McDonnell’s Claim – Government Investment Works. Oh Really, Does It John?

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John McDonnell’s claim is that government investment in this and that is a very good idea, very profitable. That’s why the central government should borrow to go buy all the utilities, the broadband, the transport companies and all that.

Before we consider any other issue here – like whether we actually want state control etc – the whole idea does depend upon the idea that government will be investing in sensible things. This being something we can test by going and looking at what government does invest in when it has the chance to borrow to do so:

The Treasury has clamped down on local authority borrowing, amid fears that reckless investments in struggling retail properties could bankrupt councils.

The rate at which local authorities are able to borrow to invest has been hiked by one percentage point, pushing the cost last week to its highest level in four years.

Economists said the move by the Treasury would put “many capital projects” at risk.

The clampdown comes after a spending spree by councils seeking to boost their own income from rents and support local businesses. Local authorities have snapped up one in five shopping centres sold since 2016 as commercial property investors seek to escape the decline of high streets and shopping…

What’s the one bit of the economy falling apart? Bricks and mortar retail. Not because of any cyclical issue that a bit of propping up might aid but because of a deep and profound technological change to online and internet shopping.

So, where’s government investing? In the wrong end of this change. As Intu and the rest approach bankruptcy local councils are borrowing to buy the redundant real estate.

Which does provide us with our test, doesn’t it? The idea of government borrowing to invest is based upon, presupposes that, government is going to be good at investing. It ain’t. End of the idea then.

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Mr Yan
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Mr Yan

Take Kirklees Council as another example. See’s that Manchester and Leeds have a thriving hi-tech industry and wants some of that. Builds a Media Centre in Huddersfield but it’s not successful. Never occurred to them to wonder why no private investment had done the same thing. Clearly the evil capitalists were anti-Huddersfield.

Matt
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Matt

Occupancy or otherwise of the media centre is irrelevant. Plenty of opportunity for graft in the building of it. In fact, if it fails all the better because it will then need to be repurposed for something else, all at the council tax payers’ expense.

Spike
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Spike

The “profitability” of government investment is usually asserted not because it is profitable but because it doesn’t have the inefficiency of having to pay for its capital. (The loot has already been stolen.) This means immunity from measurement. Raising the price of capital for council projects by 1% makes it more likely that someone considers whether the project has real payback. Though it doesn’t provide real consequences for deciding wrong; a really hidebound Council might simply go broke faster.

Andrew Carey
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Andrew Carey

In my time engaged on this subject Warrington and Durham council have bought enterprise parks, Chorley, Sefton ( the biggest loser of them all ) and Stockport councils have bought shopping centres, Rochdale council has bought warehousing, and the Welsh government and the Teesside authority have bought airports. Perhaps I should give the Lib Dems a pass as when they bought the Mersey precinct in Stockport they bought from the administrators. But the rest were bailing out capitalists who were still operating as capitalists. It hasn’t happened yet but if say Swansea airport on the Gower ( which is currently… Read more »

Boganboy
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Boganboy

I’d argue that the French government investment in nukes was a good idea. But then the Algerian war which preceded it and cost even more was a really poor idea.