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Value(s) Credit, Covid and How We Focus on What Matters
Mark Carney
London: Williams Collins, 2021 Hardback. 608 p. ISBN 978-0008421090. £30.
Reviewed by Nicholas Sowels Université Paris 1 Panthéon-Sorbonne
Mark Carney
was the rockstar among central bankers, to some even a Sean Connery. His
overall compensation package to become Governor of the Bank of England in July
2013 was suitably stratospheric. As the first non-Brit in the job, it included
considerable moving expenses for his family from Canada. Yet arguably he earned
every penny of his pay that sunny morning in June 2016 when Britain
unexpectedly embarked on Brexit. As David Cameron announced he was going AWOL,
and Boris Johnson and Michael Gove appeared gobsmacked on TV, Mark Carney
stepped in to fill the void in public policy. He gave a short announcement that “we [the
Bank] are well prepared for this”. While he was later criticised for his
negative assessments of the sunny uplands of Brexit, the Bank actually staved
off market chaos, by announcing it was ready to pump £250 billion into the
markets if necessary. As Janan Ganesh noted, “[i]t takes some craft to playdown a shock while making handsome provisions for it".(1) In mid-March 2020, Mark Carney handed over his job to Andrew Bailey seamlessly, as planned: again while
Downing Street fumbled, the Bank had been preparing for the impending tsunami
of Covid-19. Given this
record, following earlier damage limitation successes as Governor of the Bank
of Canada during the global financial crisis (or GFC of 2007-2009), Mark Carney
may be forgiven for his lengthy discoursing over good management practices in
this wide-ranging “must-read” to fix not just politics and economics, but to
save the world from climate change. His advice that leadership should set clear
purposes for organisations, be transparent, draw on diversity and encourage
employees to be engaged in their work seems simple enough, though far from easy
to implement. But in
looking at Value(s), Mark Carney’s book begins by examining the first
principles of political economy, before extensively analysing the GFC and
climate change as massive market failures. Appropriately, he starts with the scientific
revolution which saw economics give up its search for understanding value, and
focus instead on price formation. Referring to Oscar Wilde’s aphorism about
knowing “the price of everything and the value of nothing”, he notes that this
shift in economics was profound as it meant moving from an objective to a
subjective theory of value. Whereas philosophers from Aristotle to Adam Smith
to Karl Marx had analysed value as following from the nature of production and
especially the time and quality of labour needed to make things, the
neo-classical revolution in the late 19th century established that prices are
driven by preferences, and to a “lesser extent by scarcity”. This has had
far-reaching consequences. It strips out Aristotle’s concern for “justice” and
a “just price” in exchange. It also means that everything which cannot be
priced in a market society is “neither valued nor valuable”. Not surprisingly,
recent decades in particular have led to widespread “commodification” as “[t]he
logic of buying and selling no longer applies only to material goods but
increasingly governs the whole of life from the allocation of healthcare to
education, public safety and environmental protection”. As a result, “we have
moved from a market economy to a market society, and this is now undermining
our basic social contract of relative equality of outcomes, equality of
opportunity and fairness across generations”. It almost sounds neo-Marxist. Apart from
undermining the social contract, the price mechanism, though powerful in
allocating resources, also suffers from numerous structural failures.
Specifically in terms of finance, the move towards mark-to-market asset
evaluations (i.e., evaluating assets
only by their immediate market price and not by their more fundamental economic
performance) compounds price fluctuations: yesterday’s booming prices encourage
overly optimistic borrowing to buy, while tomorrow’s price collapse completely
changes investors’ balance sheets. Even if the income flows from assets change
little, banks stop lending, “turning liquidity problems into solvency ones
overnight”. This is what happened in the US housing market, which triggered the
GFC. Far more serious, however, has been the
complete failure of markets and prices to value nature, and so compound the
crisis of climate change (and one could add plastics pollution and other forms
of pollution more generally). Since he left the Bank of England, Carney has
been appointed
United Nations special envoy for climate action and finance, while also working
in asset management responsible for environmental, social and governance (ESG) strategy. His examination of the causes of climate change, its consequences and the costs
of limiting global warming to 1.5°C as set out in the Paris COP25 agreement is
extensive and authoritative. The world’s economic development, so far, has
essentially given little value to nature, and its destruction and depletion of
the biosphere are not priced into the way our economies work. If, however, the
extra carbon that can be released into the atmosphere before breaching the
1.5°C ceiling in global warming is viewed as a carbon budget being spent, then the
outlook is dramatic: If we had started [cutting emissions]
in 2000, we could have hit the 1.5°C objective by halving emissions every
thirty years. Now, we must halve emissions every ten years. If we wait another
four years, the challenge will be to halve emissions every year. If we wait
another eight years, our 1.5°C carbon budget will be exhausted. One way or another,
the impending climate shock will cost trillions, either in insurance payments
to meet catastrophic events and hits to production and societies – to say
nothing of loss of life – as temperatures rise, or through the spending to
restructure our economies and societies: Carney quotes figures by the
International Energy Agency, for example, that it will take $3.5 trillion in
investment per year (twice the present rate) – for decades – to transform the
energy sector. Yet, he optimistically argues that clever government priming and
incentives will help release the private capital necessary – to transform
everything. We shall see. To end on a more
positive note, Carney reiterates the point that the predominant response to the
Covid-19 pandemic, at least in its first phase, has been to put human life
ahead of economic calculation. So, there is some solidarity still, to build a
better future. _
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