Mani Basharzad has a useful CAPX piece on how misunderstanding the nature of investment is a major reason why the UK Left fails to invest effectively. An old problem but the whole piece is worth reading as a reminder that voting for Andrew Burnham always had little chance of being a successful vote.
Burnham could turn out to be better than disastrously useless, but the political culture of his party does not offer much room for optimism. It never did.
What the Left doesn’t get about investment
- Left-wing economists conclude that government, through public spending, can simply increase investment and therefore create growth
- Investment isn't a magic variable that automatically creates growth simply by increasing it
- Politicians simply do not have the incentives to allocate capital in the most efficient way
Investment isn’t a magic variable that automatically creates growth simply by increasing it. As Andrew Lilico wrote, “Investment doesn’t create growth. It’s opportunities for growth that create investment.” Investment is not merely another variable in an economic formula that can be turned up at will. It is itself dependent on wider market conditions. What the UK faces is not a lack of investment but a lack of opportunities for investment, with the rhetoric of wealth taxes and exit taxes making investors increasingly uncertain about committing capital to the country.
This is one of the mistakes the Labour government has made under Keir Starmer: investment for the sake of investment. As Rachel Reeves declared, “The only way to drive economic growth is to invest, invest, invest. There are no shortcuts.” But when investment is not driven by market forces, it creates two phenomena: malinvestment and overconsumption. You may spend billions of pounds on Net Zero and create new green jobs, but that is merely the seen rather than the unseen. The unseen consists of the jobs that could have been created in more productive sectors but were crowded out by this policy.
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