Base, superstructure, investment

[Young Master Smeet]

Related but different to the base/superstructure discussion.

Today's blog post by Robert Peston (http://www.bbc.co.uk/news/business-20667873):

Peston wrote:

There are a number of complementary explanations for why economic recovery in Europe since the crash of 2007/8 has been so much weaker than was expected by governments – such as the necessary and inevitable shrinkage of the banking sector and the crisis in the eurozone.

But one of the most important causes, highlighted in a new report by McKinsey, is that there has been what it calls "an unprecedented weakness in private investment".

The figures are in fact quite staggering:

Peston wrote:

In fact, business investment grew by just 2.9% last year, a third of the forecast rate, and is expected to increase by 3.8% in 2012 – which is one reason why the economy expanded by less than 1% in 2011 and is set to shrink this year.

  When you think returns are less than investment, such slow growth in what we would call capital formation is quite astounding, and cuts to the heart of the current crisis.

Peston discusses how politically unacceptable some of the policy measures which could inspire fresh growth are (cutting immigration controls, cutting green belt controls and building more airports, are his examples).  As he notes, cutting regulation:

Peston wrote:

But that is much easier to do in countries like Italy and Spain, whose markets are subject to many more restrictive practices than is true of British markets, than in the UK.

Over here, removal of the residual and significant regulatory barriers – such as who can come to Britain or where and how it is possible to build – is seen by influential groups of voters as a full frontal attack on the British way of life.

This is the acme of the base coming into contradiction with the superstructure: the needs of capital growth are being hemmed in by political interests, and only crisis level changes will resolve the matter.

[ALB]

Young Master Smeet wrote:

When you think returns are less than investment, such slow growth in what we would call capital formation is quite astounding, and cuts to the heart of the current crisis.

Great minds (and consultancies) think alike. Here is an article by Paul Lachowycz of Fathom Consulting that appeared in the Times on 26 November:http://www.fathom-consulting.com/Insightnews/Opinionpieces/2012-11-26/Forget-the-grand-designs/Look at the table there, which shows a drop in "the real rate of return on fixed capital investment"  from 4% in 2008 to about 0.5% today and note his comment:

Quote:

The centrepiece of the Coalition’s ‘growth strategy’ is already focused on encouraging the private sector to get involved in infrastructure spending. The main plan has been to kick start investment for around 500 proposed infrastructure projects with pension fund capital worth £20bn. So far the proposals have completely failed to take-off. The government has been unable to encourage the private sector to invest in new roads, housing or anything else for that matter. Official data show that infrastructure spending is down 11% from a year ago and the government has raised less than £1bn.We are not surprised it has failed. Not because as the CBI claims the government has failed to provide insurance. There is a simpler explanation – the chronically low rate of return. At Fathom Consulting we calculate that the real rate of return on all fixed capital expenditure has collapsed in recent years and stands at just 0.5%. For infrastructure specifically, it is lower still, and may even be negative. No wonder the private sector wants a blanket guarantee to pass the risks completely to the public sector.

Yes, no wonder the capitalist firms that make up the CBI are not prepared to invest in infrastructure projects (and so much for the capitalist apologists' justification for profits as a reward for risk-taking).We'll be commenting on this in more detail in the January Socialist Standard.

[alanjjohnstone]

It may be relevant or not but less investments and more cash hoarding, even with the low bank interest or government bond rates rather than risk investing.American companies held a whopping $1.74 trillion in cash and other liquid assets at the end of the third quarter, the Federal Reserve said last week. That is $44 billion more than three months earlier. The IT giant Apple alone sits over $ 117 billion. What's the situation in Europe? According to reports, in the Eurozone, Corporate overall hold around Euro 2 trillion, in the UK. The American companies operating in Europe are sitting over a cash pile of US$ 2 trillion. It is therefore quite evident. There is no shortage of money in the world.Bank of Canada Governor Mark Carney took a rare swing at corporate Canada in August, accusing companies of sitting on huge piles of “dead money” that should either be invested productively or returned to investors. While acknowledging that companies are wary about the global economy’s prospects, he added that “the level of caution could be viewed as excessive.” “Their job is to put money to work, and if they can’t think of what to do with it, they should give it back to their shareholders,” Carney said.http://www.ibtimes.com/are-high-corporate-cash-balances-constraining-investment-935033U.S. corporations cut an estimated $175 billion in investment from 2009-2011, according to ratings agency Standard & Poor's, in a move that boosted the cash reserves that have helped them through the financial crisis, but could eventually harm their competitiveness.http://online.wsj.com/article/SB10001424127887323339704578173843183158874.htmlSo the Fed will use inflation to make "dead money" less of an attractive optionhttp://www.examiner.com/article/federal-reserve-announces-steps-to-help-economy-on-wednesdayIndia too is sitting over massive piles of cash. Call it hoarding or surplus, at the end of last financial year ending Mar 31, Indian companies were sitting on cash and cash equivalents — liquid investments that can easily be converted to cash — of over Rs 9.3 lakh-crore (or $ 166 billion).http://post.jagran.com/surplus-cash-crying-for-funds-1355127808 

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