Keir Starmer is desperate for foreign money to fund British investment, but that makes no sense at all.
This is the audio version of this video:
And this is the transcript:
Keir Starmer does not understand what capital is.
He's not alone. Vast numbers of people seem to confuse capital with money.
Money is not capital. Money might facilitate the organisation of capital, but capital is made up of two things: people and physical resources. There is nothing more to it than that, because if you haven't got people and physical resources capable of undertaking a task such as building a new infrastructure project like a bridge or whatever it might be that we require, then, frankly, however much money you've got, you won't get a bridge, or you won't get a school, or you won't get a new power system, or whatever your plan might be.
So, money cannot be the capital that we need to create the country that we desire here in the UK. No, money is merely the tool that brings these things together.
In that case, why did Keir Starmer hold a whole conference and create a lot of noise about the fact that he was trying to attract what is called foreign direct investment into the UK?
Foreign direct investment is simply a financial flow, by the way. These foreign direct investors will bring remarkably few people with them, and they will bring remarkably few physical resources with them. These foreign direct investors will instead, Keir Starmer hopes, bring some money to the UK.
And we know that because of the people that he was talking to. He was talking to very large tech companies. who are overladen with cash. Their balance sheets have trillions of dollars of spare cash on them in most cases.
Private equity funds often are also laden with cash from investors who don't know what to do with their money.
All of these organizations will bring money into the UK, but the capacity to create the capital that we need that these people will finance is already resident here in this country. Unless we literally see these companies bring in shiploads of people, it is the people already in this country who will build whatever it is that we require. And they will do so using the physical resources that we can command, i. e., those that we can afford to buy.
So, does their money really make a difference? Or is it that money from the government could do the job of assembling these capital resources in the way that we require just as well as these foreign companies might?
What is Keir Starmer really saying when he chooses to give the job to foreign companies rather than to British civil servants?
Is he saying that we're not up to the job?
Is he saying that British contractors aren't up to the job?
Is he saying that these foreigners are so much more clever than us, that they must have the task of organising our economy?
Or is he simply making a simple and incredibly basic error of confusing money with capital because if he is making that error - and I believe he is - then what he's doing is actually selling this country very short?
And there's a very good reason for saying that if we have foreign direct investment. We will have foreign outflows of the benefits from this investment, after all. These companies will make the profits. They will make the gains if these investments work. And we won't.
Nor will we see all the tax on those profits, because some of that will inevitably flow out of this country and partly be taxed elsewhere.
And if there are gains to be made, you can be sure they won't be arising in this country or be subject to tax here.
In other words, his basic error is an incredibly costly one.
We have got all the capital we need to do these things in the UK. If these companies believe that they can actually deliver, they couldn't deliver without the people and the physical resources being here to undertake the projects that they're talking about. Therefore, the only missing component is money. And that missing component of money could very easily be created in this country in one of two ways.
Either government could go to the Bank of England and say, can we borrow the money in question, and there is nothing to stop them doing so.
Or they can spend the money into existence and issue bonds to cover the cost if they so wish.
And ultimately, we could even have some extra taxes if we so desired, particularly on the wealthy.
But my point is, we have got not just the labour and the physical resources here to deliver these projects, or they could not happen at all, but we also have the capital in the form of money here too. So are we also then just short of one other thing, which is the management?
I don't believe that, because the vast majority of managers who will be employed to build British projects will also be British. So that makes Keir Starmer's decision even more absurd.
Why are we looking for foreign direct investment when we really don't need it?
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What I suggest we do need is a Political and managerial class capable of managing large projects.
When the Chanel Tunnel was completed it was connected straight into the French TTGV network, by comparison on our side it took 13 years before HS1 opened to connect it to London and instead trains had to be threaded through the London Suburban network taking power from a low voltage DC system that was obsolete when it was installed 8 years before.
8 or 80?
Sorry 80
Yes, Sir Keir Starmer, like many others, is confusing money with capital.
And, at the risk of boredom through repetition, foreign direct investment doesn’t even bring new money into the country.
Say an American tech company wants to invest in the UK. They take their dollar stockpile and convert some into sterling so that they can invest in Britain. To do that, they buy pounds from someone who has pounds but would rather have dollars (perhaps to buy something from the USA). The total number of pounds in the UK (and the total number of dollars in the US) does not change.
What does happen is that pounds are moved from someone in the UK who was not going to invest, to an American who does want to invest. Apparently the American has been wooed to invest whereas the Brit has not been. But, fundamentally, the money available to invest in the UK has not increased by inward investment.
Perhaps a foreign investor may bring human expertise and resources from elsewhere. They will be paid in pounds. The UK can, and does, attract foreigners to the UK to work without inward investment.
There is absolutely no reason why the UK, as a whole, cannot invest just as much without involving foreigners. It is another, bad, political choice of the government not to invest in the UK without the a foreign intermediary.
Exactly. It’s not about the money…. it’s about our physical/intellectual ability to get things done. Keynes knew it…. why have we forgotten?
Money is always available in unlimited supply because the UK has monetary sovereignty.
That does not mean we can spend unlimited money, because we are constrained by resources (people, energy, materials).
Watch: https://findingmoneyfilm.com/
Read: Modern Money Theory https://www.mmt.works
Correct
Or rather than the 90-minute film, Finding the Money (which is somewhat US-oriented; but does include some rather amusing/cringe-making interview clips with so-called ‘experts’ in the mainstream/debunked theories…) – why not watch the excellent series of short briefings about Economics, What is Money, etc, from a certain…. Professor Richard Murphy. Available free on Youtube!
So true Richard.
This morning on R4, they are drip feeding the need to charge us more money for water to pay for the improvements they they said privatisation would bring.
This is daylight robbery by our government.
They have let us down big time and there has to be some sort of reckoning about this.
The government should pay in my view.
This where they are going, I am sure.
Why does he do this? Because as a gullible Neoliberal pawn, he has swallowed wholesale the idea that all Government money must be borrowed, largely from international “markets”, and there is an iron rule that the maximum amount of money available is determined by a fixed Debt/GDP ratio that is a law of nature, and cannot be breached; even if the fiscal rules that are created to apply them are constantly being changed by every government (because they never work when they apply them to government and cause more problems than solutions). There have been ten different fiscal rules, picked up, changed or casually abandoned (without sensible explanation, or typically anyone even noticing) since 2002. It is a silly game played by irresponsible economists who are not fit for control over any government or to advise anyone on serious financial matters, beyond an authority they have merely asserted; and foolish out-of-thei-depth amateur governors disguised as “politicians” blundering around in the deepest dark; led currently by the current amateur blunderers Keir Starmer and Rachel Reeves.
Another excellent and thought-provoking post Richard, from an angle I have not seen you address before. Can anyone get it to Sir Keir?
Tha k you emphasising this. But it has always been misunderstood: all my working life governments has sought FDI, believing we cannot afford it. End result is that all the benefits of ownership have gone to foreigners. The country, in my view has ended up the poorer. I just wish there were a way of making the political class understand.
But, I do wonder if the civil service top echelons (particularly in the Treasury) hold the same mistaken view? It would explain ,at least in part, the total unwillingness to act rationally.
As I understand it, the Treasury was captured by neoliberalism in the early ’70s and starting with the ludicrous way of dealing with the balance of payments issue and leading first Callaghan and then Healy by the nose, set the ground for the infamous Thatcher”Experiment” whereby the country and governance were well and truly turned upside down, thus leading us to the era of the total basket-case Uni-Party which now governs us with the choice of blue or red ( actually more yellow-orange) that now runs the show.
Everyone should read Abby Innes’ book ” Late Soviet Britain”, and ponder its meaning and lessons.
And keep up with Richard’s excellent writings and videos.
I think it was then a neoclassical view – which never really accepted the post-war consensus and Keynes. It morphed into neoliberalism
This post amply illustrates the immediate need for massive investment in education and training, across a very wide range of areas of work and professions (excepting neoliberal economists and banksters).
People are workers, people are consumers, but people also represent capital.
True progress is achieved through growth in the capacity and skills of people, but these are often non quantifiable, and have capricious effects, and cannot be reduced to an equation.
Many, if not most, of the benefits of medium and long term investment will not be fully realised for another decade or so down the line.
It takes about decade to train a GP.
It takes 5-8 years to train architects, planners and engineers.
It takes 4-6 years to train physiotherapists and nurse practitioners
It takes 3-4 years to train skilled tradespersons.
And this represents the ultimate failure of government.
So much investment, in both people and things, takes too long for improvements to be reached during the electoral cycle.
Foreign direct investment. Water companies? Bought by FDI. Railway Companies? Bought by FDI. Gas& Electricity? FDI.
As the famous quote says: “Doing the same thing over and over in the belief that next time the results will be different is INSANITY”.
Starmer is either completely mad or he is doing this knowingly and deliberately.
Ironically, a lot of this FDI in infrastructure is by companies owned by foreign governments. So our essential infrastructure is in fact state owned, just not by our state.
But… it’s so much safer to follow the orthodoxy than to rethink from first principles. One does, however, wonder why no-one in Westminster is asking themselves why Bidenomics has done so much better than UK’s approach.
Sometimes the foreign investor has a product they wish to manufacture here so that they can more easily access European markets and tap in to a skilled UK workforce. Car manufacturers for example.
How do you see the above, when our indigenous firms became uncompetitive and went down the tubes?
Another point is that in order to encourage inward investment the UK Government usually provides a massive “golden hello” as if to prove that finding the money isn’t a problem.
Richard.
I have the (currently depressing) background of being a lifelong (70 years+) Manchester United supporter so a dearth of goals has been on my mind. I found myself churning over a connected narrative and am contributing it to be torn apart or developed should anyone feel it’s worth it.
Should Money Measures be the Goal?
Rachel Reeves sees finding money via the Budget as her goal.
Keir Starmer sees finding money from private investors as his goal.
Money shares certain similarities with goals . . . .
– – – – – – – –
Goals can only be created by a player who is registered with the League and come into existence when the ball crosses the line between the goal posts
Pounds can only be created by government with the authorisation of Parliament and come into existence when government spends pounds into the economy
– – – – – – – –
Once goals have happened they are just a number in the record of the league
Once government spending has happened money is just a number of pounds on spreadsheets recording who owes how much to whom
– – – – – – – –
If a goal is scored it has also been conceded so the total of the goals in the for column must match the total of the against
The pounds which have been spent into the system (referred to as government debt) must have gone somewhere and must be balanced by a private sector credit (our savings, pension funds etc. are the other side of the National Debt).
– – – – – – – –
There is no limit to the number of goals except the resources available (rules, time available, skill of players)
There is no limit to the number of pounds available – except the resources available for it to be spent on (raw materials, manpower, infrastructure)
– – – – – – – –
The number of goals is only part of the story. It is the consequences that are important – results, points, league tables, qualification
The number of pounds is only part of the story. It is the consequences that are important – it used to obtain goods and services and therefore dictates what resources get used for, and who benefits.
– – – – – – – –
. . . . but money, like a goal, is only a stepping stone to a bigger prize.
Money should not itself be a goal because it is actually a G.O.A.L.
G.O.A.L – Government Owned Allocation Lever
The government has the power to create money via the Bank of England, which it owns.
Money is intangible (except when in its token form, as notes and coin) and has no intrinsic value until it is swapped to satisfy a need.
But money is powerful because it commands the use of resources to satisfy the needs of those who have it.
If the government just kept creating money there would be too much chasing limited resources and prices would rise.
But the government also has the power to remove money – through taxation.
Taxation is a vital element of the system.
The power to create and destroy money enables the government to influence how and for whose benefit the economy works. It is an allocation lever.
Money is a G.O.A.L. – a tool – not a goal.
The government does not have to find money because it creates it.
Until it is created by spending, money does not exist so how can there be a ‘hole’ in public finances?
The hole is in the public services and infrastructure of the country which previous governments have neglected, and repairing that hole demands resources (manpower and raw materials).
If there is a hole there must be a pile, which is the resources being commanded by the private sector. Graduates lured by bonuses into the financial sector rather than into education or health. Land, bricks and bricklayers being commanded by corporate developers to build luxury estates rather than commanded by local authorities for social housing. Labour commanded so cheaply (zero hours contracts, pay below a living wage) that the public purse has to contribute through Universal Credit. Those are resources which are consumed for private profit.
Government could use its spending and taxation powers to influence the allocation of resources to address this hole.
Rachel Reeves does not need to find money by borrowing (how can you borrow something which is your own creation?)
Keir Starmer does not need to seek money from foreign investors.
They need to lead the way by spending on protecting and nourishing our nation’s resources (the health and skills of its citizens, the sustainability of its environment, the scope of its R&D, and quality of its infrastructure) to make this a productive and well balanced society. If that involves using taxation to restrict the power to command resources from those that already have an outsize say then be brave enough to do it and explain that money measures are not a goal (balanced books are not actually important) but a G.O.A.L., a vital tool, a stepping stone, in a much bigger story which involves all our futures.
Thanks for this Ros
It is going to the blog this morning
Inward investment = outward profits.
Many years ago here in Scotland we had the debacle of the Chungwah plant. Big fanfare, big factory, lots of grants. closed quickly leaving huge new factory vacant. That the Firth of Forth birdlife quickly emptied their decorative Japanese pools of extremely expensive carp probably didn’t help, but was a great indicator of how much the Japanese investors understood of local conditions!
Latterly we had the other debacle of Abellio running privatised Scottish trains into decrepitude by extracting as much profit with minimal investment for the benefit of the Dutch taxpayer, because Abellio is (Dutch) government-owned. So much for the advantages of privatisation.
Too wee, too poor, too stupid to run our own affairs (it was said to keep Scotland down). It looks like Starmer has swallowed that lie for the whole of the UK.
Thanks for this exposé. Its a bit like the emperor’s got no capital. One of the root causes of this is politicians staring at economics textbooks which couch everything in terms of money.
As a result of the course with Steve Keen, some of the alumni started looking at ways to inform policy by using different lenses. One is the one you are using: real capital.
To make a start I wrote a primer on how to use the Real Capital approach. I post it here in the hope that some readers find it interesting enough to give feedback, or even try it themselves. There is a section that talks about how to model real capital as stocks in Minsky, now called Ravel.
https://www.researchgate.net/publication/379639384_Real_Capital_evaluation_without_monetary_measures_a_methodology_briefing
I will see if I can get to it…
Inward investment has always seemed to me to be a massively scaled up version of angling with baited hooks. An angler puts a little fish into a body of water with the intent of hauling a bigger and tastier fish out. A corporation puts a little money into a foreign country with the intent of extracting a much larger sum from circulating in that country’s economy. The scale and details are completely different, but the basic process is identical.