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State Investments and the Public Sector

by Patrick Schreiner and Kai Eicker Wolf Tuesday, Feb. 20, 2018 at 6:13 AM

The public infrastructure is something positive, even from a business perspective. it is a kind of advance concession, increases the entrepreneurial production potential and lowers the production costs. If state investments are trifling, this will have negative long-term effects


By Patrick Schreiner and Kai Eicker-Wolf

[This article is translated abridged from the German on the Internet,]

The Purpose of the Public Authority

The borrowing of the public authority to finance state projects does not have detrimental effects. Increased spending financed by deficits is sensible when the benefits of new debts in the form of greater economic growth or improved social cohesion in society are greater than the costs (interests). Public investment programs – more money for the infrastructure, all-day schools, all-day childcare or universities – increase economic growth and improve the viability of public finances in the long run.

The public authority must spend a part of its revenue for investments in the public infrastructure (streets, rails, educational institutions, hospitals, water supply and sewage systems etc) available for private households and the business sector. This is generally recognized. The state provision of the public infrastructure is an essential prerequisite for private economic activities. The public infrastructure is something positive even from a business perspective. It is a kind of advance concession. The infrastructure increases the entrepreneurial production potential and lowers the production costs. If state investments are trifling, this will have negative long-term effects on economic development.

Inadequate investments can provoke momentous environmental problems and costs. One example is the sewage disposal system in which leaking ducts can lead to pollution of the soil and the groundwater. The costs progressively increase in the course of time with the omission of replacement investments – when road damage is not repaired in time.

In Germany, public (gross-) investments have declined in relation to the gross domestic product since the beginning of the 1970s. While this is a general international trend, the decline in Germany was greater compared to other industrial nations. In 2016, the German state investment rate was only 2.2% of the GDP while the average in the European Union was 2.8% of the GDP. Norway and Sweden had more than 4%. England (2.6%) and France (3.4%) were better than Germany.

The net investments of the state (gross investments minus the deductions in wear-and-tear) were negative in Germany since 2003 (disregarding 2009-2012). The public net capital stock has shriveled markedly. The net investments of local communities were negative since 2002. The positive state net investments from 2009 to 2012 only refer to the investment activity of the Federal Government and the territories.

One essential reason for this decline and the below-average investment activity of the public authority in Germany can be seen in the consolidation efforts. Cuts in public investments often were and are the preferred and simplest means for the territorial authorities to limit spending. In addition, job cuts in public service lead to the Federal Government, territories and local communities no longer have the personnel to plan, commission and monitor the necessary programs.

If the EU average is the measure for identifying the investment gap in Germany, a difference of 0.6% of the GDP results with public investments or 18 billion euros a year. A considerable investment backlog arises through the inadequate investment activity of cities, communities, and districts. The investment backlog on the local community plane amounts to 126 billion euros. The largest backlog is investments in the infrastructure of streets and transportation with 34 billion euros followed closely by schools (including adult education) at nearly 33 billion euros.

The Hardest Test Awaits Us

…In summary, there are many good reasons for rejecting the debt brake and the fiscal pact. These two attempts at limiting indebtedness are harmful and not only unnecessary. They brake investments, economic development, and social cohesion, not state indebtedness. There are also good reasons to reflect about alternatives – and to seek ways and means to somehow circumvent the debt brake and the European fiscal pact.

Considered in a purely technical way, certain forms of privatizing and public-private partnerships (PPP) could be ways and means. Whether they represent a good solution to the problem can be doubted. They are undemocratic, non-transparent and expensive. Nevertheless, a way out of the self-imposed and homemade financial pressures is sought in privatizations and PPP.

Investment-seeking capital can rejoice. New investment possibilities open up with privatizations and PPP. Lastly, the popular investment in government bonds is limited and only possible thanks to debt brakes and the fiscal pact. This may be the most substantial reason that the financial industry promotes privatization and PPP and not only parts of politics.

[This text is a shortened chapter from Eicker-Wolf, Kai/ Schreiner, Patrick 2017: With speed into privatization, freeways, schools, pension s – and what else? PapyRossa Verlag]


Neoliberalism. Submission as Freedom

Interview with Patrick Schreiner, Nov 20, 2015

The society in which we live is increasingly unfree in all areas and yet successfully passes off this growing unfreedom as freedom… The neoliberal subject is responsible for everything. In the ideology of the justification of poverty and impoverishment, society and the social disappear from personal and political reflection…

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