Tagged with Investment

Capital strike: global corporations hoard cash and refuse to invest

capital_on_strikeThe world’s largest companies are hoarding cash and cutting productive investment at the same time. The Financial Times reports a survey from one leading ratings’ agency, Standard & Poor’s, which shows that the 2,000 largest private firms globally are sitting on a cash mountain of $4.5 trillion, which is approximately double the size of Britain’s annual GDP.

Yet capital expenditure, or ‘capex’ by those firms fell by 1% in 2013 and is projected to fall by 0.5% this year. But this does not presage an upturn. Steeper declines in productive investment are projected by those firms in both 2015 and 2016. Taken together, if these projections materialise the actual and projected falls in capex over the 4 years from 2013 to 2016 will approach the calamitous fall in productive investment seen at the depth of the recession in 2009. Continue reading →

Labour will inherit a crisis, not a recovery

a man pushing over the word "crisis"At a certain point in the next few months the recession in Britain will officially be over as the real level of GDP will finally exceed its previous peak in the 1st quarter of 2008. The media coverage will be generally very favourable, in the hope that this will boost the Tory vote and vindicate the austerity policy. In reality it will do neither. The economy was already recovering modestly when the Coalition took office and the austerity policy reversed that upturn. This is the weakest and most drawn out recovery since the 19th century.

Nor is the hoped-for political impact likely to materialise. One reason why the Tory vote in opinion polls has hit a ceiling fractionally above 30 per cent is precisely because of austerity. The policy is designed to transfer incomes from labour and the poor to capital and the rich. At the same time, the austerity policy of cutting state investment undermines any robust or sustainable recovery. The economy overall continues to stagnate and only a fraction of society feels any benefit from the recovery. During this ‘recovery’ most people’s living standards continue to decline. The political impact is that the Tory Party can shore up its core vote, but not add to it. Continue reading →

Who’s fooling who at the BBC about the rise of China?

<em>Image credit: <a href="http://www.123rf.com/photo_9991487_yuan-graph-on-china-map-flag-illustration.html">fintastique / 123RF Stock Photo</a></em>Robert Peston is the BBC’s new economics editor. He has opened his new role with a programme called ‘How China Fooled the World’. For a time it is available on BBC iPlayer and Peston’s own summary is here.

In the blog and the programme Peston argues that China dodged the global economic crisis by increasing investment, specifically state-led investment. But the prevailing level of investment was already excessively high, the argument runs, and merely postponing the crisis by increasing it further will only exaggerate the inevitable crash. Continue reading →

Only public investment can save Britain from semi-permanent austerity

austerity isnt workingThere are four reasons why the future of the UK economy, both internally and externally, does not look good. No sustainable recovery can occur till these four obstacles have been cleared, and of that there is no sign.

First, the collapse in business investment has been devastating: it is still 25% below its pre-crash level. What this means is that industrialists are still not convinced that the relatively small and very late turn-up, generated in the wrong way by consumer borrowing and the artificial Help-to-Buy bribery, signals any long-term recovery of demand. Continue reading →