Home > Uncategorized > Why Nick Clegg is Wrong on the Need for Infrastructure!

Why Nick Clegg is Wrong on the Need for Infrastructure!

Nick Clegg yesterday gave a speech to the LSE calling for a “gear shift” in state spending and on infrastructure.

Nick Clegg stated that: “investment in infrastructure stimulates demand not overnight, but more quickly than many supply side measures.”

Economist Yasheng Huang in a talk to Ted Global, asked the question “How Important are Infrastructures for Economic Growth”

He gave two examples.

In example one using telephone infrastructure from 1989:

  • Country 1: 107 telephone sets per 1,000 persons
  • Country 2: 10 telephone sets per 1,000 persons

Example two used length of electrified railway lines;

  • Country 1 (1980-81): 61,240kilometers
  • Country 2 (1980): 53,900 kilometers

He asked the audience which two countries grew faster. If like Nick, you believe in the infrastructure view of economic growth, then in example one, country 1 must have grown faster. After all, it has the communication network to enable people to share ideas and be able to bring products to market quicker.

Country 1 is the Soviet Union, which collapsed … a year later. Country 2 is China and grew incredibly fast.

In example 2, country 1 is India and country 2 is China. Up until the late 90s China had an infrastructure disadvantage compared to India so clearly infrastructure specifically railway infrastructure doesn’t explain why China grew faster than India up until the late 1990s. He concludes that infrastructure is actually the result of economic growth rather than the cause of economic growth.

Later on in the video, Huang goes on to say how important human capital is, as well as how important political reform is to growth.

What can we learn from this?

First, wait until we are growing again to start the big infrastructure projects. We don’t need them. Lets wait until we have the resources to build them.

Second, education is incredibly important in particular early years, primary and secondary education. If we can drive up, literacy, numeracy, people taking up science and engineering. If we can give kids the confidence to invent and build things and be able to take them to market, then long-term we’ll see the benefits.

Third, devolve more power to local people so they can drive change locally.

We also need to inject confidence into consumers. If they don’t have confidence in the economy, they are less likely to spend money. We have to devolve power to local people, show them how to use their own power and let them drive their town’s economy.

Categories: Uncategorized
  1. September 16, 2011 at 08:09

    housing, housing, housing!

    • September 16, 2011 at 08:54

      Why would housing create jobs and create growth? Yes, it creates construction work whilst they are being built but after that?

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