Investment projects in infrastructure or research, which can be carried out by employees of the State or by chosen suppliers, differ from ongoing services in two important ways:
· They come to an end when the project is delivered.
· Some projects may yield wider economic benefits later.
From the point of view of affordability, investment projects are in a different category from ongoing government spend. They can often be justified by evaluating the long-term benefits to the economy. The government’s role in making investments was acknowledged by Adam Smith, in his book An Inquiry into the Nature and Causes of the Wealth of Nations:
“According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: … thirdly [the first two were defence and law and order], the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence[sic] to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.” (Book IV, chap. 9, para. 51)
A government can do things that private enterprise is unable to do:
· It can build infrastructure, making compulsory purchases of land where necessary.
· It can directly fund research to help the economy to develop – as described in an article by Robert Skidelsky for example: Now austerity is over, let’s commit to investment—and build a national bank to do it. Government research programmes have helped to set the direction of the economy in several countries, including America with its funded research in advanced technologies for its military and space exploration – which had later spin-off benefits that were the foundation for its dominance in computing.
· It can time its investments to act as an economic stimulus to an economy that is moving into recession (3.3.8.2) –thereby avoiding the accusation that it is crowding out private enterprise (3.2.3.4).
· It might want to assist less developed regions of a country – which is the purpose of the European Regional Development Fund (ERDF), for example. Aside from the political value of helping poorer areas, the total economic output of the country can be increased as a result.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).