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Following a disastrous Atlanta 1996 Olympics, an investigation was launched into what went wrong with the performance of Team GB and how it could be fixed. The outcome was rather obvious: lack of investment – and thus the National Lottery Funding scheme was born.
Andrew Stewart, Associate at JCRA, believes there is a notable economic parallel to be drawn from the transformation of our sporting prowess to the current economic climate – investment.
In recent times, most of Western Europe, Britain included, has found itself grinding to a halt in terms of GDP growth.
“This is not a new phenomenon on the Continent, but where last year saw UK politicians boasting of world-leading growth, 2016 has seen them frantically pointing fingers in various directions to explain why it has suddenly dropped to 0.4% quarter-on-quarter growth,” says Stewart.
While part of this drop can certainly be attributed to referendum-linked uncertainty, other issues have been lying in the periphery and are only mentioned when linked to economic data. Few of these issues are as important as investment.
The National Lottery Funding scheme’s goal wasn’t to achieve a bumper haul of medals in the 2000 games. Rather, its aim was to establish a platform and enable the successes of future generations. Currently, Britain sits second in the medal table above China – a nation of over 1.35 billion people to our 0.06 billion, with 16 gold medals.
Translating this to our economy, the government, or other economic body, needs to target specific industries which are going to be economically significant for the world in the next half century and focus funding primarily in infrastructure to support these.
“Instead of pushing QE through the regular channels in the hope it produces the desired growth, why not create a specific fund, whose investors are bought out by the Bank of England, with a targeted investment strategy in the long-term,” says Stewart.
“Underinvestment has been noted for the last number of years and is a key factor in why productivity and wage growth are less than desirable, and why GDP is not growing as fast as it potentially could be,” says Stewart.
Since Brexit, the need to improve investment has been noted by those who potentially have it within their control to make it happen. Mark Carney decided to expand QE measures a fortnight ago, not only for Gilts but also £10 billion allocated for corporate bonds. The idea being to force capital holders to hunt for yield by lending to more corporates who will be investing this to grow the economy.
“As with so many things that come out of central banks, the theory and the ultimate reality differ widely. Yes, the problem has been correctly identified however, the Bank of England has forgotten that every economic hypothesis out there only works with a list of assumptions that would make the Chilcot Report look like a short story and so does not work in practice,” says Stewart.
The first issue has already been encountered. The lack of appetite to sell the bondsapplicable to the QE scheme. Many of these bonds are held by pension funds and their like which are looking for long-term cashflows. Even if they sold their current bonds at above market value, they would still need to find another instrument with similar maturity to invest in, but as of yet there is not a plethora of them in the market to acquire.
The current Team GB medal count is a far cry from a 1996 games where the team only managed to rustle up a single rowing gold medal. Surely this is a sign that a targeted approach to investment rather than a scatter-gun approach pays off in performance – whether in GDP or improved athleticism.
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