Very useful context on rising cost of production in Asia - highly relevant for next stage of economic development, and progress of globalisation:
Reboot: Adidas to make shoes in Germany again – but using robots
Company unveils new factory in Germany that will use machines to make shoes instead of humans in Asia Wednesday
Adidas, the German maker of sportswear and equipment, has announced it will start marketing its first series of shoes manufactured by robots in Germany from 2017.
More than 20 years after Adidas ceased production activities in Germany and moved them to Asia, chief executive Herbert Hainer unveiled to the press the group’s new prototype “Speedfactory” in Ansbach, southern Germany. The 4,600-square-metre plant is still being built but Adidas opened it to the press, pledging to automate shoe production – which is currently done mostly by hand in Asia – and enable the shoes to be made more quickly and closer to its sales outlets.
The factory will deliver a first test set of around 500 pairs of shoes from the third quarter of 2016.
Large-scale production will begin in 2017 and Adidas was planning a second “Speed Factory” in the United States in the same year, said Hainer.
Hainer insisted the factories would not immediately replace the work of sub-contractors in Asia. “Our goal is not full automatisation,” said Gerd Manz, head of innovation and technology.
Adidas produced 301m pairs of shoes in 2015 and needs to produce 30m more each year to reach its growth targets by 2020.
We need to rethink our view of jobs and leisure – and quickly, if we are to avoid becoming obsolete
Read more
Six subcontractors of Adidas in China declined to comment on the new factories or said they were not aware of them.
In the longer term Adidas is planning to build robot-operated factories in Britain or in France, and could even produce the shirts of Germany’s national football team in its home country, said Hainer.
The shoes made in Germany would sell at a similar price to those produced in Asia, he said. Adidas is facing rising production costs in Asia where it employs around one million workers. Arch-rival Nike is also developing its robot-operated factory.
Looking at TPP controversy, and the Brexit issue, you need to be on good terms with trade agreements, and able to explain the pros and cons - what works about them, what doesn't work, and also how they differ. Here is a good precise of TTIP, and why opinion is going against it; critical points highlighted for you:
The Transatlantic Trade and Investment Partnership has met with opposition from French President François Hollande and from the public. Can it be salvaged? Simon Wilson reports.
What’s happened?
The future of the Transatlantic Trade and Investment Partnership (TTIP) – a huge US-European Union free-trade deal – looks shakier by the day. Talks began three years ago, with high hopes for a relatively straightforward negotiation that would create an “economic Nato” to strengthen the bond between America and the EU. But talks have dragged on and the public mood has turned against TTIP.
Last month in Hanover, President Barack Obama joined German Chancellor Angela Merkel in urging the completion of TTIP talks this year, while also freely conceding that no such thing was remotely likely, given the political climate and forthcoming elections in both the US and key European countries (including Germany and France). Then this month TTIP was hit by a double whammy, adding to the sense that this deal may well never happen.
What are they?
First, a trove of documents on the talks – leaked to Greenpeace – seemed to confirm the fears of TTIP’s European opponents, who say the deal would put European standards on issues such as environmental protection and consumer rights at risk.
Second, just as the latest round of talks was due to start, France’s President François Hollande abruptly announced he would reject TTIP “at this stage” because France was opposed to unregulated free trade, and he would never accept “the undermining of the essential principles of our agriculture, our culture, or mutual access to public markets”. France’s lead negotiator, Matthias Fekl, said the current draft was a “bad deal… Europe is offering a lot and we are getting very little in return”.
What does TTIP cover?
The deal would cover a vast range of trade and investment in goods and services between the world’s biggest national economy and the world’s largest single market, making it the biggest bilateral trade deal ever, covering countries that between them generate 45% of global GDP.
Sectors covered include telecommunications, agricultural products, textiles, intellectual property and financial services. The aim is to lower trade tariffs and regulatory barriers by removing “non-tariff barriers” – for example, by harmonising standards on a range of regulations. The idea, as with all free-trade deals, is that lower barriers to trade mean more takes place, boosting growth.
How much of a boost?
The UK government claims that Britain’s GDP would get an annual 0.35% lift by 2027 as a direct result of TTIP. That’s around £10bn. The figure for the EU as a whole has been put at £100bn. However, such claims should be treated with caution. First, the upside from lower tariffs is limited by the fact that the US and EU are already among the world’s most open markets – the average EU external tariff is just 3%.
Second, the Centre for Economic Policy Research, which came up with the government estimate, bases its calculation on the assumption that in some sectors – IT, chemicals and cars – some 37.5% of regulations can be harmonised, an aspiration seen by many as optimistic.
Why is TTIP so controversial?
In part, it’s because removing regulatory barriers – the meat of TTIP – is harder to do, more contentious, more opaque and less obviously a win-win than cutting tariffs. Reconciling the different regulatory philosophies is especially hard, says Simon Nixon in The Times. “In a nutshell, the EU tends to regulate more broadly, but when the US regulates, it tends to do so more deeply.”
Opponents are particularly rattled by the use of special tribunals to resolve disputes between investors and governments, even though these are now standard in free-trade deals, including those forged by the EU. To TTIP’s opponents, these tribunals – and the conditions of strict secrecy in which the talks are being conducted – confirm the fear that TTIP is a plot by the forces of global capitalism to hand power to megacorporations at the expense of governments, consumers and voters.
Are these fears justified?
It’s seen that way by many, and not just hard-left conspiracy theorists. Free trade, of course, was once a position embraced by dissenters and radicals – the likes of the Anti-Corn Law League and the Manchester school of economists. Some left-liberals still understand that global trade has taken billions of people in China, India and elsewhere out of poverty (see box). But in Europe and America, public opinion has swung sharply against free trade in reaction to the tensions of the economic crisis, and a renewed focus on inequality.
“There is nothing populist,” says Philip Stephens in the FT, “about noticing that globalisation has seen the top 1% grab an ever-larger share of national wealth.” Karl Marx argued that capitalism was a system of institutionalised exploitation of the workers by the bourgeoisie. Today, though, it is the middle classes who most fear its consequences. Until politicians come to terms with that, deals like TTIP will be ever harder to pull off.
Free trade falls into disrepute
The last prominent figure on the left truly to grasp and defend the case for free trade as the best route to prosperity for the disadvantaged of the world was Gordon Brown, says Philip Collins in The Times.
Today, everyone from Labour’s John McDonnell (who calls TTIP “modern-day serfdom”) to David Owen (for whom avoiding the ogre of TTIP is the best argument for Brexit) to Hillary Clinton (who has switched from backing TTIP to opposing it like her hardline left-protectionist rival Bernie Sanders) appears to have moved ever closer to the view of Marx, who wrote: “The bourgeoisie… has set up that single, unconscionable freedom – free trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.”
I have highlighted the key points; if you recall the post-school essay we did on using existing QE funds to support infrastructure spending, compare it to this: Anatole Kaletsky weighs the views of Raghuram Rajan, Adair Turner, Stephen Roach, and other leading economists, policymakers, and practitioners on how far today’s increasingly exotic monetary policies can and should go. 16 Central Banking’s Final Frontier? As central bankers worldwide continue to struggle to boost growth, inflation, and unemployment, the real issue is not whether more powerful monetary instruments are still available. The question is whether using them is necessary – or even threatens to do more harm than good. LONDON – Have central bankers run out of ammunition in their battle against deflation and unemployment? The answer, many policymakers and economists writing for Project Syndicate agree, is clearly No. “Monetary policymakers have plenty of weapons and an endless supply of ammunition at their disposal,” says Mojmír Hampl, Vice-Governor of the Czech National Bank. The real issue is not whether more powerful monetary instruments are still available, but whether using them is necessary – or even threatens to do more harm than good. There are, in principle, four broad ways to add more stimulus to the world economy. The obvious course is to keep cutting interest rates, if necessary deeper into negative territory, as suggested by Koichi Hamada, economic adviser to Japanese Prime Minister Shinzo Abe. In Hamada’s view, interest-rate cuts work mainly by weakening currencies and so boosting exports. Likewise, Raghuram Rajan, Governor of the Reserve Bank of India, believes that “exchange rates may be the primary channel of transmission” for monetary easing, but worries that currency depreciation is a zero-sum game for the world as a whole. A bigger problem is that rate cuts may not weaken currencies at all. As I noted six months ago, the fact is that the “widely assumed correlation between monetary policy and currency values does not stand up to empirical examination.” Indeed, Hamada admits that Japan’s recent rate cuts perversely strengthened the yen: “The effects on the yen and the stock market have been an unpleasant surprise.” A second option, implemented in March by the European Central Bank and supported by Hans-Helmut Kotz, a former chief economist of the Bundesbank, is to expand so-called quantitative easing (QE). Emulating the approach adopted in 2010 by the US, the ECB is boosting liquidity by purchasing long-term government bonds and other financial assets. A third standard response is fiscal expansion – cutting taxes and increasing public spending. This is the course recommended by the International Monetary Fund and the OECD. Yale’s Stephen S. Roach, a former chairman of Morgan Stanley Asia, calls over-reliance on monetary policies “a final act of desperation,” one that is “effectively closing off the only realistic escape route from a liquidity trap. Lacking fiscal stimulus, central bankers keep upping the ante by injecting more liquidity into bubble-prone financial markets – failing to recognize that they are doing nothing more than ‘pushing on a string,’ as they did in the 1930s.” The problem is political, not economic. Fiscal expansion conflicts with what Kotz calls the German “fetish” of balancing budgets “come hell or high water.” The same irrational opposition to fiscal stimulus prevails among American conservatives, who, according to Berkeley economic historian Barry Eichengreen, “have been antagonistic to all exercise of federal government power for the best part of two centuries.” This leaves the fourth possibility: “Helicopter drops,” the term coined by Milton Friedman for central bankers’ infinite capacity to generate inflation by printing money and distributing it directly to citizens. Rajan describes the idea succinctly: “[T]he central bank prints money and sprays it on the streets to create inflation (more prosaically, it sends a check to every citizen, perhaps more to the poor, who are likelier to spend it).” And today, nearly a half-century after Friedman mooted the possibility of such a policy, there are growing calls to implement it. In principle, helicopter money is equivalent to a universal tax rebate. The crucial difference is that the rebate is not financed by government borrowing in bond markets; instead, the central bank simply emits new banknotes (or electronic deposits).
Kemal Derviş, Vice President of the Brookings Institution and a former Turkish minister of economic affairs, explains why central banks might do better to distribute new money directly to citizens instead of channeling it through bond markets. “[N]ewly created money,” he argues, “would bypass the financial and corporate sectors and go straight to middle- and lower-income consumers. And, “by placing purchasing power in the hands of those who need it most, direct monetary financing…would also help to improve inclusiveness in economies where inequality is rising fast.” As Michael Heise, chief economist of Germany’s biggest insurance company, Allianz, observes uneasily, Derviş is hardly the only prominent advocate of turning Friedman’s outlandish “thought experiment” into reality: “Proponents of helicopter drops include some eminent figures, such as former US Federal Reserve Chair Ben Bernanke and Adair Turner, former head of the United Kingdom’s Financial Services Authority. And while ECB President Mario Draghi has highlighted obstacles that stand in the way of helicopter drops by his institution, he has not ruled them out.” In fact, the ECB has gone further. According to Jean Pisani-Ferry, Commissioner-General of France Stratégie, policymakers are “openly pondering” the “right response.” In the event of another recession, he points out, “Peter Praet, the ECB’s chief economist, has explicitly noted that all central banks can [use] the last resort option known as helicopter money.” But should helicopter money be viewed only as a last resort? Perhaps it is as an immediately desirable policy. Turner, who recently published a book-length prescription for helicopter money, explains why his approach would be much more effective than standard measures like negative interest rates and QE. Like Derviş, Turner believes that distributing money directly to citizens would avert the financial bubbles created by artificially low interest rates, and that, instead of favoring the rich, who benefit from QE’s financial “wealth effects,” helicopter money would reduce inequality. Even inflationary risks would be diminished, because less money would need to be printed if, rather than relying on the roundabout methods of QE, the economy was stimulated directly. Unfortunately, as Turner notes, the debate about helicopter money is badly muddled: “It is often claimed that monetizing fiscal deficits is bound to produce excessive inflation. It is simultaneously argued that monetary financing would not stimulate demand. Both these assertions cannot be true; in reality, neither is. Very small money-financed deficits would produce only a minimal impact on nominal demand: very large ones would produce harmfully high inflation. Somewhere in the middle there is an optimal policy – a common-sense proposition that is often missing from the debate.” As one of the first economists to advocate helicopter money – or “Quantitative easing for the people” – after the financial crisis, I strongly support Turner’s conclusions. Helicopter drops would not only be more effective than conventional monetary policies; they would also create fewer financial distortions, economic risks, and political protests. Nonetheless, for many observers, the question remains whether the costs of monetary activism outweigh the benefits. Can Central Banks Be Too Active? One objection to further monetary stimulus is simply that it is no longer necessary, because economic conditions are returning to normal. Hampl notes that while “central banks are undershooting their inflation targets, that is unpleasant, not disastrous.” Heise argues that “most advanced economies are producing at close to capacity.” In a similar vein, Daniel Gros, Director of the Center for European Policy Studies, points out that “nominal GDP growth far exceeds average long-term interest rates, [implying] that financing conditions are as favorable as they were at the peak of the credit boom in 2007 [and] allowing unemployment to return to pre-crisis lows.” Of course, not everyone accepts this benign view of global economic conditions. As Nobel laureate Joseph E. Stiglitz has put it: “The underlying problem which has plagued the global economy since the crisis [is] lack of global aggregate demand.” But recognition of the need for more aggressive stimulus policies has not diminished skepticism or downright hostility toward what Nouriel Roubini calls the “conventional unconventional” instruments of QE and negative interest rates that central bankers still officially favor. As Derviş argues: “Zero or negative real interest rates…undermine the efficient allocation of capital and set the stage for bubbles, busts, and crises. They also contribute to further income concentration at the top by hurting small savers, while creating opportunities for large financial players to benefit from access to savings at negative real cost.” Instead, Derviş maintains that, “[a]s unorthodox as it may sound, it is likely that the world economy would benefit from somewhat higher interest rates,” though not as “a stand-alone policy.” Instead, “small policy-rate increases must be incorporated into a broader fiscal and distributional strategy” of global policy coordination and probably also helicopter drops. Another line of attack, especially popular among conservative economists, is that over-active monetary and fiscal policies distract attention from the need for painful measures. Sylvester Eijffinger of Tilburg University in the Netherlands, warns that monetary activism,“by enabling [weaker] economies to borrow cheaply, permits them to avoid implementing difficult structural reforms.”Roubini makes a similar point: While it is true that “monetary policy can play an important role in boosting growth and inflation,” it cannot increase potential growth, for which “structural policies are needed.”
Hans-Werner Sinn spells out this argument sharply: “[T]he more Keynesian and monetarist drugs are administered, the feebler the self-healing power of the markets and the weaker the willingness of policymakers to impose painful detoxification treatments on the economy and populace.” To make matters worse, zero interest rates are encouraging “still-sound economies to become credit junkies. Even Germany, Europe’s largest economy, has been experiencing a massive property boom.” Turner, the strongest advocate of helicopter money, confronts the issue in disarming fashion: “Some structural reforms such as increasing labor-market flexibility by, say, making it easier to dismiss workers,can have a negative effect on spending.” Is that really what we want? “Vague references to ‘structural reform’ should ideally be banned,” Turner insists, “with everyone forced to specify which particular reforms they are talking about and the timetable for any benefits that are achieved.” But financial-market participants raise other concerns. According to Alexander Friedman, Group CEO of GAM Holding and former Global Chief Investment Officer for UBS Wealth Management, decision-making by central banks, especially the Fed, increasingly reflects a new implicit mandate to counter global market volatility. “Any suggestion that the Fed will hike faster or sooner than anticipated,” Friedman notes, “leads to fears of tighter financial conditions, and violent risk-off moves.” And yet the perceived need to ensure financial-market stability increasingly conflicts with the Fed’s obligation to set policy in response to domestic economic fundamentals. As a result, Friedman warns, the Fed’s new mandate “undermines any semblance of central-bank independence,” a concern shared by Howard Davies, the first chairman of the UK’s Financial Services Authority and current Chairman of the Royal Bank of Scotland. The problem, for Davies, is not just that central banks’ policy activism “may be preventing the other adjustments, whether fiscal or structural, that are needed to resolve those impediments to economic recovery.” Central banks are also being assigned a broad range of new tasks: “An institution buying bonds with public money, deciding on the availability of mortgage finance, and winding down banks at great cost to their shareholders demands a different form of political accountability.” A New Economics in the Making? How policymakers respond to such conflicting advice will depend on how immovably their countries are trapped in economic stagnation. In the US and Britain, conventional QE and zero interest rates have broadly restored full employment, if not yet adequate growth. So pressure for radical measures is likely to remain subdued – at least until the next recession. In Europe and Japan – and possibly in China – the arguments for uniting monetary policy, fiscal stimulus, and income redistribution through helicopter money are more compelling. Sending free money to all citizens from central banks may sound bizarre, but sooner or later public patience with economic stagnation may be exhausted – and radical action may become politically irresistible. As Harvard’s Dani Rodrik observes: “The only surprising thing about the populist backlash that has overwhelmed the politics of many advanced democracies is that it has taken so long.” After all, “the first era of globalization, which reached its peak in the decades before World War I, eventually produced an even more severe political backlash.” The result was the transformation of “[Adam] Smith’s minimal capitalism…into Keynes’ mixed economy.” As that example shows, “capitalism’s saving grace is that it is almost infinitely malleable.” Likewise, I recently suggested that what lies ahead is a reinvention of policies and institutions no less radical than the transformations of the 1860s, 1930s, and 1980s. Rodrik does not treat the Thatcher-Reagan revolution of the 1980s as the start of a distinct phase. But our arguments are essentially similar. One way or another, global capitalism, along with the monetary, fiscal, and distributional policies that sustain it, will need to be reconstructed. Today’s increasingly heterodox monetary policies should be viewed as the start of this process. [end of article] And there you have it; for those of you who think the idea we discussed (funding infrastructure via existing QE) is nuts, you must be surprised how mainstream this "helicopter money" idea [nonsense] is!
NEW YORK – For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions. One, emanating from Adam Smith and nineteenth-century liberal economists, focuses on competitive markets. The other, cognizant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality.
For the nineteenth-century liberals and their latter-day acolytes, because markets are competitive, individuals’ returns are related to their social contributions – their “marginal product,” in the language of economists. Capitalists are rewarded for saving rather than consuming – for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford. Differences in income were then related to their ownership of “assets” – human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations.
The second school of thought takes as its starting point “power,” including the ability to exercise monopoly control or, in labor markets, to assert authority over workers. Scholars in this area have focused on what gives rise to power, how it is maintained and strengthened, and other features that may prevent markets from being competitive. Work on exploitation arising from asymmetries of information is an important example.
In the West in the post-World War II era, the liberal school of thought has dominated. Yet, as inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works. So, today, the second school of thought is ascendant.
After all, the large bonuses paid to banks’ CEOs as they led their firms to ruin and the economy to the brink of collapse are hard to reconcile with the belief that individuals’ pay has anything to do with their social contributions. Of course, historically, the oppression of large groups – slaves, women, and minorities of various types – are obvious instances where inequalities are the result of power relationships, not marginal returns.
In today’s economy, many sectors – telecoms, cable TV, digital branches from social media to Internet search, health insurance, pharmaceuticals, agro-business, and many more – cannot be understood through the lens of competition. In these sectors, what competition exists is oligopolistic, not the “pure” competition depicted in textbooks. A few sectors can be defined as “price taking”; firms are so small that they have no effect on market price. Agriculture is the clearest example, but government intervention in the sector is massive, and prices are not set primarily by market forces.
US President Barack Obama’s Council of Economic Advisers, led by Jason Furman, has attempted to tally the extent of the increase in market concentration and some of its implications. In most industries, according to the CEA, standard metrics show large – and in some cases, dramatic – increases in market concentration. The top ten banks’ share of the deposit market, for example, increased from about 20% to 50% in just 30 years, from 1980 to 2010.
Some of the increase in market power is the result of changes in technology and economic structure: consider network economies and the growth of locally provided service-sector industries. Some is because firms – Microsoft and drug companies are good examples – have learned better how to erect and maintain entry barriers, often assisted by conservative political forces that justify lax anti-trust enforcement and the failure to limit market power on the grounds that markets are “naturally” competitive. And some of it reflects the naked abuse and leveraging of market power through the political process: Large banks, for example, lobbied the US Congress to amend or repeal legislation separating commercial banking from other areas of finance.
The consequences are evident in the data, with inequality rising at every level, not only across individuals, but also across firms. The CEA report noted that the “90th percentile firm sees returns on investments in capital that are more than five times the median. This ratio was closer to two just a quarter of a century ago.”
Joseph Schumpeter, one of the great economists of the twentieth century, argued that one shouldn’t be worried by monopoly power: monopolies would only be temporary. There would be fierce competition for the market and this would replace competition in the market and ensure that prices remained competitive.
My own theoretical work long ago showed the flaws in Schumpeter’s analysis, and now empirical results provide strong confirmation. Today’s markets are characterized by the persistence of high monopoly profits.
The implications of this are profound. Many of the assumptions about market economies are based on acceptance of the competitive model, with marginal returns commensurate with social contributions. This view has led to hesitancy about official intervention: If markets are fundamentally efficient and fair, there is little that even the best of governments could do to improve matters. But if markets are based on exploitation, the rationale for laissez-faire disappears. Indeed, in that case, the battle against entrenched power is not only a battle for democracy; it is also a battle for efficiency and shared prosperity.
An accessible article giving lots of useful "K" marks, and some good analysis of what is needed for infrastructure spending to work.
High Speed North – building blocks for the Northern Powerhouse
An article by leading economist and member of the National Infrastructure Commission Bridget Rosewell.
The National Infrastructure Commission launched its third report on 15th March looking the connectivity needs of the Northern Powerhouse. Recommendations include improving the key rail link between Manchester and Leeds which is at the heart of the East West link, focusing HS2 on linkages which generate economic growth, and accelerating investment in smart motorway usage on the M62.
These recommendations fit into the strategy which is being developed by Transport for the North. Their report, published on 11th March, has come a long way in the short time of their existence to develop their ideas for economic development and how transport needs to fit in. They, like the Commission, have understood that connectivity is necessary but not sufficient for economic growth.
TfN has identified some opportunity sectors where the North has an advantage and the supporting business services activities that are needed to make such sectors as digital, advanced manufacturing, energy and health successful. This is perhaps a narrow way of thinking about economic opportunity. Research that we did for Manchester some while ago showed that growth opportunities emerge when elements of the supply chain get into problem solving together. This is why growth, change and cities go together. Making opportunities happen is about making connections and increasing the likelihood that the right people meet.
The Infrastructure Commission has proposed that a focus on the city centre connections between Leeds and Manchester has the most rapid payoff because they are the two biggest cities in the North and have the largest economies. This route is already the most crowded, with standing rates nearly at London levels. Such investment will increase the the seedcorn for growth. But it won’t be enough. Taking best advantage of any new opportunity means working to increase overall connectivity, including international access. Every city needs better access to Manchester airport in particular – the only other two runway airport in the whole country with Heathrow.
The way HS2 is taken forward becomes crucial then to creating an effective ‘HS3’ – shorthand for high capacity and speedy east west connections in the North. Linking HS2 to Liverpool and through to Manchester airport is one element. Making best use of the links through Manchester Piccadilly from the airport and out to the East is another. Making effective links for Sheffield is a third. Sheffield is cut off from Manchester by poor links across the Pennines and needs a faster link to Leeds too. Both of these are in the aspirations for TfN.
Connectivity is about more than city centre rail links. It’s also about local access to city centres, and freight and road routes too. The M62 is the only dual carriageway route from east to west within 200 miles. It is over used, and average speeds of 20 miles an hour are quite common on some sections. Hence the need to accelerate smart motorway investment on this route but also to investigate new Pennine crossings, including a new tunnel. The Commission rightly supports this investigation. Creating a Northern Powerhouse is not a matter of theory. If theory were sufficient to create economic growth we would all be richer than we are. It is a matter of creating opportunity. Not all of these will be grasped, but they can’t be grasped if they don’t exist in the first place. We cannot know how effective any particular piece of infrastructure will be, nor can we put these in place at some absolutely right time. It has been suggested that putting in new links encouraged travel and it is true that new roads and rail links fill up – often more quickly than expected. More trips in multiple directions are not necessarily a bad thing, if they make it possible to get better matching of people to jobs, create more linking of businesses to clients and suppliers, and, especially, generate new ideas.
The economy is not a zero sum game, but economic growth does not happen in a vacuum. Although it is contingent on skills and on enterprise, no amount of skill will substitute for lack of access to markets, or an inability to get the skills to the workplace. People will tend to give up and go elsewhere. For the Northern cities to create effective competition to the South, they need to be as attractive, which means with accessibility to opportunity for partners and children as well as to quality homes and amenities. The Infrastructure Commission report focuses on an important aspect of opportunity and the northern cities will need to grasp the others. Devolution is an equally important aspect of that ability to implement a strategy and create the environment in which new investment can flourish.
Bridget Rosewell Senior Adviser for Volterra Partners Commissioner, National Infrastructure Commission
"If India can send a mission to Mars for £47 million, why does a rail line to Birmingham and beyond have a potential cost of £80bn+"
Free market think tank IEA has published a critique of HS2, suggesting the bill will top £80bn. On top of this, there is talk of cutting costs by axing some key stations, reducing its viability. The Treasury has a senior civil servant reviewing the whole project, and serious concerns are leaking out.
The paper (linked below) looks at HS1 as an example; the cost over-run there was (2013 prices) an initial projection of £1bn, but ending up at £11bn. Substantial. In addition the government still has to subsidise the operating companies to get some use out of it, and train fares across the South East are higher as a whole.
The paper talks about "high benefit" projects, and sees HS2 as a low benefit project. Why is it being pursued then? Special interests - a really nice evaluation point is that widely dispersed groups - e.g. the taxpayers funding it - don't have much incentive to rally against it, whereas those groups that benefit directly are very skilful at getting there way.
Clearly infrastructure is critical; if you get an "infrastructure" question, there is some really specific high-level material in here; a quick skim of the first 15 pages or so (with notes) should give you at least four or five points you could bring in about how the wrong project can damage infrastructure in the long run, and (tying it into our QE/infrastructure essay) how separating projects from government control would make unviable projects less likely. To paraphrase Milton Friedman, "if it's your own money, you use it with care; if it's the taxpayers', who cares?"
