andrew sentance : prospects for global economic recovery speech by mr andrew sentance, member of the monetary policy committee of the bank of england, at the british chambers of commerce annual convention, london, 18 march 2010. * * * i would like to thank michael hume and abi hughes for research assistance and i am also grateful for helpful comments from other colleagues. the views expressed are my own and do not necessarily reflect those of the bank of england or other members of the monetary policy committee. over the three - and - a - half years i have spent so far on the monetary policy committee, one of the things that has struck me most forcefully is the way in which the uk economy is so heavily influenced by international developments. the global financial crisis and the recession which resulted from it have highlighted that very clearly. but even before we felt the full force of the crisis in late 2008 and early 2009, uk inflation was pushed up to over 5 % by a surge in global energy and commodity prices. and looking back over the whole history of the mpc since 1997, most of the shocks to uk growth and inflation that the committee has had to worry about have had a significant international or global dimension. 1 these global influences on the uk economy partly reflect our economic history. flows of overseas trade, investment and finance have played a major part in shaping the development of the british economy, creating a highly international business and financial environment here in the uk. but links to the global economy have also been strengthened by globalisation, which has reinforced international linkages across the world economy as the global economic system has become more integrated and interdependent. 2 key global economic disturbances over this period include the asian crisis ( 1997 / 8 ), the bursting of the “ dotcom ” bubble followed by the impact of 9 / 11 and war in afghanistan and iraq ( 2001 – 3 ), and oil and commodity price volatility in the mid - 2000s. i have discussed the impact of globalisation in more detail in earlier speeches. see, for example, “ monetary policy in turbulent times ” ( 21 april 2009 ) and “ energy and environmental challenges in the new global economy ” ( 21 september 2009 ), both available on the bank of england website : http : / / www. bankofengland. co. uk / publications / speeches / speaker. htm # sentance. the performance of the global economy is therefore critical to the prospects for uk recovery. and it is therefore very encouraging that the global economy

. additionally, under 401 ( k ) plans, it is up to participants to decide what amount to reserve for pension purposes. here, the problem is that the typical 401 ( k ) participant seems to have commitment problems : estimates indicate that the typical 401 ( k ) participant approaching retirement has saved less than $ 50, 000, instead of the $ 300, 000 he would have accumulated under a defined benefit system. procrastination behaviour – based on thoughts such as “ i will start saving tomorrow ” – as well as limited rationality seem to abound. given these examples, my second main message is that since individuals only seem to be rational up to a point, there is considerable value in preserving the collective nature of our system. in such a system, participants automatically contribute enough towards their old age financing while professional asset managers make sure that the contributions are well invested from a risk - return perspective. this ensures that every individual is provided with a reasonable pension benefit after retirement. moreover, collective pension systems are cost efficient, as they exploit economies of scale, and enable intergenerational risk - sharing which is welfare - enhancing to risk - averse individuals. my third main message, which follows from my second, is that you should all realize that the collective nature of our system brings important fiduciary responsibilities for you as pension fund asset managers. keep in mind that compulsory participation implies that participants are not free to choose which pension fund to join, unless they move to another company or industry. in this way, your power to raise contributions is very similar to the government ’ s power of taxation, from which one normally also cannot escape. consequently, you bear an important social responsibility – even more so than “ ordinary ” companies. therefore, pension fund management requires good governance as well as transparency to allow pension plan participants to see what is being done with their money on their behalf. in addition, the compulsory nature of participation implies that you should not only look at private returns, but also try to take social returns into account, as society as a whole has given you the mandate to raise your funds. in this light, i applaud the recent initiatives that discourage socially irresponsible investments. my final message is more of a provocation to you all. in most western countries, pension systems have already been individualized to some degree as part of the shift from defined benefit towards defined contribution systems. to a lesser degree, this has also occurred in the netherlands, with the introduction of conditional