The Creative Economy Speech given by Andrew G Haldane Chief Economist Bank of England The Inaugural Glasgow School of Art Creative Engagement Lecture The Glasgow School of Art 22 November 2018  The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Marilena Angeli and Shiv Chowla for their help in preparing the text. I would like to thank Philip Bond, Clare Macallan and Mette Nielson for their comments and contributions. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is a great pleasure to be at the Glasgow School of Art (GSA). For over 170 years, the GSA has been one of the leading educational institutions in the creative arts in Europe. Today, the School continues to provide a conveyor belt of talent that is fuelling the rise in the creative industries, a sector growing rapidly and one where the UK can genuinely be said to be a world-leader. It is creativity, and its role in improving incomes in the economy and well-being in society, that I will discuss this evening. Now, there is a certain irony in me (a middle-aged career public servant) giving a lecture to you (staff and students at one of Europe’s creative hot-spots) about the determinants and benefits of creativity. Don’t worry, that irony is not lost on me. Nonetheless, I hope that by analysing creativity through an economic and historical lens we can learn something about its key ingredients.
What is often left out of the euro area storyline is the fact that the monetary union came on top of diverging trends in total factor productivity (TFP) as the catching-up process in the EU came to a stall during the early 1990s 9. A reversal in the catching-up process came regardless of high investments in some peripheral countries and high capital output ratios – rather than a sign of success, high investments were an indication of deeper-rooted problems. 10 Many peripheral countries did not need more investments per se to restart convergence – what they needed was a more efficient allocation of investments. The efficiency of investments fell victim to poor economic governance, rigid labour and product markets, low investments in information and communication technologies, defunct educational systems and the poor quality of corporate management. What the monetary union accomplished against such a background was to create an illusion of continuing convergence on the back of increasing foreign borrowing and investment in non-tradables, rather than to enact discipline in the economic governance of peripheral countries. The adoption of the single currency, followed by the consistent private sector interest spread, elimination of exchange rate risk and implied fiscal bail-out clause, cemented the duality in the quality of economic governance and boosted the suboptimal reallocation of resources in the periphery. So, we have observed financing low-productivity sectors (via real estate or government spending) with debt inflows, instead of capital flows fuelling further “catching-up”.