If we want sustainable growth the government has to invest – and it isn’t

Posted on

The world continues to face an economic crisis: this graph explains why:

Screen shot 2013-11-04 at 08.07.47

Taken (as is obvious) from the FT this morning, what it shows is that US government investment in its economy has collapsed to the lowest level since WW2.

This is the result of fiscal pressure. Although the US government clearly continues to borrow heavily that is because of the pressure of current spending. And yet it is government investment spending that drives economies forward the way that nothing else does.

It was a pleasure to hear Mariana Mazzucato talking about this on Saturday - and explaining her theory (no, observation) of the impact of the entrepreneurial state, which is the real risk taker and innovator in our modern economies. It is not business that drives growth in her view - it polishes off the impact of government research and investment and the mistake is to give it the credit for the work done by the state.

I agree. And please don't think this is just a US problem. This is UK data based on Treasury data updated to March 2012 forecasts ) I should have updated it since but haven't; I suspect the recent data is optimistic as a result:

Screen shot 2013-11-04 at 08.17.49

One reasons why Labour delivered real growth and why Labour also were pulling us rapidly our of recession in 2010 was that they were using government spending wisely - to invest. Since 2010 we have stagnated and it's not hard to see why.