ABSTRACT
Introduction In the post-war period, the UK has devoted a smaller share of resources to investment than other European economies. However, as Figure 7.1 illustrates, the share of GDP going to physical investment has been declining in the EU since the 1970s. Do these things matter? Should policy makers be worried? This section considers the implications of such a development. Answers are by no means obvious. Although many evidently believe that investment can be insufficient (and the resulting capital stock too small) it is clear that investment is not always a good thing: we all have experience of consumer durables which we rarely have put to use. And in an industrial context, the gains from many IT investments have been slow to materialise. Finally, there has been talk of ‘over-capacity’ in relation to the crisis in Asia. This, however, highlights that in an uncertain world excessive capacity may not always be the result of a mistake. Has the recent Asian crisis to be put down to the poor quality of decision-making or to the bad luck associated with debt denominated in increasingly expensive dollars? Whatever the determinants of investment, or the quality of investment decision making, the proximate outcome of the investment process is manifested most-obviously in terms of the capital stock-its maintenance, augmentation, and its distribution across alternative uses.
