The pay-off for last week's embarrassing grovelling to President Trump is apparently £150bn of American high-technology investment in the UK. Even spread over ten years that's a lot of investment.
I suppose investment from anywhere is to be welcomed, but foreign investment of this kind has two disadvantages:
1. If it is successful (which is dearly to be hoped) it leads to a flow of profits out of the country on the "invisible" part of the balance of external payments. We hear little of the balance of payments these but the persistent deficit on it dominated politics for the first 40 post-war years and is a far more serious problem for "future generations" than the much publicised government sending deficit of today. The last time I looked the balance of payments deficit was about 6% of GDP - way above what is healthy. This £150bn will give short-term relief but a long term additional burden.
2. The "investment" remains under the control of foreigners, in this case the US tech giants. When push comes to shove they will make decisions in the interest of their own economies, not ours. In a worse-case scenario, if retrenchment becomes necessary they will close our enterprises, not their domestic ones. Even more seriously, since much of this latest technology concerns AI and communications we are outsourcing the rules and safeguards necessary for our freedoms, probably in ways we do not yet fully understand.
3. An article in last Friday's Guardian by a Matt Davies (The A! deal sounds great. Until it doesn't , 19 September.) points our that our "international peers" such as the EU and Brazil "have charted alternative paths to bolster sovereign capabilities and create the conditions for domestic tech firms, small and medium sized enterprises and truly public alternatives, to flourish." Instead "[e]ntrenching reliance on US tech at the most lucrative parts of the AI value chain would leave British firms to fight over the leftovers." Nick Clegg, who knows a thing or two after his stint with Meta, described the deal more vividly as "sloppy seconds from Silicon Valley."
I this as in so many other spheres we are continuing to rely on what former Bank of England governor Mark Carney described as "the kindness of strangers." We really have to try to "stand on our own feet" rather than rely on others to bale us out. If our investors are more interested in gambling on the money markets that on real investment, maybe we should release , or encourage, out pension funds to fill the gap, as Will Hutton has advocated recently in an Observer article.
the balance of payments […] is a far more serious problem for "future generations" than the much publicised government s[p]ending deficit of today
ReplyDeleteCan you explain how this is so?
I can see how the spending deficit is a problem for future generations: because any current spending deficit has to be plugged by increased government borrowing, which must then either be paid off by future taxpayers or negated by inflating it away or a government default, both of which have catastrophic results (and inflating it away isn't even an option if lots of it is in index-linked gilts, as lots of British debt is these days).
But I can't understand why a negative balance of payments would be a problem for future generations. After all, we can agree, can't we, that the mercantilist idea that a nation's wealth is akin to some big stash of gold, and that a trade deficit means that more of that gold is being sent abroad than is coming in, so that eventually we will run out of gold, as if the country were a single big company, is nonsense, can't we?
So can you explain to me — someone who is not stupid — why a negative balance of payments would be a problem at all for future generations?