Cameron & Osborne reached Easter Recess having survived another tough short term battle, but longer term dangers linger unaddressed from failure to invest

Approach of UK Conservative and Canada Liberal governments to their respective 2016 budgets were worlds apart. Photograph: Parliament of Canada in Ottawa from Pixabay (License) (Cropped)

As Parliament went into its Easter Recess on Friday, it appeared that the Cameron Government had weathered the political storm caused by the budget. Controversies had weakened the government's position, but had not toppled it. Yet Prime Minister Cameron and Chancellor Osborne have only won the week, as tends to be their criticised focus (Kuenssberg, 2016).

While they manage the short term, there are larger, longer term, dangers they're not addressing - not least of which is the long term danger of failing to invest. Cameron and Osborne like to talk of not leaving our debts to the next generation, yet there are debts other than fiscal to leave to the next generation. One deficit they are sure to leave behind is infrastructural (Yalnizyan, 2016).

It is interesting how different priorities can be on either side of the Atlantic. In Canada, their new Prime Minister Justin Trudeau unveiled his first budget. As promised during the election, it involved deliberately running deficits in order to fund public investment in rebuilding Canada and setting it up for the future (CBC News, 2015).

John McDonnell's focus as Shadow Chancellor has been to try and undermine the perception of the Conservatives as the economically competent party, that can be trusted with the national finances. In his response to the budget, he paid special attention to the Conservative habit of over-promising and under-delivering, especially when it comes to public investment (McDonnell & O'Connor, 2016).

McDonnell has expressed particular and repeated concern that the Conservatives keep sending out press releases launching projects and yet, as argues McDonnell, don't provide or secure adequate funding. Meanwhile, against the recommendations of the OECD and the IMF, Osborne has continued to let investment consistently fall as he pursues a budget surplus (McDonnell, 2016).

What is interesting this is not a trend that Osborne began, but is rather just fitting into. Public investment in the UK has been falling steadily for the better part of fifty years (Thornsby, 2016). At the last election, both Labour and the Lib Dems wanted to put aside money for public investment, exempt from the efforts to balance the budget, but their efforts were timid due to lingering doubts about ignoring the debt or deficit in the short term to pursue a longer view.

While these doubts are being harboured in the UK, in Canada the situation couldn't be more different. At the last election the Conservatives were defeated by the Liberals coming from third place into a sweeping majority while promising to run deficits in order to fund economy growing public investment (CBC News, 2015).

Now there were certainly other aspects of the Liberal approach that helped them over the finishing line - not the least the fact that none of the parties leaders were Stephen Harper. The Trudeau campaign was open, relaxed and friendly with the public and the offer of limited-deficit funded public investment in infrastructure cannot be discounted as a factor (The National, 2016).

Yet it would seem to have only been possible to propose those deficits because the Liberals did not have the weight of a reputation for fiscal irresponsibility on their shoulders. Pre-election polls suggested that the public not only trusted the Liberals the most on the economy, but also believed they would be the most likely to have a positive impact on the economy (CTV News, 2015) - and aligned more with their promise to invest in infrastructure rather than simply cut taxes and balance the books.

While tackling the Conservative reputation, Shadow Chancellor McDonnell has also been trying to rebuild one for Labour. Bringing on a team of advisors, he has taken them on tour where, speaking across the country, they have explained how negative austerity has been and what might be possible in its place.

No one has typified this more than economist Mariana Mazzucato. In her own work, and in her work advising Labour, Mazzucato has consistently argued that the private sector is too risk averse and too short term in its thinking to handle the kind of positive long term investment that the public sector excels at (Mazzucato, 2013{2}).

In fact, if anything, she suggests that the private sector leeches off of public investment - privatising the rewards (Mazzucato, 2013). For those wedded to the fear of progressives forever being labelled as high spending, controlling statists, Mazzucato's call if not for a bigger state, but for a much easier to stomach smarter state (Mazzucato, 2014). A state that promotes growth by making smart investments where the private sector only hinders or won't take the risk; a state that promotes justice by seeing more of the reward for public efforts returned to the public.

The second, and maybe harder, part that follows the building of a reputation, is maintaining it. In Canada, the Liberals have been smart, deliberately managing expectations (Evans, 2016). While every $1 of infrastructure spending can lead to much bigger revenue returns - what Willie Rennie, leader of the Scottish Liberal Democrats, refers to as a virtuous cycle of investment (Taylor, 2016; Gray, 2016) -  they have nonetheless managed their forecasts down, leaving themselves plenty of headroom for showing the positive impact of their policies.

Public investment is important. In infrastructure, in education, in housing, in healthcare. All of these materially benefit everyone, even tackle inequality. Yet despite the Chancellor's obvious pleasure at announcing investment projects, there has been little to back it up (Pidd, 2015; Boffey, 2015) - with announcements seemingly serving as publicity to encourage private investment instead of the making of public commitments.

Sooner or later, the public will have to face the reality of the Conservative failure to invest - in education; in affordable housing; in technology, science and research. Long term public investment will be missed when the reality of selfish, short term, private investment is grasped. In the meantime, progressives have to do what they can, building the credibility of the argument for a smarter state that invests in the common good.

References

Laura Kuenssberg's 'Where does week of drama leave Cameron and Osborne?'; on the BBC; 23 March 2016.

Armine Yalnizyan's 'What regime change means in Budget 2016'; from Behind The Numbers; 22 March 2016.

'Justin Trudeau says Liberals plan 3 years of deficits to push infrastructure: Liberal leader says budget won't be balanced until 2019-2020'; on CBC News; 27 August 2015.

John McDonnell's 'John McDonnell’s Response to the Budget'; from John McDonnell & Jacqui O'Connor; 18 March 2016.

John McDonnell's 'Rewriting the Rules'; speech to the RSA, from the Labour Party; 11 March 2016.

Nick Thornsby's 'Can the long-term decline in government investment spending be reversed?'; on LibDemVoice; 21 March 2016.

'The secret to Justin Trudeau's success'; from The National; on YouTube; 20 October 2015.

'Nanos survey: 7 in 10 Canadians feel it's 'time for a change''; on CTV News; 17 October 2015.

Mariana Mazzucato's 'Let's rethink the idea of the state: it must be a catalyst for big, bold ideas'; in The Guardian; 15 December 2013{2}.

Mariana Mazzucato's 'The Entrepreneurial State: debunking public vs. private sector myths'; Anthem, 2013.

Mariana Mazzucato's 'Smart countries are the ones creating and shaping their own markets'; in The Guardian; 20 July 2014

Pete Evans' 'Ottawa forecasts $29.4B deficit — with lots more red ink to come: But government is taking an intentionally pessimistic view of economic outlook'; on CBC News; 22 March 2016.

Brian Taylor's 'Willie Rennie's 'virtuous circle' of income tax rise'; on the BBC; 26 February 2016.

Michael Gray's 'Willie Rennie making a good argument for progressive taxes. "Virtuous circle" of higher investment, higher living standards. #LeadersDebate'; from Twitter; 24 March 2016.

Helen Pidd's 'I feel like a wally for believing George Osborne’s promises to the north: We’re sick of our rubbish trains and underfunded museums – if he wants us to take him seriously, it’s time for the chancellor to stop making flashy pledges about his ‘northern powerhouse’ and stump up the cash'; in The Guardian; 6 July 2016.

Daniel Boffey's 'George Osborne’s £13bn ‘northern powerhouse’ fund includes routine council spending on potholes: Embarrassment for government as it confirms only £5bn of announced £13bn funding is allocated for major road schemes and £3bn for rail'; in The Guardian; 5 July 2015.