British businesses are giving too much money to shareholders and not investing enough, the Bank of England’s chief economist Andy Haldane has said.
He warned that firms were “eating themselves” by favouring shareholder dividend payouts over investing their profits.
That tendency, Haldane said, was to blame for “subpar” growth in some economies, including Britain’s, in recent decades.
He also reiterated his opposition to raising interest rates in the near future, maintaining the distance that has opened up between him and the Bank’s governor Mark Carney on the issue.
In an interview with the BBC’s Newsnight programme on Friday, Haldane said that there was “no rush” to push up rates because economy was “still healing”.
“There are still people without a job who would like a job; there are still people with jobs who would like to work more hours. And, even for those that have got jobs, their pay – in most cases – isn’t racing away,” he said.
And he said there were economic risks across the world that could still hit Britain. “For me, the combination of a still-healing economy, very low price pressures and a wobbly world means that there is no rush to move rates from where they are right now.”
Haldane said that, besides pushing lower than expected growth, company laws in the US, UK and other countries that place the shareholder “front and centre” were partly to blame for triggering the financial crisis.
“In many cases, it was the result of banks seeking high return to remit to shareholders. How did they do that? By borrowing too much and therein the seeds of the crisis were sown.”
He said that the law puts the “short-term interests of shareholders in a position of primacy when it comes to running the firm”.
“There are other models of corporate governance round the world, which share the spoils somewhat more equally between a wider set of not just shareholders, but stakeholders in a firm. Who are those stakeholders? That includes its employees, that includes its customers and its clients,” Haldane said.
“The public limited company model has served the world well from a growth perspective. But you can always have too much of a good thing.
“The nature of shareholding today is fundamentally different than what it was a generation ago. The average share was held by the average shareholder for around six years. Today, that average share is held by the average shareholder for less than six months.”
Asked whether it was the Bank’s place to seek to affect statute, he said: “Ultimately, if we can change the structure of the system – the structure and incentives within banks and non-banks, that has got to be better for everyone.”
This article was written by Kevin Rawlinson, for theguardian.com on Saturday 25th July 2015 00.40 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010