Canada takes over the U.K. economy
The Washington Post, July 3, 2013
Imagine if Barack Obama appointed a well-regarded German banker to replace Ben Bernanke when his term ends in January. Or the central bank chief of the Philippines. How do you think Americans would react?
I'll tell you how. People would say it's insane. How can we put the most powerful economic job in the country—a post with more sway than any president has over employment, interest rates and growth—in the hands of a foreigner? Congress would erupt. Pundits would shriek. In the United States, the idea would be unthinkable.
But in Britain, they've just done exactly that. And no one is uttering a peep.
Canadian Mark Carney, the much-admired head of Canada's central bank since 2008 and a successful Goldman Sachs executive before that, took the helm at the Bank of England this week. Not only has his appointment not stirred the outrage and incomprehension it would provoke in the United States, it's considered a recruiting coup by Prime Minister David Cameron and George Osborne, the chancellor of the exchequer. So much so that the first foreigner to head the bank in its 319-year history will receive an unprecedented pay package worth $1.3 million, including housing and other allowances (Bernanke's base salary is less than $200,000).
Let the London tabloid Carney carnival begin!
No one doubts Carney's talents. He led Canada through the financial crisis virtually unscathed (helped by Canada's more prudent regulatory regime and private-sector risk aversion). He's rightly seen as a policy innovator who, like Bernanke, believes central banks are never "out of ammunition" when it comes to unconventional means to boost economies reeling after a global meltdown. Carney also laudably uses his bully pulpit to call for more responsible private-sector leadership in finance—jawboning that would surely strike a chord in the United States as well.
So it's not Carney's chops that are at issue; it's the fascinating cultural differences that allow the U.K. to hand a foreigner the kind of power Americans would find intolerable.
What explains it? To be sure, smaller countries often recruit talented foreigners to central banking roles. The number two at Ireland's central bank is Swiss, for example, and places from Iceland to Hong Kong to the Maldives have turned to foreign talent as well.
But several forces came together to make a major nation like Britain lay out the welcome mat. The Bank of England was seen as having performed abysmally in the financial crisis—"caught with its trousers down," in the words of David Claydon, a former economic advisor to the U.K. government. Potential candidates for the top job from within the system were tarred by that failure as Downing Street looked to make a clean sweep. At the same time, private-sector bankers are so loathed in England in the wake of the crisis that none would be accepted by the public. "It's not like the British economic and political class has done so well," one former senior political official told me. "If having nationals was the key, we would have done better by now!"
As this remark suggests, the British are simply more open to the idea of tapping foreign expertise. Adam Posen, the (American) president of the Peterson Institute in Washington, served on the Bank of England's monetary policy committee—the equivalent of a voting seat on the Federal Reserve board—from 2009 to 2012. Posen told me that only once in the dozens of public appearances he made before thousands of British citizens did someone come up and say, "Hey, what are you doing here as an American?" Mostly people thanked him for using his know-how to help their country. (When Posen attended a Federal Reserve function shortly after receiving his U.K. appointment, a few governors chortled and agreed that if a foreigner were appointed to the Fed, "Congress would burn the place down.")
Martin Wolf, the famed economics columnist for the Financial Times, noted another wrinkle. "The British don't think Canada really is a foreign country," he wrote in an e-mail. "They think Anglophone Canadians are British people who live far away and so have set up a (more or less) separate country." He said Brits have much the same feeling about Australians and New Zealanders. It doesn't hurt in this regard that Carney was educated at Oxford, where he met his British wife.
But Wolf also offered a deeper cultural contrast worth pondering. "The British are definitively post-superpower in their attitudes," he said. "This is not the same as being post-nationalist, as our relationship with the E.U. demonstrates. But the British do not demand self-sufficiency, even in this apparently crucial policymaking position. The U.S. is of course nationalist, far from 'post-superpower,' and quite sure that it has the best of everything. So why look to foreigners?"
I've long argued that ideas from abroad could accelerate the renewal of U.S. institutions; there's much we can learn from Singapore's amazingly cost-effective health-care system, for example, or from Finland's world-class teacher training. Still, as Wolf noted, the real test for British cosmopolitanism will come if Carney makes controversial choices that go wrong.
In other words: When the foreign power is an economic magician, all hail! If the imported superman stumbles, however, watch out.