ACI UK recently held the latest Roy Bridge Memorial Lecture, the annual event that is the centrepiece of the association’s programme. Bridge was a co-founder of ACI in 1955. The lecture was given by Ian Plenderleith, who until recently was executive director of the Bank of England and a member of the bank’s Monetary Policy Committee. Plenderleith was introduced by Sir Edward George, honorary president of ACI UK and governor of the Bank of England.
Prior to the lecture, the governor presented three successful candidates with their ACI Diplomas. In his entertaining introductory remarks, he then related how both he and the evening’s speaker had worked with Bridge in the 1960s, further pointing out that the three of them had worked for a total of 137 years. Laid end-to-end, the governor noted, they would stretch back to 1876! He also paid tribute to the impact that Bridge had on the central bank, the financial markets, and of course ACI – The Financial Markets Association.
During his lecture, entitled “How Markets Contribute to Economic Policy”, Plenderleith stressed the important role the financial markets play in helping policy makers reach what he termed “the right decision”, and the equally important role they play in helping translate those policy decisions into what he suggested were “the ultimate objectives that we are all pursuing: sustainable growth in output and employment and living standards.”
He continued by speaking about the changing character of the markets, specifically that this was a positive development, but did make the point that like all man-made things, markets are not intrinsically perfect. One of the most positive developments that he has discerned in recent years is a trend away from markets being driven by short term funds, towards an environment wherein the markets are driven by long term capital flows.
He saw two important implications in the more dominant role of longer term capital for the relationship of markets to economic development. Firstly, leaving aside periods of sudden shock and market upheaval, he sees markets driven by long term capital flows typically working in support of the efforts of policy makers to promote economic growth and development. He made the point that private capital, seeking a return on productive investment, is exactly the type of financial support that growing economies need and want to promote. This means there is, “in principle, a parallelism of interest”, said Plenderleith.
The second benefit of the move to long term capital driving markets, he added, was that this represents an opportunity for governments to harness capital flows to support their economic efforts by pursuing stable and realistic policies for sustainable growth.
During the address, Plenderleith also broached the rather sensitive subject of globalisation during the lecture. He took a balanced view of the issue, noting that critics of globalisation point out that the markets do very little to help developing countries, which quite often cannot compete due to the lack of an infrastructure. He accepts that these concerns have to be part of the debate surrounding the developing world, and agreed that unacceptably large parts of the world community are living in conditions of poverty, but he also suggested that there are reasons for optimism, such as positive initiatives like South Africa’s New Partnership for Africa’s Development. Notwithstanding that, he acknowledged that even such an encouraging plan faced a difficult journey to fruition.
He also answered critics of the markets who suggest that they remain insensitive to economic fundamentals, saying, “Private capital, seeking a return on productive investment, is the most powerful engine we have available to create the steady growth in output and jobs that is the only way we can generate improved living standards on a sustainable basis.”
The underlying tone of the address was consistent: they may not be perfect and can be over-volatile on occasions, but markets have a heightened and positive role to play in the global economy via assisting policy makers and fostering economic growth. Plenderleith also stated that criticism of the less than perfect markets misses the point. “As a contribution to economic welfare,” he said, “Competitive markets are perhaps like Churchill’s description of democracy: about the worst system you could devise, except all the alternatives.”
The spirit of Roy Bridge was summoned up by Plenderleith in his concluding remarks on the operational role of the central banks in the face of market shocks such as that of September 11. He quoted a former governor of the Bank of England who once said, “The Bank of England must be a bank and not a study group. The prime requirement must be operational competence.” To this, he added, “Roy Bridge raised that operational competence to high standards of professionalism that all of us, his successors, have sought since then to maintain.”