The Rest Is Politics: Leading - 44. Mark Carney: Bank of England, Trussonomics, and Brexit

Episode Date: November 6, 2023

Can financial markets help fight climate change? What's the true economic theory behind austerity? What does the Bank of England actually do? Tune in to today's episode of Leading, where Mark Carney joins Rory and Alastair to answer all these questions and more. TRIP Plus: Become a member of The Rest Is Politics Plus to support the podcast, receive our exclusive newsletter, enjoy ad-free listening to both TRIP and Leading, benefit from discount book prices on titles mentioned on the pod, join our Discord chatroom, and receive early access to live show tickets and Question Time episodes. Just head to therestispolitics.com to sign up, or start a free trial today on Apple Podcasts: apple.co/therestispolitics. Instagram: @restispolitics Twitter: @RestIsPolitics Email: [e-mail] Producers: Dom Johnson + Nicole Maslen Exec Producers: Tony Pastor + Jack Davenport Learn more about your ad choices. Visit podcastchoices.com/adchoices

Thanks for listening to The Restis Politics. Sign up to the Restis Politics Plus. To enjoy ad-free listening, receive a weekly newsletter, join our members chat room and gain early access to live show tickets. Just go to therestispolities.com. That's the restispolitics.com. So welcome to the Restis Politics leading with me, Alistair Campbell. And with me, Rory Stewart. And our guest today is Mr. Mark Carney, a man who knows the world of finance and banking inside out. as an investment banker for 13 years with Goldman Sachs, Rishi Sunak's alma mater, and as the governor of not one but two G7 economies. First, he's native Canada, where he was born 58 years ago and then the Bank of England.

Making history is the first non-Brit to head the bank since its foundation in 1694. The then-Chancellor George Osborne travelled halfway around the world to talk him into it, and he lived through some pretty turbulent economic times, not least the after-fellarge. effects of austerity and, of course, Brexit, his fear and loathing of which he never really hid. Rarely out of the headlines, not least through his climate crisis work, he was in the headlines again recently endorsing Shadow Chancellor Rachel Reeves at Labour's conference. But might he also himself be tempted one day down the political path? Plenty in Canada seemed to hope so. And meanwhile, with the Chinese economy slowing and the world dealing with a series of major

shocks, not least two recent wars, where does the world go for the much-fornied growth? everyone seems to want. So Mark, thank you for being here. Lots to talk about. Thanks for having me, Alistair. It's a great pleasure. So, Rory, where do you want to kick off with Mark Carney? You usually like to start with childhood. Yeah, go on Mark. Well, yes, give us a sense to that. So we've infued Michael Ignatyev on the program, and you know Michael well, and our listeners are interested in Canada and Canadian politics and Canadians playing a bigger role in the world. Give us a sense, if you can, maybe if it's not too cheeky, about what the difference would have been between your childhood and Michael's growing up in Canada and what the similarities would have been in the way it forms your worldview. Tell us a bit about your childhood. Oh, that's interesting. Well, first off, I grew up in Canada, and I think Michael spent a fair bit of time outside of Canada. His father was a diplomat, and therefore he traveled the world of fair bit. I mean, he did do some of his schooling in Canada. And Michael was his time.

in Canada was in our largest city, Toronto. I was born in Fort Smith, which is a small town in the Northwest Territories, a few thousand people at the time on the northern part of Wood Buffalo National Park. I highly recommend it. Mark, I'm interrupting for saying, but give us a sense of the climate. I mean, what, we get a sense of a freezingly cold place with snow right the way through the winter? Well, absolutely, without question that. But a glorious climate in the summer. I mean, this is, you know, it's far north, think, you know, equivalent of Northern Scotland. So you get the, you know, a couple of hours of night in midsummer.

So a spectacular place. So I grew up, I was born there, spent my first six years there and then moved way south to Edmonton, which is the northernmost city in North America. And, Mark, can I interrupt, what were your parents doing in the middle of nowhere on the edge of the tundra? Well, technically the tegra. Yes, you're right. On the edge of the tundra, because we still had some trees.

My parents were teachers. You know, they were young, idealistic teachers. who went up north because that was the frontier. It was almost the anniversary confederation, so 100 years of Canada. And my father worked for ultimately the territorial government and then became an academic. And so my, you know, formative years of my schooling was in Edmonton through the state school system. And then my career starts to, there starts to be some convergence with, if I go back to the original question with Michael Ignatia, because I went off to Harvard to play hockey and study a bit.

and then various things. And what was there in your childhood or your background that suggested you might go on to do the things with which you're now most closely identified? So my parents were quite idealistic. You know, my father was always going off to social justice workshops and things like that. I thought, well, you must feel pretty good about yourself if you're at a social justice workshop. And they, you know, had a real sense of public service.

And their public service was through teaching and academia and various things. father ultimately, he was briefly a liberal candidate. Just explain to non-Canadians what liberal means in the Canadian context. Liberal means, in the Canadian context, it is center-left in effect. So it is a blar-eyed labor. And was the dominant ruling party of Canada for decade after decade? For decade after decade, yes. And yes, still one of the most successful Western political parties.

Is that broadly where your politics lie? Yes, I would say so. I mean, I think that if I were to try to summarize my career and, you know, a political aspect of my career, but my career's been in and around markets, as you mentioned at the start Alastar, I worked at Goldman Sachs, then I went into the Canadian Public Service, then I was a governor, and then, and now my work around climate is really about getting the market to help deliver what society wants. So aligning the market with, with this transition. And just tell us, what is an investment banker? What do investment bankers do? What do they do that makes them so wealthy? Do you think they're worth that money? And how can Alistair and I get a job at Goldman Sachs? No, I do not want. Rory, you may want a job at Goldman Sachs. I most definitely do not want a job at Goldman Sachs. Go on, would it suit us, Mark? That's the question. I would say, yes, both of you would be eminently capable of being very successful investment bankers, but it wouldn't suit you, which is why you didn't choose to do it.

That's first point. Second point, I will say as well, I was an investment banker at a time when lots of people decided that that's what they should do because that was, I mean, believe it or not, that was viewed as a good job and it had some cachet. And, you know, one of the things that struck me is I worked with a lot of people who really didn't like being an investment banker. They didn't really care about finance. But they thought they should do it.

We meet people in professions throughout our lives who are doing things because they think they should, not because they want to. And they're ultimately very, very unhappy. I was an investment banker. What do investment bankers do? They, in effect, are getting various forms of financing for companies and countries sometimes, ideally for the most consequential things they're doing. And when I was an investment banker, it was a period of time.

I started in the city of London in 1988. I started at a period of time, so just before the fall of the Berlin Wall, and this long period of time where there was a integration of the global economy, convergence, capital spreading across borders, opening up liberalism, which brought great benefit. It ultimately brought big risks. But I was an investment banker at a time when it was interesting, exciting, consequential, and relatively new. even with all of those attributes, I didn't want to be an investment banker for the entirety of my life. And Mark, what's the, so that's the compliment. What is the downside of the job?

What are the things for people who got depressed and didn't like it? Well, I think there's, I mean, there's several downsides. One is it's all-consuming. That's true of many careers. And you draw that out in your, I think, your book, both of your books, actually, about politics. So it's all-consuming. The second thing, and I try to draw this out a bit in, And what I did the Reith Lectures and others is it leads us down a path and it certainly leads

the individuals in that profession. But society as a whole down a path is if something doesn't have a price, it's not valued. And everything becomes equated with a monetary value. And that's a very dangerous position to be in. And it's led to a series of the crises that we've had. I'm not saying investment banking solely, but that attitude, that attitude to subjective value, that price equals value. Let me just follow that up a little bit more, because you're now beginning to sound

New Labor Blarite. Or even quite sort of spiritual. Well, new labor blareite, spiritual. Are you sort of hinting at an idea that you think that some sense how country is becoming more and more profoundly materialistic and that we're struggling to find ways of ascribing value which aren't purely financial? I think that that's a danger in all our countries. It's been a danger.

It's been an issue in Canada. It's been an issue in the UK. I don't think it's a one-way direction of travel. The area I spend most of my time on, which is climate change, what has happened, and it's not perfect, but directly what's happened is very much led by the UK, but other countries, people have said, no, we want to address climate change. We want to move to a more sustainable economy. We might not have a very good idea how to do that, but this is what we want.

And that manifested itself in legislation, which I think you were still in government when it was passed on net zero. So it's the law of the land in the UK. That is an objective. Now, that's an objective that was set without a price. And it's an objective that then other things have to happen. But the economy and the financial sector, and this is what I spend most of my time on, is organizing the financial sector.

So it becomes aligned with what society wants. or at a minimum, you know, people listening to this podcast can judge whether their bank or their pension fund or whatever financial intermediary they work with. Are they part of the solution or part of the problem? And in that way, you start to move from an overall value, the value of sustainability and there are other elements related to that to value in the marketplace. And that's a lot of what I've done over time is to try to align that. The first point is that, the minimum, creating that value, creating the consensus around what society wants, it might be greater solidarity, it might be greater equality of opportunity, it might be other things.

But that is a political process, right? It doesn't have to be a formal political process, but it is about building a consensus and constituency for that. Then you need to align finance, markets, etc., to help build that. I want to come back to your work on the climate crisis, not least in the context of Rishi Sunak's recent pronouncements, which do seem to have signal a bit of shift away from the strategy you were talking about there. But just sticking with your earlier life, what were the qualities in you as an investment banker that others saw that made them think, actually, even though

this guy's only in his early 40s, we're going to put him in charge of one of the G7 banks and make him governor? So what are the different qualities that you require to be a banker focused on making money and a banker essentially one of the key pivots in the running of an economy. Okay. Well, I mean, I think part of it is in the end as a central bank governor, you do have to lead an organization. It's not just a technocratic role in making decisions. It's important to be able to do that, but you have to lead as well. And certainly in Canada, the way the bank of Canada is organized, it is a managerial role as well as a technical role. And whether this was the right judgment or not, what you're looking for in selecting those individuals, do they know how to

develop people, right? That's what leaders do. You develop people. Can you set priorities and be ambitious in those priorities? And one of the lessons I think probably we've all had is it's just as easy to do something really big as it is to do something small, so you might as well stretch big or just as hard to do that. And can you get people behind you? Can you catalyze action by others? And I spent five years from the time I left being an investment banker in 2003 until 2007, working in the Canadian Civil Service, both at the Bank of Canada and our Department of Finance, the Treasury Equipulent. Was that the values of your parents coming through you to say,

okay, I've made enough money now, I've done that, I'm now going to go and do something really useful? I think so. I think so. I always felt that I was not fully missing a odd thing to say, but I mean, I was working 80 hours a week, but I didn't feel like I was really working or working with purpose as an investment baker and I always intended to go into public service at some point in some way and I had that opportunity and went in. And so I had some track record in the public service,

I guess is when they made the decision. Mark, this will be for many listeners the first chance to really get a sense of what a central bank governor is. And you've, you know, you were the government of the central bank of Canada and you were the governor of the bank of England. And we hear a lot about the Federal Reserve and the US and other central banks. If you were explaining to an intelligent but general audience, what on earth is a central bank? Why do they matter? Why do the personalities the governors matter?

Well, let me use the Bank of England as the example to answer that, which is what your responsibility is, you have to have to do a series of things as the institution to build and reinforce and maintain confidence in money. So it starts from the very basic, which is you produce five pound notes, 20 pound notes. How do you know that they're not counterfeits? You have to do a lot of technical things and you're in a war with counterfeits. I mean, people don't use notes that much anymore, but that's basic.

But when you began, Mark, they were using notes a lot. You were printing banknotes. We were printing banknotes and my first day, we had a major confidence. And this goes to confidence in money. It's a broader sense, but we had a controversy where all of the people on the banknotes with Winston Churchill coming on the five were going to be mail. And that rightly undercut confidence in bank notes. So we had to respond to that. You know, it's a separate but important issue. The second element of confidence and money is, does it hold its value?

Right. And that's an issue around inflation. And of course, the challenge we're all having with cost of living is the pound doesn't go as far as it used to or the Canadian dollar, etc. So one of the things that the central bank has to do is move around interest rates, the cost of money, influence the level of the cost of money throughout the economy. in a way that ensures that money holds its value. So that's the second big thing. And Mark, I'm being mean-hipped, but just to keep pushing this, when does this become a profession

historically? When does this become a thing? When do our countries start depending on these people? Well, it starts 1694. I mean, the Reichs Bank in Sweden precedes the Bank of England, but the Bank of England is really the first central bank. It doesn't have all of those, these functions I'm about to go through, and I'm halfway through my list. But it, it's a very much It is to organize at the center of the financial system in effect. One thing I will say, when I went to the Bank of England, one of the questions I asked is exactly your question of my colleagues there is why are you here? What does the Bank of England do?

What is your purpose? In other words, and I have to say at the time, I got very different answers from people. And so we went back and dragged out the original parchment of 1694 to look for the purpose. And the purpose of the Bank of England is to promote the good of the people of England at the time. We say the United Kingdom off for obvious reasons now. Now the sentence runs on for another 600 words and in essence it says to raise money in the war against France.

But we've updated that to confidence in money. I'll mention two other elements though of the central banking role. Because they're central to confidence of money and the third is that your money is safe in the financial system. So if it's in a bank, all of a sudden the bank isn't, you know, Northern Rock, it's not going to collapse and you're worried about your money. And that was part of the point of the Osborne reforms was to get back to the Bank of England the responsibility to oversee the financial system, the health of the banks themselves and the system as a whole. And that gets to the last thing which a central bank's responsible for, which is very techy

but important, which is basically how payments flow through the economy and to make sure that you know, they're real time, they're always on, they're cheap, they're effective. Out of that last bit potentially brings a new role around central bank digital currencies and a lot of innovation that could come through the financial sector. So central banker has a wide range of responsibility, which is why they need a lot of great colleagues and they have to motivate them to deliver those. I think your predecessor, Mervin King also had the responsibility of looking after the Royal Box seating plan at Wimbledon. Was that something you didn't feel you had to strive towards?

Lord King is a considerably better tennis player than I am, so that's why he had that response to me. Very good. Now, let me just ask you this. When watching from Canada and obviously somebody like yourself and having lived in the UK as well and following the UK closely, did it surprise you that it took so long for the UK government, which was the government I work with,

it was Gordon Brown as Chancellor, to make the Bank of England independent. And what do you think about the nature of the independence that we now have? Did it surprise me? I mean, in retrospect, it surprised me, I guess. I mean, we have path dependence in our institutions, and so making these changes are big deals. To be clear, I think the UK system for central banks is the best system.

It is a vault into the best system for a couple of reasons. One is, yes, it's right to have independence in the setting of monetary policy. which means that the decision, whatever the next decision is of the MPC of the Bank of England. MPC Monetary Policy Committee. Yeah, monetary policy committee, which is half internal, half external members, and they'll make the best decision for that. But they are very much accountable. And one of the things that really struck me when I was, the differences between Bank of Canada, Bank of England, was how robust the accountability mechanisms are in the UK. So the quality of the Treasury Select Committee, the interrogation, and I don't mean that in a derogatory sense, at the Treasury Select Committee was candidly much higher than it was in Canada.

Of course, the media and the number of commentators and the richness of all that. So you can be independent, but you have to be accountable. And then the second thing that is an innovation in the UK is the Chancellor sends an annual letter to the governor of these. And there's a few committees at the Bank of England that correspond to those various responsibilities. I talked about a moment ago. And that letter can provide a bit of a nudge within the context of the overall legislation. So, for example, when I got there, George Osborne's guidance was, listen, you can use a little more flexibility in the time horizon that you bring inflation back to target if you justify it. And that's important in circumstances such as COVID, as it turns out, where you have a big shock or Brexit and other things.

And then the last thing, which subsequent chancellors have done and Rishi Sudak did this when he was chancellor and it's been followed up since, is to give guidance to those committees that you have to take climate change into account in your deliberations in safety and soundness of the banking system, the financial. system as a whole, and if appropriate in monetary policy. Now, Mark, one thing, I guess, that was a profound shock to almost everybody was the 2008 financial crisis. And I guess one of the reasons it was a shock is that from the moment that you started working in Goldman Sachs in 88 onwards, for 20 years, we'd been given the impression that there was this sort of magic thing called a market and these wonderful central banks and this financial system which was somehow had this kind of invisible self-regulating hands. It was super intelligent.

It made rational decisions and we were all going to be fine. And we suddenly woke up and found ourselves in a really horrifying situation, a situation from which, incidentally, Britain has not really recovered. I mean, we found ourselves the second highest productivity growth in the world for 25 years. And second, you know, we had higher GDP growth per capita in the US in the lead up to 2008. Since 2008, our productivity has collapsed. and has barely taken off again, and we just don't know what's hit us. Can you tell us a little bit out what on earth this event was? What was 2008?

Why did it mass her? And why did Britain end up suddenly being knocked on the ground? Yeah, critical questions. And you're absolutely right. I mean, we're in a situation. The UK is in a situation where real average incomes are no higher today than they were in 2007. And one of the things that struck me when I was there was, if you look back over history, the last time that happened, anything like that happened, it wasn't quite as bad as the mid-1800s.

And so literally, you know, Marx is writing the Communist manifesto in the British Library. So it is a profound shock. There's a few things in terms of what happened, what caused it. And I'll only make one point on that, and we can drill down. But one of the mistakes that was made and made more so in the UK, but made various places, was the answer to Mark, imperfections, you always find market imperfections as things, function, was to add additional markets. So you end up getting not just mortgage-backed securities, but securities based on mortgage-back securities and derivatives based on those derivatives of derivatives. And it's

a sort of progress through infinite regress. It's markets on markets on markets. But when you build markets on markets on markets, it becomes quite a fragile system and can collapse back in on itself. And that is a big element of what happened. And who would have been responsible for the decisions that led to that? Well, in the UK, it was this, I mean, this is a, I don't know if the term was coined with the financial crisis, but it certainly came out of it, was it was nobody underlap between the various authorities, between the Bank of England, the Treasury, the what was called the, the FSA at the time, the Financial Services Authority, which is the market regulator. They were all pointing at

each other after the fact about who should have been responsible for that. And that's why, by basically systemic responsibility is now on the head of the Bank of England. So Governor Bailey and his colleagues have to always be thinking about, is there a systemic problem in the system? Whether we're responsible, we as the Bank of England are responsible for it and not directly. We have to, in a minimum, identify it and do things to mitigate. So that was the first element. But, Rory, to get to your point, I think we have a few things that's happened in the UK.

One is some of that productivity growth prior to the crisis was ephemeral, because it was measured productivity in the financial sector and, you know, it went away. And sorry, Mark, what does that mean measured productivity in the financial sector? Well, it was the way we measured productivity, the statisticians measured productivity in the financial sector is a lot through credit created. So if you're lending more, you're more productive. But of course, if you're lending to go back to my earlier point, markets on markets on markets, that then collapse on themselves because there's too much. That's not really productivity. That's that's financial instable. So, Mark, one way of looking at it when we're being gloomy about the collapse of productivity

in the UK, some of the productivity before 2008 was to do with this form, this sort of bubble, this kind of exaggerated credit-fuelled financial bubble, and that after 2008, as that began to return to reality and we became less dependent on that kind of finance, that kind of productivity he vanished. That's right. That's some of the story. It's not by any stretch of the imagination the whole story. The second bit of the story, which is now faded, but it was initially true, was we had the banking system basically collapsed. It was propped up by the public purse, but it wasn't functioning. And the government buying the Royal Bank of Scotland, providing other forms of capital and what's called liquidity support coming from the Bank of

England, but the institutions couldn't function as well. And liquidity support again for listeners is you printing money. It's quantitative easing. Well, it's not printing money. It's lending money against illiquid assets. So I'm a bank and I've lent you a 30-year mortgage. And I can't turn that into cash today to pay Alistair. But I could potentially pledge that to the Bank of England, which lends me the money that then I pay Alistair the cash out. And I mean, that's a simple version. But broadly speaking, the bank of England is putting more money into the system. The government, is buying up banks, and that's one of the ways in which we try to get through the 2008 financial system. Okay, so now we're, I'm really enjoying this, and we're losing all our listeners because we're going down into... They love it.

They love it. But this is central to everything we talk about, and nobody's ever explained it to us, so thank you. So, so, you know, 85% of the money in the system, what we think of as money, is created by banks themselves, and they're created by lending out to individuals. Now, when you have a financial crisis, when they lose a lot of money, when there's a lot of uncertainty, their willingness to lend goes down dramatically. And that money collapses. So what happened post-financial crisis is the bank money collapsed and the central bank comes in and leans against it, but it can't lean against it enough.

Now, I still haven't gone into your productivity answer, but part of it was that the financial system wasn't functioning for a few years. and that hit investment. And then unfortunately, we start to come out of that. We, the UK, start to come out of that. And we get knocked by a bit by the Euro crisis, but not quite as much. But then there's definitely, and I'm sorry to say this, but the facts just are absolutely clear, that you see investment flatline, business investment in the UK as a share of GDP. It absolutely flatlines from the point of the calling of the referendum and it hasn't really

recovered since then. And that is a big element of, my judgment of why the UK's productivity has performance has been worse than others, even though the performance of others has not been great post financial crisis. Okay, Mark, Rory, let's take a quick break. Hi, everybody, it's Dominic Sauerich here from The Rest is History. Now, some of you may have heard me on your show, the rest is politics when Rory was away and I was filling in and enjoying Alistair Campbell's tremendous banter. and I'm back to tell you about our new series on The Restis History, which is all about Britain in the 1970s, a period with a lot of uncanny resemblances to our own.

So right now we're living through a moment when oil shocks generated by war in the Middle East are rippling through the world economy, when Britain feels like it's sunk in a bit of a malaise, people are arguing about Europe, the government has got a few issues with the trade unions, and we have a kind of, I suppose you'd say governing elite, a kind of political class that is really struggling to come to terms with all of these issues.

And people are asking if Britain is governable at all. So there are a lot of parallels between that Britain that I'm describing, which is our Britain and the Britain of the mid-1970s. So in this series that's coming out on the rest is history, we'll be looking at these and other issues. We'll be talking about the rise of Margaret Thatcher, obviously a colossal figure in our political life even now, whether you love her or loathe her. We'll be talking about the very first Brexit referendum of 1975, a subject that I'm sure Rory and Alistair will have strong opinions about. We'll be talking about the fall of the Labour Prime Minister Harold Wilson and we'll be talking about one of the grimest moments in Britain's economic history, the moment in 1976 when we had to go cap in hand, as people said at the time, to the International

Monetary Fund, the IMF, for a then record bailout. Now, if that sounds good to you, how could it not sound good to you? Of course it sounds good to you. We have a clip for you to listen to at the end of this episode. And if you want to hear more, just search for The Rest is History, wherever you get your podcasts. Well, no doubt, we'll get on to Brexit, but let's do it via the bridge of austerity. So George Osborne travels halfway around the world, decides you're the guy, he talks you into it. You were pretty reluctant at first, I get the sense, but then he talks you into it, you come and do the job. And you are kind of, you know, you've got these two massive things that are happening. You've got, you've got austerity, and you've then got

the Brexit referendum happening on your watch. You're totally opposed to it. You talk about it's going to hit us for at least 2% on growth. It's going to cause all sorts of problems. You get vilified by parts of the right wing in politics and the media for saying what you think, and on we go. But looking back now, first of all, your assessment of Cameron and Osborne, as political and economic leaders. Secondly, your assessment of austerity about which Roy and I argue a lot. And thirdly, your assessment of how much damage breaks it has done. In terms of the first, look, I think that as political leaders, you're better judges of this, far better judges than I am. In terms of having clear objectives, taking the country in a direction that it wasn't going in, being successful

politically, I mean, getting reelected, etc. Largely getting their program through, I would say they were very successful. I mean, there were misjudgments, and then you could make judgment about specific policies, but they definitely swung the direction and worked, at least from what I could see, and I saw only a sliver of this, but they worked effectively as a team and were complement, complements to each other on that. And Mark, sorry, just one of the things that Alaston I often talk about is, and we interviewed George Osborne on the show about this.

narrative has obviously developed very, very strongly amongst the British left, that all the problems of the country are due to austerity and that austerity was entirely unnecessary, and that there wasn't any reason to try to reduce public spending or control debt after the 2008 financial crisis. What would be your sort of balanced assessment of this if you were trying to hit a middle ground between George and Alistair on this? Not to lead the witness. I would like to, yes, I would like to give a very reasonable balanced answer to thus too extreme. To that leading question.

Yes. Which totally misrepresented by position. Carry on. Look, I think that the UK was in a position post-financial crisis where there was need for, the polite word, is consolidation of the fiscal situation. It did not have the ability to have a large fiscal response. In other words, a large budget that would support the economy during the initial times. And that's a grand way, Marker saying it didn't have the option of spending lots of money.

It didn't have. No, it didn't have the option of spending lots of money. And then the question becomes governing is all about choices and it becomes about which choices you make when you spend less money and how that is done. Look, there aren't that many levers. If you know you're going into a very difficult period for families and households and adjustment because of the financial crisis, because of the overall economic situation, do you choose, austerity to focus on benefits and people, or do you focus on other elements of spending? Because in the end, your ability to spend as a government is determined by the totality of that, of that spend. And so whether it's in defense, whether it's in foreign aid, whether it's in, you know,

there are other pockets of money that could have been used. So essentially you're saying that you felt that there were really few options other than to reduce spending, you just felt that you would have preferred them to reduce spending in other parts of government expenditure rather than putting the cuts and things like benefits. Yes, it's easy for me to say, and I was pretty consumed with my responsibilities governor, but I think when you have these necessary reductions in spending, there has to be an element of we're all in this together, and there has to be a recognition of those in society who are most affected by the reductions and perhaps a bit more thought could have been put into that.

But again, look, I'm sitting in Ottawa making these judgments well after the fact, and that's quite a different circumstance. Yeah, some of us were saying that kind of thing at the time, but the Etonians were on the march and they just weren't being stopped. Let's then close off on Brexit. You were pretty vocal. As I said earlier, you got quite a lot of flack from that. But tell me what you were feeling as the governor of the Bank of England as that debate was unfolding and as it led to its conclusion.

And then rather extraordinary moment when David Cameron resigned and there was like a vacuum and you became part of the voice that sort of stabilised the country and the economy, which must have been a very, very strange feeling, was it not? I mean, it was an extraordinary time without question. And everyone who lived through it, I think would view it as such. There is a link between the two, though, and I'll make it. which is, you know, our job as a central bank is to plan for failure in various ways. So we should spend our time thinking about, well, what if not, oh, the UK banks are strong and therefore nothing can happen, but what if one of them goes down? What if one of them does something really stupid?

It goes down. What would we wish we had done in advance in order to protect the British people, the system but really the British people in that regard? So our issue with Brexit, what we had to do with Brexit as it was going through the referendum was, what if leave wins and we leave immediately with a hard Brexit, what gets known as a hard Brexit? Because after all, that was the scenario that would be most disruptive to the financial system, most disruptive to the economy. Our job was not to sit around and think, well, what if it's a soft Brexit or no Brexit, etc. That's the easy scenario. So what we did was think,

okay, well, what would the economic impact of that potentially be? By the way, it looks like we basically got that right. Secondly, what would we want the banks to do in advance? And we talked about liquidity a moment ago. What we did get them to do was to pledge silently, you know, huge amounts of their ballot sheets to us so that we could lend to them up to 300 billion pounds on the day of the referendum, if necessary, to stabilize the system. But we did that because we thought, well, what's the worst case and what can provide confidence in that circumstance? And our analysis, happened during the referendum campaign is that accountability mechanism going to parliament is they pulled our analysis out. They said, if you've done analysis, you've got to tell us about it.

So I had to go and testify and we had to release that analysis of these worst case scenarios, which as I say ended up being certainly directionally right, absolutely true. But then on the day of the result, George Osborne called me 6 a.m. and said the prime minister is going to resign and he will make a statement and can you make a statement after the prime minister? And it was, I mean, it was obviously an extraordinary circumstance, but it was a very easy statement to make because the core of the statement that I made was, we are well prepared for this. British people have decided to leave. We are well prepared. And as soon as I say, we are in a position to lend up to 300 billion pounds to the UK bank, then that whole issue is taken

off the table. The economics aren't taken off the table. But the venerial, system being in a tough spot. What sort of weight did you feel upon yourself? Did you not feel an incredible weight in that moment? I think the, I mean, yes, but that's the value of preparing. So I did feel, I felt very confident that we had done what we needed to do. And I was well advised, Jenny Scott and others who I worked with well advised. And I think how to communicate that in a way, don't speak like I normally speak, but speak in a way that somebody who's watching announcement says, okay, that's fine. Bank of England, the financial system is under control. Because, you know, of course, this is happening only a few years after the financial crisis when the financial system

was anything but under control. When we did the analysis of what would happen with Brexit, what it would mean is that the supply side of the economy, the productive potential of the economy, would go down. We're ripping out our trading relationships with Europe. Europe, we'd have lots of issues in the labor market, and for a period of time, our capacity in the UK would go down. We then thought that's going to mean that unemployment is going to go up because a bunch of people are oriented to Europe and now they have to reorient, that the pound would go down, which you clearly did, it went down 20%.

Inflation will go up even though the economy slows and the Bank of England will need to raise interest rates in order to keep inflation under control and protect the value of money. I have to say that in talking to people in advance, they were like, well, there's no way all of that's going to happen. And that is exactly what happened. And that what's happened to the UK economy and the rest of the world is on top of that, we got the COVID shock and an energy shock, all of which went in the same direction, all of which made this that much worse.

It was there for all to see. It was denied. And the people voted as they did for many reasons. and a lot of it to do with identity and sovereignty and fully understand that. As an organization, do you wish you could have done more to, if you like, educate the country about the realities that you were dealing with? Do you think it was just impossible because of the way it was playing out politically? I don't think it was our job to educate people on it.

It was our job to ensure that the financial system could handle whatever result that people chose. It was the job of others to do that education. And we failed? Yeah. Or I think people did not fully appreciate the economic consequences. I think it's safe to say that. The damage that you've outlined that Brexit has done, is it recoverable and in what time frame? And with what decisions in regard to Europe?

The experience since the financial crisis has been, when you get a shock to the economy, you move down the level of where the economy would have been relative to its previous path. And then the question is, what's its speed limit? limit going forward, you know, what rate of growth can it sustain? And what has happened with each of these shocks is it's moved down relative to previous paths. And as Rory was saying on productivity, is that productivity growth hasn't picked up relative to previous rates. So you don't recover. We haven't in the UK recovered from the financial crisis shock. We haven't recovered from the Brexit shock. And we're not tracking in order to recover. And so that gets to your question, which is what can be

done to do that. Look, the whole exercise, the economics of it, was predicated on two things. One was that we can make up for the lost markets in Europe with bigger markets elsewhere. That's virtually impossible in the current geopolitical environment. The math never stood up, but it's impossible now. Just on that one, because I think that's an interesting one. I mean, I think it's worth reminding people that one of the big arguments at the time was that the Chinese economy was growing much more quickly, for example, in the European economy, you know, had grown by 40% in a period in which the European economy had grown by 9% of global growth compared to 9% of global growth coming from Europe. And that as you say, one of the things that shifted

since 2016 is the geopolitics, the sense that we can't really build an economy reliant on trading with places like China and that actually there are strategic reasons for the relationship with Europe, which went beyond how fast its economy was growing. Yeah, I think that's, I agree I agree with all of that. And of course, what's also happened now, we're in the process of happening now. It's given various terms like friend shoring or onshoreing, et cetera. But what is becoming critical is to be part of a web of trading relationships amongst like-minded countries. So if you're Canada, you have a free trade deal with Europe. You have a free trade deal with the U.S. and Mexico. You have a free trade deal with Trans-Pacific Partnership, everyone in Asia, bar China. And you're

part of exactly those supply chains that you want to be. And the UK is trying to build that. And what's missing, which is where Alistair started, is the trading relationship, where is the trading relationship going to settle out in Europe? It's not in a position that gives the benefits that Canada has in terms of the trading relationship, despite the fact that much of UK industry, you know, has not just historically, you know, over the course since 1973, but over the course of centuries has been integrated with the European market. Can I just quickly come in, because many of our listeners listening to this talk about predictions will remember Project Fear. So I think it's worth, again, for people remembering that one of the most dramatic

bits in the Brexit referendum was that George Osborne and the Treasury produced a whole series of claims about what they said was going to happen in the aftermath of the referendum. So they said that unemployment would increase by around 500,000 in a wake a Brexit vote. They claimed that it would push the UK into recession with four quarters of negative growth, that there would be an immediate rise in interest rates. None of that actually happened. And I'd be interested in trying to get a sense of what lessons you take for these kind of things about the ways in which chancellors and treasuries get involved in campaigning. Because, of course, the consequence of that, as Bob Kerslake said a couple years later,

was a profound loss of trust from a lot of the British public in the Treasury and Treasury predictions because those doom and gloom predictions were not confirmed in the way that Oswald predicted. Well, there's two things. And this is what gets lost in scenarios or predictions and things like the Treasury did, is that what is Brexit and when does Brexit actually happen? So what happened with the referendum is had a vote to leave. And as we all know, tremendous uncertainty about the actual terms of that leaving and the timing of that leaving that plays out through the May government, the Johnson government, etc.

And gradually a deal is negotiated. And what happens to asset prices is the one variable that anticipates the direction is the exchange rate, the sterling exchange rate. And it falls, you know, weighted against all currencies by about 20%. Now, what does that do to the economy? That gives the economy a boost because it is anticipating something that has not yet happened. So British goods and British activities cheaper, but it's cheaper because it's going to be harder to export. But it isn't yet harder to export because we haven't actually left. The UK hasn't actually left. And so you don't get the hit from Brexit until you actually leave. You actually get the dampener in terms of the exchange rate before you leave. But eventually,

the UK does leave. And eventually you get the accumulated impact, which is the same thing. is what we're seeing now in terms of lower investment, scrapping, you know, plant and equipment, lower exports, lower income growth, lower productivity, all of that is coming to pass. You know, we have lower labor force participation. Now, part of that is because of COVID and other factors. But, you know, the hit is starting to accumulate and it will accumulate on current trajectories to the orders of magnitude of, you know, a 10% difference in GDP that people had expected. Last point, things can change, you know, the relationship can change. Other economic policies

can help change the trajectory here. So it's not like the countries without agency, but directionally those predictions were right. And what was compared in the immediate aftermath of Brexit, just to reemphasize the point, of the Brexit referendum was an economy that had not left the European Union yet. It now has. And I think to all but the most ardent support, of it, it's pretty clear the direction of the economic impact. One thing I want to thank you for for your time as Governor of the Bank of England is the Bank of England became a time to change employer and a leader in the mental health field. And I did some work with the bank at that point. And I want to thank you for that.

But the reason I specifically don't want to raise that is the last time I was there doing some of that work was just in the aftermath of the trust quarteng mini budget where I got the feeling that the sense of sort of being very, very close to the edge of a cliff was, if anything, even greater than when you were pushed out of the door by George Orsborn to say, everything's stable, everything's fine. Give us a sense of how looking from a distance, that trust moment looked to you and whether you understood why the markets went quite as crazy as they did. Yeah, I think your assessment is right in terms of directional. The difference with the Brexit referendum is we had prepared, number one, number two, we had a breathing space because there still was the whole thing to be negotiated. Look, from a distance, it looked like a couple of

things. One was, first off, you had fiscal policy operating in a different direction of monetary policy. Monetary policy is trying to be tight. All of a sudden, fiscal policy gets incredibly loose. So you mean taxes are being dropped? Taxes are being dropped. You're trying to stimulate the economy at the same time that the Bank of England's trying to tap down on the economy. because inflation is far too high. So you're putting on the accelerator on the brake at the same time? Accelerated the break at the same time, exactly. And if you were Canada, then I could extend the analogy because what happens is there's ice

on the road and you're going to skid off the road. That's one thing we know here. It's not quite ice outside my window yet. I'm not sure of you, it's coming. The second thing, and this is the really damaging thing, is we talked about this earlier implicitly about institutions and the institutional setup of the Bank of England. that budget and what surrounded that budget both publicly and very much privately was absolutely an attack on the core institutions, the OBR and the Bank of England, and the Bank of England's independence and setting policy. And Mark, just help, sorry, remind people of that. So essentially they didn't bother to consult with the Office of Budget Responsibility before they went forward.

And they didn't really include the Bank of England in this decision making. Well, on the contrary, they attacked the bank for not being fit for purpose. Yeah, yeah, they, yeah, as Alster says, that's in effect what they did and X decisions. And the third thing they did, which is more, but it goes back to the austerity discussion is that from afar, the reading of the measures was effectively they doubled down on inequality because they cut tax for the wealthiest. They got rid of the bonus cap and intended to do more in that thing. and it was at a time when you had increased inequality, a lot of suffering from the financial crisis, from COVID, from the post-Brexit economy, just exacerbating that. That's the mixture of policies that just doesn't look sustainable. Mark, I said right at the outset, and thanks

for giving you so much time. I really enjoying this. I hope you are. I just want to ask you, do you still have political ambitions and aspirations of your own? You kind of look like a politician. You sound a bit like a politician. You've got charisma and all that stuff. If you can avoid going into politics, if you can influence policy without going into politics, I think that's a better life, having witnessed it up close to be candid. But sometimes you need to step up if others aren't going to step up. So that's an open question.

You'll be the first to know. So it's not a yes and it's not a no? Yeah, it's not. I mean, it's it's open. in either at this stage. I'm fortunate at this stage where I have a fair bit of influence on aspects of addressing climate change locally and globally and and I'm always going to be in and around, I think like both of you, policy in some way, politics, maybe with a small pea, maybe with a big pea. And on the climate, what did you think of Rishi Sunak's seeming

Volt FAS in terms of the British government's attitudes? I thought it was unfortunate for a couple of reasons. One is that the UK has actually built a very good system for addressing climate, right? Clear it's in legislation. We have the Climate Change Committee, which is another independent institution, which basically marks the government's homework. It says, you know, the objective is, let's say, 60% in emissions down by 2030. The policies in place only get us to, let's say, it's 40%.

So there's a gap. What are you going to do to fill the gap over to you politicians to figure it out and explain to people what you're going to do? And the UK had credibility about closing that gap. And when you combine that with a financial system in the UK, particularly that's more focused on solutions to fill the gap, that's a very powerful mechanism that gets people investing in anticipation of action. So long comes the government most recently and says, you know what, we're going to take out some of the key planks of those policies, as keys of objectives, which it's entirely right for them to do if they think they have a better way of closing the gap. But what they didn't do is put new policies in place that would have closed the gap. One of the examples of that would be to go directly to homeowners up and down the country and provide them with solutions around a shift to heat pumps, actually get their home energy

bills down, you know, address a current problem and make a meaningful dent in UK emissions. the UK is one of the worst housing stocks in terms of emissions. So this is what they could have done. They didn't do that. So they undermined credibility. They put carbon back in the atmosphere by taking out some of the measures. They didn't address it by taking it out with other measures. And then on top of that and understand there's Baltics around it, I don't know what the right

word is, but they sort of juvenileized the debate with the meat tax and the seven bins and things like that, which just, again, it chips away at the credibility and the clarity of the ambition. And last point, the UK's got, has had great momentum in dealing with these issues, and you start to throw that into question, and you end up giving a lot more up than just the specific measures. Mark, really last question for me, the politics of climate change. I mean, in some ways, I guess a bit like Alistair and me, you are a product of the optimistic world of the 90s and early 2000s. We're now in a very different age. Since 2014, we've been in an age of populism. And one of the big things that's becoming clear is that entrepreneurial politicians

around the world are beginning to sense that the public is reluctant to take many of the steps required to address climate change, partly because the earlier steps were kind of lower-hanging fruit and now the stuff is really hitting people in their fuel bills or through ultra-low emissions sense. And that's causing a big, big problem politically. How do you find a way of reconciling science, your technocratic instincts, your desire to clean up the environment with the raw, brutal politics of the fact that politicians around the world, voters around the world, are becoming extremely reluctant to reach deep and take the economic pain to make the climate change targets? It's in many respects the question. And I'd say the following. First is, I think it is important

to underscore just how much progress is being made. And there's various ways to package that. Maybe we don't have time for me to do all that. But if seven, eight years ago at Paris, the world was headed to three and a half degrees. Today we're headed to 2.4 degrees. But realistically, it's probably sub two degrees, given where momentum is on policy. Five years ago, the world's spending $500 billion on clean energy, okay? 900 billion on oil and gas, conventional, et cetera, a year. last year 1.2 trillion clean energy, 900 billion oil and gas. This year, 1.8 trillion clean energy, half of that on oil and gas, basically. So the spend on addressing the issue is going through the roof. It has almost unstoppable momentum. And these numbers that I could give you a slew of statistics

in it around it, but the progress that's being made is much faster than people expected at Glasgow two years ago. It's much more impactful. It's much more economic. This is where the future is and the future is now. But let me get to the difficult question of the now, because you've got to hold the political consensus, you have to reinforce it. I think the first thing is I'm a big believer in mission, purpose, objective, and having that clear objective. And if you're Canada, I'm in Canada, you're appealing rightly to pride.

We have been an energy superpower. We are going to be a clean energy superpower. That is a core goal of the country. I think the second thing is you need to, and you are both far more expert than this than I, but one of the lessons I learned over time is you see clearest when you see from the periphery. So when you go to people who policies affect, we talked about austerity earlier, you think about climate change and climate change policy. So who is being affected by the energy crisis in the UK right now?

It's households up and down the countries, households in the northeast, where the heating bills have been going through the roof, you know, tapped down by government intervention, but they basically have a structure of housing that lays them exposed to this. And so the number one priority should be to address that. If I were to spend climate dollars in the UK, I would spend it on heat pumps. I would spend it on home retrofits, like, you know, as Boris Johnson used to say, the UK is lagging on lagging. That's absolutely right. We don't often, we don't allow Boris Johnson was right, state. on this podcast, Mark. I'm sorry. You'll have to rephrase that. Someone once said. Someone once said that.

So going into that because you have to give, as you know, tangible results to people that this is part of the bigger emissions. And we're talking, you know, four or five hundred pounds a year of savings for people on their energy bill. I mean, that's real money. Those are climate change committee points or calculations. And then the last thing. And again, you'll be better judged than I, but I think part of what has to come here is this is about security. It is about geopolitical security. It's not being hostage to Putin, not being hostage to large petro states, whether they decide to pump oil. But it's about economic security. We've talked a lot about the future of this economy, the UK economy.

This is a fundamental driver of jobs, competitiveness, exports, growth. and the UK has had a leadership position in this. My judgment absolutely should double down on that position because that is part of what's going to, that's what's going to return some of the productivity that's been lost. Listen, my final question, were you aware when you recorded that very short message of support for Rachel Reeves that it would have quite an impact?

No, this is a short answer. Seriously? I thought, look, I thought, I mean, don't ask, don't get. So they asked. Yeah, they asked and she asked. I have a lot of respect for Rachel Reeves. I know her. I know her ideas. I know the way she thinks about things. And I thought, oh, you know, and I happened to be in London. So I was like, okay. And they got someone out to where I was. And I guess I thought that it would be, you know, a series of testimonials. I guess the exact. But you know what? I mean, she's as I said in that, she's a serious economist. I think, you know, the important thing, and this is maybe a sub-seeing, if I can try to draw together our disparate conversation, is you need to, you know, in policy, you need the macro. You need to know the big picture, these bigger forces, but then you need to translate the solutions down to, you know, the economics of place and family. Because if you don't hold that, if you don't deliver that in relatively real time, you're not going to be able to do the big policies. And I think she's got a good sense of that.

And it didn't lead to another phone call from George Osborne saying WTF are you up to? George Osborne. I think George, well, George can speak for himself. I think he's probably... You think he was her as well? George can speak for himself. I think he's... George is less tribal in his views these days.

Yeah. Well, listen, it's been absolutely fabulous to George. Thanks for giving us so much of your time. Mark, thank you very, very much. indeed and it was a real pleasure and thank you for I mean it's great to get not just a central bank but one who was so much at the center of such critical events and who is now right at the center of the transitions on climate change so thank you so much for joining us my pleasure thanks for having me thank you it's been great thank you again well i thought that was a very i really

enjoy talking to mark carne i have to say he's got a lovely man i think he should go into polities i really do it's a real charmer isn't he a real charmer i mean one of the things that viewers won't have picked up is that the real sign of the charm of the man. As soon as we got off air, he was asking Alist's questions about Burnley and talking details football. And then he went on to ask me when I was going to go back into public life. He's very courteous. I thought he was great. I mean, I think as with any person like that, there is always an uncertainty, a question about what happens if they really were to go into elective political life. And I guess Canadians will wonder whether a bit like Michael Ignatia, if you have this very distinguished kind of international figure

with a big reputation, but who hasn't been part of the practical campaigning on the ground coming in, and can you make the adjustment from being a good policy thinker to being a kind of retail politician? Yeah. The only thing I say, I mean, look, you sort of picked him up a couple of times to explain terms and phrases that he would take for granted. but actually for somebody who lives has lived in that world of finance and banking all his life, I think he explains things incredibly clearly. I'm not big on money and stuff and I really understood how he was breaking things down. And he's definitely got that. It was interesting that thing when his analysis of Cameron and Osborne,

which I thought was very fair in terms of how they thought and how they set things out and worked towards objectives, I got the feeling that was that was his approach. And I loved his observation about he sometimes. and see things more clearly from the periphery. Yeah, I also think his analysis is right. I think Mark is right. I think I agree with him absolutely that there needed to be cuts. There needed to be whatever you want to call it, austerity.

But the way in which it was done and the place in which those cuts was put was deeply, deeply damaging. I mean, I obviously talk a lot about this in relation to prisons. I think the same is true about the approach to benefits. Where I think it's more difficult for people like me and Mark is when people then say, okay, but then where would you have cut? And of course, he talked about foreign aid and defence. Which neither of us would want cuts. No, I think that the point I've always made about austerity is that a political strategy was

turned into an economic approach that went too far. That's my basic feeling. So the other thing I think that we didn't maybe give him enough time on, but I think is a reason why Mark is very interesting and we might even think about bringing him back again, is that he's done amazing work on climate and environment. He's done a lot of work with the UN, he's done a lot of work with big international organizations. He was one of the first people to really think about how you put private capital to work. I mean, because of course the point is that you can't fix this just with government money.

There is all this money, both in terms of oil and gas investment, but banking financial sector, which needs to be brought to bear. And he was really at beginning of that. He did a lot with our current king, with King Charles on this, through something called Sustainable Markets Initiative, which was also about thinking about how you harness the private sector. to move climate change. And it was striking, I think, that optimism. We haven't interviewed anyone in nearly two years now, who's made the point that coming out of Paris, it looked like we'd only be able to keep global warming

at sort of 3.5 degrees. And he now thinks that it'll be down to probably two. Now, I thought the right mix of proper analysis and positivity. I loved his observation as well, that this is the bit where we're losing all the listeners. We'll be able to track whether that is the case. I think they'll have stuck with us to the end. Well, I was very grateful to get someone actually talk about 2008-finish-Grest.

I mean, I think that's the final thing. Just I was thinking, of course, he is a very, very good at explaining things. But my goodness, it's actually quite difficult stuff. And when you think about how central it is to the way our whole economy works, you know, what a central bank is, what it does, what on earth this stuff about fiscal and monetary policy is. And the fact that I'm afraid as a retail politician, I would struggle to communicate some of this stuff clearly to a lot of my voters. And yet it is right at the heart of what determines what happens in our economy. And that is a problem. I mean, that's really where the rubber hits the road. When we put together the induction course for new young MPs, we should have lectures from Mark Carney. That's good. Well, you know, now Mark's committing to more public service. He could sign up for that, sign out of that on the spot. See you later.

See you later. Bye-bye.