Investing in the economy: “One must be willing to spend more” – economy
How does an economy get up and running again? How do you cope with structural change? The answer is: invest, invest, invest. The exploratory paper and the coalition talks are at least unanimous in this regard. That gives courage to hope.
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That something has to be done has been clear to everyone since the beginning of the corona crisis. What went wrong before is less discussed. For 20 years we have been living in a world that has little to do with a market economy. And that’s not because of the “bloated state”. No, we have lost the company as a driving force, because for almost 20 years we have not invested anymore, but saved.
Companies are no longer a driving force
To the core of the problem: In a money economy in which the expenditure of one is the income of the other, when do any surpluses have to be matched by deficits in the same amount. In order to have higher income than expenditure, also to “save”, someone else has to be prepared to spend more than they earn. If all the actors in an economy are aggregated, four sectors emerge for each country: the state, companies, private households and the rest of the world.
The question now is: which sector takes on the role of investor and spends more than it earns? In every theory school it is assumed that companies take on this function. That doesn’t mean that every company is constantly losing money. That is impossible, because at some point the equity will be gone.
The point is that. Companies that die on an aggregated level, i.e. as a sector, have positive growth and future prospects and invest accordingly. If you look at the numbers of start-ups, for example, you will find that more and more money is being spent there than is being earned – and that is perfectly fine with dynamic growth.
It used to be different: In times of the economic miracle, investments were made
If we take a look at the balances of the Federal Republic of Germany, we see that the investor role of companies was given during the economic miracle in the 1950s and 1960s. The state and households were thus able to generate surpluses without any problems.
In contrast, the balances have been in stark contrast since 1999. Companies have taken on the role of savers, and the state joined them in 2011. Getting into debt was shifted abroad.
In many other countries we have seen the same pattern since the financial crisis: companies are no longer investing – despite massive tax cuts everywhere over the past 25 years. In order to become a classic market economy again, the corporate sector has to be taken out of its savings position to a medium to large extent and encouraged to invest.
The state must provide impetus
That is only possible through dynamic demand. Companies will only invest if they expect higher returns from it in the future. In the current situation of extreme uncertainty and the need to undertake massive, high-risk investments, the impetus must come primarily from the state – regardless of the debt brake. Since government spending equals private sector revenues, it improves companies’ prospects for growth, gives them planning security and encourages them to invest in order to expand their capacities and restructure their modes of production.
Wages must rise according to inflation
In addition to an expansive fiscal policy, a rigid wage policy is also required. That is, wages must rise in accordance with productivity growth and the inflation target. To this end, the collective bargaining agreement must be rescued. In this way, the company is signaled: Only if you invest and increase your productivity will you be profitable for longer. The prospect of higher returns in the future regenerates companies today to make more investments.
To put it briefly: In order for us to pass through as a classic market economy in the medium term, which is certainly also in the spirit of the FDP, we need a classic social democratic fiscal and wage policy. If the traffic light understands this, nothing should stand in the way of a future coalition.
The author works as an economic policy advisor for the United Nations in Geneva.