bank Calculations. "Headwinds" include the drags on demand from deleveraging, subdued world growth,
fiscal consolidation,
and uncertainty. The contribution of monetary policy is computed by considering the impact on demand of maintaining Bank Rate the
level prevailing immediately before the crisis.
VI. Building a Globalisation that Works for All
To address the deeper causes of weak growth, higher inequality and rising insecurity requires a globalisation
that works for all.
For the societies of free-trading, networked countries to prosper, they must first re-distribute some of the
gains from trade and technology, and then re-skill and reconnect all of their citizens. By doing so, they can
put individuals back in control.
For free trade to benefit all requires some redistribution. There are limits, of course, because of fiscal
constraints at the macro level and the need to maintain incentives at the micro level. Fostering dependency
on the state is no way to increase human agency, even though a safety net is needed to cushion shocks and
smooth adjustment.
Redistribution and fairness also means turning back the tide of stateless corporations. As the Prime Minister
recently stressed, companies must be rooted and pay tax somewhere: businesses operating across borders
"have responsibilities ... in terms, for example, of payment of tax." They must recognise "the role
that they
play in local communities and the responsibilities that they have in any country they are operating in to abide
by the rules."
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That is why the G20's
BEPS initiative, which will allow all countries to work together to implement measures
against tax Base Erosion and Profit Shifting, is so important. And that is why the G20 might at least consider,
as Larry Summers has suggested, a minimum tax on reported earnings to be paid somewhere.
Because technology and trade are constantly evolving and can lead to rapid shifts in production, the
commitment to reskilling all workers must be continual.
In a job market subject to frequent, radical