Daily Israel Report
Show More

OpEds


Coalition Embraces Growth By Betting On Infrastructures

Attempting to jump-start a sagging economy, Britain will underwrite loans to infrastructure projects.
By Amiel Ungar
First Publish: 7/19/2012, 4:42 AM

Osborne the builder
Osborne the builder
Reuters

If anybody had doubts that the financial winds in Europe were changing direction following the French election, along came British Chancellor of the Exchequer George Osborne to demonstrate that the deficit hawks - who were determined to get their country's financial house in order - have, since the French elections, been beating a retreat to embrace growth.

Of course, the Chancellor will not admit that he is performing a U-turn, but the change of policy is accompanied by triumphalist tones "Britain's credibility has been hard won and involved difficult decisions, so I want to make sure its benefits are passed on to the whole economy,".

In plain English, the government can increase spending to stimulate stagnant employment precisely because of the success of the austerity.

Osborne was accompanied by the Chief Treasury Secretary Danny Alexander of the Liberal Democrat party in order to demonstrate that predictions of the coalition's unraveling are very much premature. Osborne also secured the blessings of the Governor of the Bank of England. Mervyn King. to underline the financial soundness of the policy.

Another way of evading the charge of profligate spending is the magic word "infrastructure". Infrastructure has long been regarded as the safest haven for deficit spending, because it is designed to make a country more competitive and less wasteful of human resources. The country that invests in infrastructure is expected to recoup its investment handsomely. This depends on whether the new or modernized infrastructures are really needed.

Japan is a case in point, where the government invested hugely in infrastructures, for example, building bullet train extensions to remote agricultural areas. This won the government the gratitude and financial support in elections of the contractors and the rural districts, but saddled Japan with a huge debt burden.

Barack Obama has also talked infrastructure and particularly large railroad projects, but so far critics have blocked the implementation of these plans.

Labour, which for the first time since the elections is rated by the voters the more competent party on the economy, responded that the U-turn was too little and too late:

"With Britain in a double-dip recession because of the Chancellor’s failed policies, anything which helps to get the economy moving again is welcome. But these proposals do not go far enough…And they will not reverse the damage done by two years of deep cuts to long-term projects like house building and the school building programme which have seen a collapse in the construction sector."