BoE's Haldane say better run companies would boost growth

BRISTOL, England Wed May 21, 2014 3:25pm EDT

BRISTOL, England May 21 (Reuters) - Companies taking a longer-term view could help reduce inequality in society and boost economic growth over the medium term, a senior Bank of England official said on Wednesday.

Andy Haldane, executive director for financial stability, said short-termism at big listed companies, such as focusing on payouts to CEOs and dividends for shareholders "front and centre", contributes to inequality.

It has led to the interests of other potential stakeholders, such as workers, suppliers and wider society playing "very much second fiddle", Haldane told a Festival of Ideas panel.

But it won't be easy to get shareholders focused on the long term when they typically only hold a stock for six months, he added.

"Tomorrow's growth comes from investment today... If we are to tackle this growth inequality crisis, then perhaps not the worst starting point might be to start looking at corporate governance structure," Haldane said.

"We have clear evidence that inequality sows the seeds of future financial crises. We have pretty clear evidence inequality retards medium term growth," said Haldane, who next month becomes the Bank's chief economist.

Citing research from the International Monetary Fund, he said the 2007-09 financial crisis was derived from an attempt to ease inequality - the U.S. government trying to pump credit to expand home ownership among poorer people - which failed because the wealth gap was too entrenched.

Haldane is known for challenging conventional views. In 2012, he addressed a gathering of the anti-capitalist Occupy movement and praised it for suggesting new ways to fix the shortcomings of global finance.

On Wednesday, he said central banks could be accused of having made inequality worse by cutting interest rates and printing money or quantitative easing in response to the financial crisis.

This ramped up share prices by 90 percent in Britain to increase wealth inequality, Haldane said.

"Is that a bad thing? I don't think so," Haldane said, adding that as shares rose, the overall financial pie expanded.

The UK economy would have been a 100 billion pounds ($170 billion) smaller had the Bank of England not taken such extraordinary steps, Haldane said.

"Without those steps, I think that all of us collectively would have been significantly, absolutely, worse off," Haldane said. "The alternative would have been worse still." ($1 = 0.5925 British Pounds) (Reporting by Huw Jones; Editing by Ruth Pitchford)