It is an article of faith in the Labour Party that investment is good, and more investment is better, like a reverse version of the beasts' slogan in Animal Farm - two legs good, four legs better, six even better still. Even the dimmest of sheep can see that investment is lower in Britain than elsewhere, ergo low investment explains Britain's economic problems.
Will Hutton is a leader of this tendency. In his best-seller, The State We're In, he thunders: "What is now required is a national effort to organise a sustained increase in investment ... [but] the indifference to investment and employment are deep-seated."
So fragile is the Government's economic credibility that nobody believes the Deputy Prime Minister when he bleats that, properly measured, investment is not unusually low in the UK. The truth is drowned by the chorus of industrial nostalgia from both Labour and business.
Consider that recent business commission report published under the wings of the Institute for Public Policy Research. It says bluntly: "Under-investment is a major contributor to slow growth. ... Our objective must be to enter a virtuous circle of performance and investment." Gloss over the fact that this was written by some of the people who have it in their power to increase investment in the British economy, such as the chairman of British Aerospace, the chairman of Sainsbury's and the managing director of GEC. These eminent businessmen reckon the economy will reap what it sows, and we are not sowing enough.
The charge stands up only if the statistics are used in the most superficial way. It is clear that the scale of total investment spending, of all kinds, in the UK is lower than in other industrial countries. The UK invests less than a fifth of what it produces, while Japan, at the other extreme, invests nearly a third of the value of its output.
The myth-making starts by ignoring two special factors that account for the UK's low rank. Private sector business investment is about the same, relative to the size of the economy, as in the other big advanced economies. Only Japanese businesses invest a lot more.
However, capital spending by the British government has dived during the past decade and a half, the sacrificial victim on the altar of public spending control. The Private Finance Initiative has not yet proved itself able to fill the gap, and Mr Heseltine must forgive some scepticism about it on the part of his political opponents. On the other hand, the Iron Chancellor in waiting, Gordon Brown, has committed himself to not spending any more, so Labour is on uncertain ground if it wants to claim that it will boost public sector investment to international standards.
The other area of British investment weakness is construction. Surprisingly, the volume of house-building in the UK is less than half that of any other big economy apart from the US. The reason may be that prices for construction are unusually high in this country. This seems to be due to the existence of an extra layer of professionals - quantity surveyors - that does not exist elsewhere. They make putting up new buildings expensive compared to patching up and making do with old ones.
So if British business is actually investing as much as its counterparts abroad, does that mean the Labour Party's emphasis on the investment cure for our economic ills is pure quackery? The last line of defence is the argument that although business investment might look adequate on the surface, manufacturing investment is low. There is a grain of truth in this, with Britain lagging slightly behind countries like France and Germany in the investment share of manufacturing. But to claim this small difference is the basis for all our economic ills is a symptom of pure workerist romanticism.
Britain's manufacturing sector accounts for less than a quarter of the economy, and we have a bigger services sector than most other countries. The only one with a smaller manufacturing base, the US, is the richest nation on earth. Just as agriculture has shrunk as a share of the economy during the past century, manufacturing is following suit.
There are New Labourites who recognise this, and have switched their emphasis to the importance of a highly educated work-force. But rather than ditch the investment myth, they call for investment in human capital rather than the kind that is rusting in Britain's old industrial belt.Reuse content