On the one hand we have a seemingly endless list of Government spending plans gone wrong – the NHS IT implantation system is a good place to start – and on the other we have politicians of all colours, including purple, calling for state investment on (presumably the right type of) infrastructure projects without seeming to learn from each other. Government will always get its spending plans wrong, and all the infrastructure projects will be the wrong ones, or at best the right ones delivered at the wrong price.
The answers for this can be summarised by the fact that all Government spending is motivated by keeping the particular party popular, rather than by profit. The politician looks for re-election, and he will choose the host for the ‘investment’ accordingly – typically it will be called regeneration, but will always occur in a friendly or potentially friendly constituency. He is further incentivized to have the project run for longer than necessary to prolong the political goodwill, thus removing any necessity for efficiency. The State machine, or Civil Service, also has the same incentive to prolong its involvement and employment. Crucially, the investor is the tax payer, and not a shareholder and so it cannot remove or withhold its investment. Sitting on top of this skewed pile are the private sector contractors, who enjoy the same level of risk-free money, and behave like public rather than private sector workers. The result is that you have an endless supply of money being taken all three active parties who have no vested interest in delivering efficiencies. Without efficiencies, wealth erodes.
As the costs of the ‘project’ increase so will the need for further tax, taking money out of the free market. This can cause resentment, as the rich South will object to their taxes being raised to pay for ‘investment’ in the North without any visible benefit to them. The economic result is a further contraction in investment capacity in the private sector and reducing real growth – growth that is based upon market choice. As the private sector contracts, so will the political ‘need’ for more ‘infrastructure projects’ and we go back to square one.