Martin Sandbu is spot on (“The fallout from our investment drought is here,” Opinion, July 20) when he points to the decline in the share of investment in gross domestic product over the past few decades as a major concern given the investment needed to make the transition to a achieve green economy.
If we broaden the geographical horizon to include the OECD countries, which account for around 60 percent of global GDP, we see that their investment share fell from 27 percent in 1976 to 22 percent in 2021. And this at a time when financing costs were historically low.
At today’s prices, restoring the previous share would amount to $3 trillion per year, which would make a large contribution to the green transition’s investment needs. What is remarkable about this data is that at the same time the share of labor in national income (approximately in GDP) has fallen by 5 to 10 percentage points, i.e. the non-labor income, the share of profits has increased by this amount.
So we have rising profits but falling investments (in plant and equipment and some intangible investments). Where has the money gone? Well, it’s flowed into the financial sector, into real estate and stock prices, into speculative and other financial assets. According to the UN System of National Accounts, companies have gone from investors to net savers. Sandbu points to just one channel — stock buybacks, which return money to investors instead of investing it in their own companies. The tremendous expansion in financial market turnover over these decades is evidence of this misallocation of profits.
The money for the green transition (and other investment needs) is potentially there: workers and managers have created large surpluses over time, but managers and owners have been looking for an easy and quick reward in the volatile financial sector.
Reversing this trend will require a heroic power struggle to shrink the expanding financial sector in favor of socially beneficial investments in the green transition. Politicians and regulators will need all their courage — and the strongest support from voters — to win this fight.
Kurt Bayer
Former Executive Director, World Bank and European Bank for Reconstruction and Development, Vienna, Austria
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