A View from the Top: Andy Haldane, chief economist at the Bank of England

BoE boss talks innovation, economy and the UK's productivity puzzle

Andy Haldane says he likes to listen to people on income benefits or without jobs to gain a better understanding about the economy (Rex)

The British are brilliant, says Andy Haldane. “Brilliant at ideas, innovation and creativity. I would go as far as to say the British are geniuses at discovering new ideas in every area from manufacturing to machine learning to AI.”

In fact, he says: “We are great at the R in R&D.” Then comes the but, and it’s a long, drawn-out one: “But we are not so good at the D: the development and the dissemination of those ideas.” He adds a T too – the translation of ideas into growth and scaling up.

“This is a tale of two companies. There are companies which are good at both R&D. They include a high number of exporters and foreign-based companies which invest in the future. Then you have the gold-rush companies in places such as Cambridge, where productivity is as high as 40 per cent.”

“They are the frontier companies, on the high road, but they make up only a small number of companies, perhaps about 10 per cent. But the rest, the long tail, are on the low road. Many companies have not improved productivity levels this century while others have not shifted since the 1970s.”

Therein lies the UK’s productivity puzzle. It’s a puzzle that sends most people comatose but is probably the most vital bit of data that keeps Andy Haldane on his toes as chief economist at the Bank of England.

Here’s why: over the past decade the average productivity per worker has been negative, and you have to go back to the 18th century to see a similar period of stagnant productivity. “It’s been flatlining. This is not only unusual but unique. The UK is an outlier,” he says.

Although falling productivity is a global phenomenon, the deterioration is sharpest in the UK where productivity per worker is one of the lowest in the developed world. It’s lower than that of the Irish, the Canadians, the Americans, the Austrians, the Finns, the Danes, the Germans, of course, and, humiliatingly, even lower than the French, who work a 35-hour week yet famously complete their tasks for the week by Thursday lunchtime while Brits take until Friday to do so. (Luxembourgians and Norwegians beat the rest of the world.)

“Guess what?” he says. “This matters to us a lot. It’s a massive problem for the UK. Our low productivity is important because it’s why real wages have been flatlining over the last decade. It’s important that we diagnose the problem so that we can help find a solution.”

And his prognosis? According to Andy Haldane, bad management practices – particularly in family firms which are loath to invest in the future – and a reluctance by companies to invest in skills, new machinery and methods, such as lean management, are to blame. “Some companies haven’t updated from paper to email – family firms are particularly bad. Low productivity is seen across regions and across industries. Mismeasurement accounts for perhaps half a per cent of GDP growth.”

If that’s the case, surely the puzzle can be solved ? “It’s not for us at the Bank of England to build new roads or new schools. Or train new managers or invest in new skills. But we can point to the reasons why we think productivity is low.”

Pointing out uncomfortable truths and holding up the mirror for the financial industry is something Andy Haldane does rather well, and frequently. He was one of the few figures in the City – if not in the world – who dared question the value that banks add to the economy after the 2008 financial crash. He agreed with the Occupy Wall Street protesters that bankers’ pay was too high and that finance needed its own reformation.

The wiry Yorkshireman went out on a limb again a few weeks ago when he conceded the Bank of England had not been entirely transparent during the financial crash – although he defended its decision to do so for confidence reasons – and warned that the trust in finance may be permanently broken.

It’s one of the reasons why the last time we met in his grand office on the bank’s third floor, overlooking Threadneedle Street, Mr Haldane said over-anxious policy-makers should go easy on regulating the innovations such as peer-to-peer lending, which was emerging from the technological revolution sweeping through finance. A revolution which, he predicted, would be every bit as traumatic as that which has shaken up the retail and publishing industries, and which could lead to great benefits for consumers and small businesses.

Someone listened, and the City’s FinTech industry is booming with new ventures.

He also said, just we were saying our goodbyes, that he was reading up more on evolutionary biology than economics, as it gives him better clues on human behaviour. So is he still doing that?

He laughs: “Yes, even more so. We have changed our research dramatically to look at broader subjects like the impact that inequality, demographics and climate change have on the economy. Economics is one of the most insular of all the disciplines. Perhaps only theoretical physics compares.”

These days the 50-year-old can be found out on the road, talking to people up and down the country, listening to their hopes and fears and “finding out how a 10 per cent increase in the price of a loaf of bread” hurts people’s lives.

His travels are part of the Bank of England’s open-door policy to understanding better what is happening in the real economy. It’s always done this, mainly through its regional network of agents who are in constant touch with local businesses and who then report back to HQ.

But now the Old Lady is coming out too: she’s the one going forth to hold public events like the annual Future Forum in Liverpool next month and town hall meetings around the country. “I see this as the next stage of the Bank’s 324-year evolution. The first 300 years we didn’t say anything. Then we spent 20 years saying quite a lot but no one listened. The last few years we said too much. Last year we published 4.5 million words but only a few people – readers of the FT and The Independent, perhaps – read them.”

Now it’s time to give other groups, like charities, a voice: “I would be over the moon if we could achieve that.”

He says it’s too easy to look at the economy from “30,000 feet above ground, as we often do here. That’s why I like to listen to people on income benefits or without jobs. It’s chilling to hear how little things like bread price rises have such an effect. There is still a huge deficit in trust and understanding among the public, which dates right back to the crash. That’s got to change.”

More pertinently, he says the intelligence which he picks up while on walkabout now informs his views on monetary policy, helping him weigh up vital decisions like interest rates or inflation targets. Andy Haldane is in quasi-purdah mood ahead of the next Monetary Policy Committee meeting. Technically, he is not able to talk too much about monetary policy. But he doesn’t need to wear a veil. In his typically frank manner, he has already made it clear that he would probably vote for a small rise in interest rates.

Which is why he would like to see us get back to normal: “Even if the new normal is different to the old normal. Since the crash we have been through low interest rates and QE – I know some people disagree – to keep people in jobs. That’s got to be a price worth paying. Higher interest rates would be a sign the economy is healing, so we should see this as a good news story.”

There are those who say it would be another good news story if Andy Haldane were to succeed Governor Mark Carney when he steps down in 2019. A case of natural selection perhaps?