Investment too low, says cranky lefty

You may recall that in my last post I briefly mentioned the low productivity in the UK, and how it is thought to be at least partly due to low investment. Just to prove it's not just me saying this, here's the Bank of England's chief economist saying something similar - business investment has been too low for many years, and it is bad for the UK economy.

From the article:

[Andy Haldane] welcomed the Government's productivity plan to boost UK growth, but noted that increasing investment was a major part of that policy and argued that an examination of UK company law may be needed.

While the UK and US systems give a prime position to shareholders in the governance of companies, other models are available. Mr Haldane noted that other systems of corporate law give greater weight to other stakeholders - such as employees and customers - than the UK system.

In the short term, and throughout the financial crisis, it has simply been cheaper for businesses to hire more low paid staff than it has been to invest in machinery to improve the productivity of existing staff. On the one hand, yay! employment! On the other hand, boo! low wages!

The UK can't continue to compete on the basis of low wages - not only is it simply not going to work in a global economy, with millions of Chinese workers, or, closer to home, Eastern European competitors, but it is also, well, not a good thing. It will increase inequality as more and more low paid jobs are created, often the only replacement for middle income jobs which are being cannibalised. We need to invest to bring back middle income, skilled work - but the short termism in UK business is a problem.

How you tackle it is up for debate, of course, but it seems inevitable that to do so successfully you have to intervene into businesses in some way, whether through increased taxation to pay for training and investment via the state, increased regulation to compel some investment by business, or a more wholesale change in the legal structure of business. None of these is likely to be popular with those who are currently making money out of this system, even if it will ultimately make business more profitable in the long run.