The policy had been announced as a centre-piece of the Tory-led government’s economic recovery plans a year ago. They listed 500 separate projects that the private sector was ready to invest in and said the government would provide guarantees for these. However investment in infrastructure has actually fallen by 11.3 per cent in the last 12 months.
The City says it is unwilling to invest without both direct cash injections from the government and very substantial guarantees for the private sector’s investments. This is entirely logical for firms whose sole interest is the profits they are likely to accumulate, not the economic need for investment in improved schools, housing, transport links, carbon-reduction and other items.
The cause of the entire economic crisis is the hoarding of capital by private firms unwilling to invest because they are uncertain of making a profit. Public sector guarantees, of a small part of the capital the private sector considers it is putting at risk, do not alter that basic equation.
But the logical response is not ever-greater guarantees and subsidies by the state to the private sector. Pension funds, insurance funds and banks have baulked at the idea that these subsidies and guarantees must been used within 12 months, or they will lose them. In effect, they have signalled they are only willing to invest after a recovery has begun. They are incapable of leading any recovery.
Previous state support for the private sector has already led to a widespread acceptance that there has been a scandalous waste of public funds through PFI funding. In contrast the state has multiple advantages over the private sector in relation to investment in infrastructure.
The state has much cheaper costs of borrowing, is not required to make profits and can invest for economic and social needs over the long-term. It should be investing directly in infrastructure and can also reap the economic and financial rewards, leading to further investment.
Or, as one specialist quoted by the FT says, ‘If you want to move the dial on GDP growth, it’s the government not the private sector you need to rely on.’