Political interference in economic management is one of the risks facing the global economy, said Mohamed El-Erian, chief economic adviser at Allianz SE, amid a growing debate about income inequality and the distribution of wealth.
Commenting on a speech by U.K. Prime Minister Theresa May in which she lambasted what she described as elites and abusive business practices, El-Erian said lawmakers are trying to appeal to a broader base by questioning the benefits of globalization and the actions of central banks on the basis that ultra-loose monetary policy has benefited the rich to the detriment of average people. According to El-Erian, U.K. Chancellor of the Exchequer Philip Hammond will have a hard job reconciling May’s speech with the benefits that globalization and decisive action from the Bank of England have provided for the U.K.
“It is part of a much bigger phenomenon and that is growing political pressure on central banks,” he said in a Bloomberg Television interview on Thursday. “The risk is that these institutions, that have been central to economic growth, as low as it has been -- at least we’ve had some -- that these institutions are going to start losing their operational autonomy. And that should be a concern to all of us.”
The International Monetary Fund has warned that rising populism coupled with a growing distrust for capitalism and protectionism are some of the biggest threats facing the global economy. The Washington-based IMF said the outcome of ”Brexit” and the mood going into the November U.S. presidential election highlighted these concerns.
According to El-Erian, who is also a Bloomberg View columnist, the Western economies are heading into a period of greater political intervention in economic management, opening up a new debate about economic and financial globalization. He said the comments by the IMF about the impact of politics on the global economy had been “striking.”
“I have no problem with that discussion, but imagine that you’re in a plane and suddenly people are telling you ‘we are going to change the engines in mid-flight,’ how would you feel about this?” he said. “It’s not clear that you can change these engines while maintaining a smooth flight.”
This article was provided by Bloomberg News.