1050x300-MS-Why Public Investment

Why Public Investment?

Author(s): Michael Spence

Date: Feb 23, 2015

Theme(s): Finance & Macroeconomics

Publications: Opinions & Speeches

Academic Council Chairman Michael Spence discusses the importance of investing in public sector development.

The world is facing the prospect of an extended period of weak economic growth. But risk is not fate: The best way to avoid such an outcome is to figure out how to channel large pools of savings into productivity-enhancing public-sector investment.
Productivity gains are vital to long-term growth, because they typically translate into higher incomes, in turn boosting demand. That process takes time, of course – especially if, say, the initial recipients of increased income already have a high savings rate. But, with ample investment in the right areas, productivity growth can be sustained.

The danger lies in debt-fueled investment that shifts future demand to the present, without stimulating productivity growth. This approach inevitably leads to a growth slowdown, possibly even triggering a financial crisis like the one that recently shook the United States and Europe.

 

This article first appeared in Project Syndicate on February 20, 2015.

The views expressed in this article are the author’s own and do not necessarily reflect Fung Global Institute’s editorial policy.