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September 22, 2015


Nicholas Gruen

A fair summary as a description of first round effects in the world as it is now.

But it's in the framing - and governments - as opposed to oppositions have a lot of ability to frame what they're doing.

Before the failures arrive this can look like good politics. That's what the policy is in opposition.

If it's implemented then its champion is in government.

If the investment is framed as a portfolio investment and it's made clear that standard operating procedure will be that most investments fail then that should insulate a government with any skill in putting its case from most of the flak. One can imagine this being a bit dicey until there's some success, but if one can have some reasonable signs of success in the first couple of years, you just point to them when the failures are pointed out - together with reporting from the relevant agency managing the portfolio. And a lot of failures take quite a long time to fail!

So I would have thought this problem isn't too hard for a government seeking to develop a new narrative.


Do you think the not kowtowing to the media will catch on among Labour’s soft right? Little sign of it so far.

Dave Timoney

Clearly, some of the anticipated media reaction will reflect the peculiarities of British history, notably the dominance of the City. For all the talk of radical change, a UK NIB would probably not be very different in approach to Germany's KfW or France's Caisse de Dépots, both of which have managed to ghet on with the job for a while now.

One way of both neutralising the inevitable "men from the ministry" jibe and lessening the structural risks (e.g. too many funds being diverted via the City) would be to revive the Milibandite idea from a couple of years ago of a network of regional banks, but with a mandate for long-term investment as well as short-to-medium-term business support.



I’m scratching my head trying to understand where this post is coming from.

Firstly, it’s pretty clear the “many mainstream economists” that you cite are only talking about a NIB to finance infrastructure spending. While I’m not personally convinced Govt can act more effectively than the markets to fund infrastructure, I acknowledge there are substantive issues and good supply side arguments. However, if they stuff it up, they should take all the criticism they will get.

The case for a govt role in picking and investing in hi-tech and innovative industries is frankly very weak and can’t be piggy backed off the infra-structure argument. Unlike infrastructure spending it’s pretty clear there is a massive and highly skilled industry already doing exactly that with private investment. Also, if I remember Nordhaus correctly, his point isn’t that the market under-supplies investment in innovation. Nor can that be reliably concluded (even indirectly) from his analysis of Schumpeterian profits as he never says anything like “A big reason why the private returns to innovation are low is that it is a very risky business”. Instead he studied successful inventions to show that only a small fraction of the social returns from technological advance can ever be captured by producers. If there is conclusion to be reached indirectly from Nordhaus’ analysis it is that investment in innovation isn’t really a great use of govt spending as most of the social returns flow globally.


@jonathan - "massive and highly skilled industry" - where's your evidence for that statement.

The general consensus from studies and the evidence of how UK firms often end up trying to move to Silicon Valley is that the UK VC scene is small and weak. Now a NIB may not be the correct solution to that problem. But let's start from the facts, rather than some random belief of yours.


I think you have to be a bit careful in assuming that tech investment only happens through VC. There's been some pretty big tech investments by corprates and PE recently - especially in fin tech.

But even if you only look at VC, the picture you present is a bit out of date. It's been a huge growth area and the UK is now way ahead of any other European nation. Something like a third of all European VC activity is in the UK. Over £1bn a quarter. And almost all of that is in tech. Not US numbers (Q1 2015 c. $11bn) but still pretty chunky.

Even if the Government was to take the view that this growth trend still wasn't enough, and further private appetite couldn't be rustled up with some judicious tax breaks (because it would obviously be better to use private money if at all possible ), then it would still be daft for the Govt to use a NIB to make Govt funded tech investment when it could just make the existing VC industry compete for that investment.


Since there is no need to invest in risky startups as part of counter-cyclical policy, why not leave the NIB to just play the role of investing more and less over the cycle as discounted NPV varies as monetary authorities try to keep NGDP growth on trend?


An alternative interview a few years after 'printing' billions would be along the following lines:

RWT: So Mr Corbyn, you created all this money: now it's absolutely impossible to get a plumber this side of the next election and on average, builders make more than cabinet members. As you have capped rents it's impossible to find a house to rent privately, house prices have gone through the roof as people driven out of the rental market are forced to buy and so far 15 council housing department heads have been gaoled for taking bribes from people desperate for a home. Record numbers of under 30s have to live with their parents. There is a crisis in public services as hundreds of thousands of nurses, teachers and coppers have retrained to become bricklayers and sparkies.
Mr Corbyn: I think it's important to remember that I'll be 75 in 2025 and it'll be up to someone else to sort out this mess.


Very good.

Was amused to see rent capping coming out the woodwork. He doesn't seem too confident about all those luverly, new People's Houses actually getting built.


A lot of industry innovation investment is not blue sky but to solve real problems they have in their own industry. For example, suppose a potter of intricate items found that 20% were cracking during the kiln process. A huge waste of skilled time, energy and material. Then it can easily be decided what research expenditure would be beneficial to reduce cracking by 1%, 5% or 20%. The probability of finding any better method can also be estimated. For this type of investment there is no venture capital nor retail banking loans - they simply do not understand the issues of real businesses, whether they are financial, social or technical. Neither Government nor banking understands that productivity and profit can be raised by quite minor innovation investment. Far better that the fledgling UK companies are bought up and sold overseas.

Another area where innovation can actually be cheaper and faster than in the past is by computer virtual models. FI racing build all innovations within the computer - they test it virtually and only if it works do they build the physical components. Civil Engineers create bridges, dams etc within the computer they build the structure virtually on the site. Once optimised then the real structure is built with most of the snags ironed out before a spadesful of earth is moved.

For UK the problem is not the NIB it is the lack of innovation educated business minded people that would be available to staff it.

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