Carney big's up the benefits of free trade deals, who'd have thought it ?
Britain could lead the world into a new era of democracy and free trade, using the Brexit revolt against the establishment as a springboard to making the global order more cooperative, accountable and prosperous, according to the Governor of the Bank of England.
The current system of global trade has key flaws including wealth and income inequality, a lack of democracy and trust, and serious financial imbalances, Mark Carney warned on Tuesday.
However, in a sharp departure from the Governor's "project fear" warnings of the past three years, Mr Carney said Brexit has the potential to upend these issues and provide the opportunity to create a new way of running the world.
“In many respects, Brexit is the first test of a new global order and could prove the acid test of whether a way can be found to broaden the benefits of openness while enhancing democratic accountability," he said in a speech hosted by the Financial Times.
“Brexit can lead to a new form of international cooperation and cross-border commerce built on a better balance of local and supranational authorities.”
Mr Carney set out a vision of increased free trade of services - one of the UK economy's strengths.
This could rebalance the system more fairly for economies with big services sectors, sharing the gains of globalisation more widely.
Brexit could lead the world in creating a new system of global trade which is more equitable and democratic, Mark Carney said - but there are also risks which could crush trade and harm the economy Similarly, increased use of digital technologies could open the way for even small businesses to serve customers globally, spreading prosperity further.
“Freer trade in services can help to resolve external imbalances, " Mr Carney said. "With barriers to services trade currently up to three times higher than those for goods, the Bank estimates that eliminating this differential could reduce the excess deficits of the US by up to one third and of the UK by up to one half."
“Freer trade for SMEs and services would spread the benefits of global markets much more widely than traditional, more multinational-based free trade in goods. SMEs employ 60pc of workers. More women work in services than men. The digital revolution could help to ensure trade is available to the smallest companies as well as the largest.”
Such moves could even help address the democratic shortfall in the current system, he said, shifting from “prescriptive supranational rules” - such as those set out by the EU - to “more differentiated, national approaches to achieve common outcomes”.
The Governor cited post-crisis action in financial services as an example, where the G20 agreed common goals and systems for cooperation, but allowed each nation to implement the rules in its own way.
None of this is guaranteed to happen, however.
“It is possible that new rules of the road will be developed for a more inclusive and resilient global economy. At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all,” Mr Carney said.
“Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling.”
He pointed to business investment as evidence of this, adding that it has not grown at all since the referendum was called.
Similarly the US-China trade war, itself in part an expression of dissatisfaction with the existing system, threatens to trash global economic growth.
Although the Governor expects the current economic slowdown to stabilise later this year, the trade spat is a key risk.
“Protectionism appears already to be having an impact. Last year trade growth lagged the growth of global activity, and current global export PMIs [private sector surveys] now signal a contraction in global trade,” he said.
So far the trade war has largely affected the US and China, but he said bigger tariffs would have a more significant effect on global growth overall.
“There are signs that concerns about such possibilities are beginning to cascade through economies via reduced investment and demand,” Mr Carney said.
This could even lead to an economic crunch the likes of which has not been seen since the 1970s if a “more permanent disruption to global trade” hammers the world economy’s capacity to supply goods and services.
The result would be slower growth, higher interest rates and increased pressure on indebted companies, families and government, he added.
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