Green investments can overcome the paradox of thrift

We need real public investment in Green projects now

Few economists will be entirely surprised that the UK is officially back in recession. We are witnessing a classic case of the "paradox of thrift" in which households, businesses, banks and now government are all retrenching simultaneously, cutting investment, shedding labour, restricting credit and storing money.

Government policies have failed to unlock record levels of private sector savings which could revitalise the stagnant economy. Yet if the Prime Minister and his Cabinet colleagues offer a bold strategic vision which restores confidence in the direction and consistency of public policy on the green economy, there will be golden opportunities for investment which could jump-start growth.

Investment has slumped mainly because households, businesses and banks are nervous about future demand, and have responded by forgoing more risky investment in physical capital, such as infrastructure. Instead, companies are squirreling away private saving into "risk-free" assets such as solvent sovereign bonds. As a result, annual private sector surpluses over the past few years have been at record levels, and amounted to £99bn last year, equivalent to 6 per cent of UK GDP.

Desired saving has exceeded desired investment to such a degree that global real "risk-free" interest rates for the next 20 years have been pushed to zero and below. Savings are losing value by the day as pension funds and financial institutions pay real interest to (rather than receive interest from) governments; a truly perverse state of affairs given the need for productive investment. These low rates do not reflect a collapse in the underlying returns to capital, but instead reflect desperately depleted confidence.

And when everyone retrenches simultaneously, fear of recession becomes a self-fulfilling prophecy, sustaining a vicious circle of low demand and low investment that affects the whole economy.

The UK, like many advanced economies, needs to stimulate economic growth to reduce deficits and debt, but growth requires investment, and investment levels have slumped to record lows relative to output. The longer recovery is delayed and capital sits idle, the more skills are lost and the higher the misallocation of resources, making it harder to restore growth.

Fiscal policy is generally constrained by the need to restore confidence in the sustainability of public debt and, with short-term interest rates close to zero, the effectiveness of monetary policy to stimulate growth is reaching its limits.

What is needed to restore confidence is a clear strategic vision with supporting policies to guide investors. A vision to build an innovative, resource-efficient market economy which restores energy security, tackles climate change, and saves consumers and businesses costs in the long run.

Standard macroeconomics tells us that the best time to support low-carbon investment is during a protracted economic slowdown. Resource costs are low and the potential to crowd out alternative investment and employment is small. In addition, although public budgets are stretched, there is no shortage either of private capital available for investment, or of investment opportunities with potential for profitable returns. The current opportunity should not be missed.

This is about more than correcting market failures, such as those associated with greenhouse gas emissions; it is about restoring confidence through mission-driven investment which spurs innovation in a way comparable to, but bigger in scale than, the space race or the struggle to defeat cancer. Policies to encourage low-carbon investment would provide new business opportunities, generate income for investors and would have credibility in the long term because they address growing global resource challenges, while tapping into a fast-growing global market for resource-efficient activities.

The most recent figures published by the Department for Business, Innovation and Skills show that the UK low-carbon and environmental goods and services sector had sales of £122.2bn in 2010-11, growing 4.7 per cent from the previous year and placing us sixth in the global league table.

But the private sector is not investing as heavily as it could in green innovation and infrastructure because of a lack of confidence in future returns in this policy-driven sector. The Government should incentivise such investment by itself taking on elements of this policy risk which it "controls". By backing its own low-carbon policies, the Government can stimulate additional net private sector investment, and thereby make a significant contribution to economic growth and employment.

The Government can do this, for instance, by allowing the Green Investment Bank to operate as a lending institution, offering loans to private companies so that it shares some of the risk of private investments in green infrastructure.

But it also needs the Prime Minister and his Cabinet colleagues to be publicly supportive of the green economy. Whenever the Chancellor conveys the false impression that we have to make a choice between environmental responsibility and economic growth, he undermines the confidence of private sector investments. The Prime Minister helped to repair some of his damage with a speech this week that highlighted the importance of clean energy, but there needs to be a clear vision for "the greenest government ever".

In past global recessions, rearmament, electrification and space races have helped restore investor confidence – this time the vision should be green. The green sector is one of the few vibrant parts of our economy at the moment. It offers a golden chance to generate growth, as long as the Government makes stronger efforts to restore private sector confidence in public policy.

Savings and investment: A bank vault in the US. Photograph: Getty Images

Dimitri Zenghelis was formerly Head of Economic Forecasting at HM Treasury and is currently a senior visiting fellow at the Grantham Research Institute on Climate Change and the Environment at London School of Economics and an adviser to Cisco systems. His paper, A strategy for restoring confidence and economic growth through green investment and innovation is available at http://www.lse.ac.uk/grantham/.

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Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war