'Bonus Culture' holds back public investment

Andrew Smithers
Financial Times - Letters, 23rd October 2020

Martin Wolf is correct that more investment is essential if we are to get the economy growing again (“The threat of long economic Covid looms”, Opinion, October 21).

He claims to have the support of the IMF in assuming that this can be achieved by boosting public investment.

This is wishful thinking which will not work. Public sector investment has been only 17 per cent of total investment over the past decade and this is an increase from 9 per cent over the previous one.

The rise in public sector investment from 2 per cent to 2.8 per cent of gross domestic product since 2000 has been accompanied by a large decline, rather than an increase, in the private sector’s contribution.

The decline in growth is due to the fall in tangible investment which dates back to 2000, rather than from the financial crises, and more than 100 per cent of this fall is attributable to non-financial companies. Business has cut back its investment since 2000 in response to the dramatic change in management pay in the 1990s. The “bonus culture” has deterred investment.

We cannot cure the problem until we recognise its cause and we will not do that until the perverse impact of the bonus culture is publicly debated rather than avoided.

Andrew Smithers
London W8, UK