17 November 2016

Are we just too efficient when it comes to infrastructure?


Here we go again. The TUC is telling us that, horror of horrors, the UK is near the bottom of the world rankings across all categories of infrastructure spending.

The statement is part of their submission to the Treasury for the Autumn Statement – presumably the idea being that we’ll all be so ashamed of our laggardliness that sit back and let Philip Hammond riffle ever deeper into our wallets for taxes to spend on lovely tech and transport equipment.

There are, however, two problems with this view, one detailed and one more general.

The general is that we rather like it when things are cheap. Actually, we like it a lot – because it means that we can have more of other things as well, i.e. we’re richer. So if we can build the infrastructure we need without spending a lot on it, that is pleasing to the taxpayer – and not some problem that we are keen to fix by throwing money at it.

The more detailed objection concerns their specific worry about low spending on ICT – computers and software, essentially.

The trouble is, they’re using GDP accounting to measure spending and, sadly, GDP accounting just isn’t good enough to be used in such a fashion.

Investment for these purposes is defined as buying something which is then depreciated over several years, that’s how we arrive at the numbers for the rankings. So what should the public sector’s latest great investment in computing be? Exactly.

We’re not buying Office from Microsoft and then depreciating that over the upgrade cycle; we’re buying a subscription to Office 365 instead – and that’s defined as current spending, not investment.

We’re using the same software, at possibly the same price, but it’s just not being defined as investment – nor is Salesforce (a customer relationship management tool) nor any of the software as a service (or hardware, think web servers) industry.

This is one of the problems with trying to plan the economy: Hayek told us we can never have the information necessary to do so. The GDP accounts just aren’t an accurate enough because of the way things change in value but measurements don’t.

The general point is, of course, the more important one.

What we’re interested in is not how much we spend on things; we’re interested in how much we get for what we spend.

So, measuring spend alone is not the way to do it. The UK being low down the infrastructure spending list is thus an achievement – we’re more efficient than other countries.

This could be due to our contracting out to the private sector,  instead of having vastly expensive government run direct labour organisations. Or by our using the Private Finance Initiative to lower the construction costs. Or…well, or well just by being more efficient.

So, in effect, the TUC is bewailing that we’re too efficient at infrastructure. Which is a very odd thing to worry about if we’re honest – and an even stranger thing to want to stop.

Tim Worstall is senior fellow at the Adam Smith Institute.