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Why we need public spending

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    (classical music)
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    - [Announcer] The
    government's plan to sell off
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    state assets and cut public
    services is a radical one
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    that will affect all New Zelanders.
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    But what is the evidence it will improve
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    the economy or benefit the
    country in the long term?
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    Is New Zealand out of line
    with other modern economies
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    with its weight of public spending?
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    Is our debt so high that the
    government has no other choice?
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    David Hall, Director
    of the Public Services
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    International Research Unit
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    at the University of Greenwich London
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    is an internationally recognized expert
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    in public service
    investment, privatization,
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    asset sales, and
    public/private partnerships.
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    He was recently in New
    Zealand at the invitation
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    of the PSA to raise
    awareness of these issues.
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    In a debate in Wellington,
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    he summed up the evidence
    that shows public spending
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    is actually the driver of economic growth.
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    - So what I have to say starts by
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    simply talking about 140
    years of human history.
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    140 years of economic
    growth and development
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    in which the steady growth of economies
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    has been accompanied by a steady
    growth of public spending.
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    Not just at the same speed as economies,
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    but rising even faster than growth.
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    In other words, as economies grow
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    they spend an increasing proportion
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    of national income on public services,
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    public spending, and so on.
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    So this is not something that
    holds back economic growth.
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    It's something that
    delivers economic growth.
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    In the world now we're
    all currently spending
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    in the rich nations something
    between 40 and 60% of GDP
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    on public spending.
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    Very high levels.
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    Sometimes people say it
    should be lower than that.
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    Maybe we wanna get back to 20% of GDP.
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    That's where we were in the 1920s.
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    That's where some African
    countries still are.
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    30% of GDP, that's where
    we we in the 1960s.
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    That where a lot of South
    American countries still are.
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    But modern economies are all in the band
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    of around 40 to 60%.
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    So this accompaniment of economic growth
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    by public spending is
    because public spending
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    brings drivers of economic growth.
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    This isn't just absorbing it.
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    This is driving it.
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    And it drives it in
    three or four key ways.
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    The first one is infrastructure.
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    Notoriously, private companies
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    don't invest in infrastructure.
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    The roads, the electricity,
    the railway systems,
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    the telecom systems,
    water and sewer systems,
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    all countries of the world
    over the last 140 years
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    that investment has come
    through public spending.
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    The second area is developing
    what's sometimes called
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    the soft infrastructure.
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    The public services.
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    The big services of health, education,
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    libraries, et cetera.
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    The stuff that supports the growth
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    and development of people.
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    The stuff that supports and generates
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    an educated, competent workforce
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    capable of productive work.
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    As economies grow, the
    demands get more complex.
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    You need more education.
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    You need more higher education.
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    And that's why services continue to grow
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    as economies grow.
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    Why do we do it through the public sector?
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    The answer, big surprise to some people,
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    the economic answer is
    because it's more efficient
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    to do it that way.
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    Now the clearest way you can
    see this is with healthcare.
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    And you can see it by looking at the USA,
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    which has carried out a unique experiment
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    of trying to run privately
    financed healthcare.
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    The USA spends twice as much of its GDP
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    on healthcare as other countries,
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    other advanced countries.
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    It spends a sixth of its
    national income on healthcare.
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    And it gets worse results.
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    And has the 33rd place in
    terms of life expectancy.
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    It's poor in the USA.
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    Child mortality rates in the USA are twice
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    what they are in the Czech Republic.
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    So this is, this private healthcare,
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    is a system that's both
    inefficient and ineffective.
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    If we look more broadly
    across various sectors
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    we see that the evidence
    from empirical studies
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    comparing the efficiency of
    public and private operators
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    in water, electricity, accounting,
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    a whole range of services,
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    prisons, airports, the results come back,
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    again and again, there's
    no significant difference.
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    This is reality.
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    It's not what people, many people believe
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    or assume or expect.
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    But the reality from
    the empirical evidence
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    is there is no superior efficiency
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    from private performance.
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    So the third element of efficiency
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    working in favor of the public sector,
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    and this is particularly relevant
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    to the issue of PPPs for example
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    is raising of finance,
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    because the public sector
    can always raise finance
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    more cheaply than the private sector.
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    It raises finance more cheaply
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    because our collective readiness
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    to carry on paying taxes
    is a stronger underwriting
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    than any enterprise can deliver.
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    So we have efficiency as a core function
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    that the public services and
    public spending are delivering.
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    How can we afford this as economies grow?
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    How can we afford to spend more
    and more on public services?
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    The answer's simple.
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    It's the same way we can,
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    we afford to spend more and more
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    on television, mobile phones, et cetera.
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    It's just that the things we get,
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    the things we need in
    terms of infrastructure,
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    healthcare, education,
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    we have to get through public spending.
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    We can get it most efficiently
    through public spending.
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    So rather than spending it out
    of our own pockets on that,
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    we spend increasing
    amounts through taxation
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    and public spending on that.
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    The other thing we get
    out of public spending
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    and public services is greater equality.
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    In all societies, in market economies,
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    the initial distribution
    of income is very unequal.
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    Taxes and benefits go a long way
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    to redistributing that.
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    So the poorer get more
    from where they started.
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    But the other elements of redistribution
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    is public services themselves.
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    By providing education,
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    healthcare, and other services,
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    we're providing enormously valuable things
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    to people who otherwise
    wouldn't afford them.
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    And for example in the UK
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    for the poorest 20%,
    those services are worth
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    almost as much as their
    entire monetary income.
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    So equality has a big social advantage.
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    It also has an economic advantage
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    because it redistributes money to people
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    who spend a higher percentage of it.
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    So it means that there's
    more demand in the economy
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    than there would be if it
    remained with the rich.
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    One result of all of
    this is that it sustains
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    high levels of employment.
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    And we've done a rough estimate
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    that about 50% of all
    the jobs in the world
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    are supported by public spending.
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    That's not just by direct employment.
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    By public employees.
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    For every one public employee
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    supported by public spending,
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    there's two private sector employees.
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    Because governments purchase goods
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    from the private sector
    and the multiplier affect
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    of those employees to those employees
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    generates furtherward.
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    So for every one public sector job
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    you have two private sector jobs.
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    Sometimes this catalog of achievements
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    of the public sector isn't enough,
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    and people say, oh, it's not innovative.
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    And I suppose that's right
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    if you don't count inventing computers,
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    the internet, space travel, jet aircraft,
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    and penicillin (audience laughing).
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    All of which came out
    of the public sector.
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    Okay, but has the economic
    crisis changed all this?
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    Has the economic crisis
    shown us we can't afford
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    to do this anymore?
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    I think not, and I think not
    for some very strong reasons.
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    The first is and a big
    reminder to all of us,
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    the economic crisis was not
    caused by government spending.
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    It was not caused by government borrowing.
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    It was not caused by government debt.
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    Anywhere in the world.
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    Government debt in the
    world was level for 10 years
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    before the economic crisis.
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    What caused the economic crisis
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    was unsustainable levels of private debt.
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    And irresponsible behavior
    by impeccably private banks.
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    How did we rescue
    ourselves from this crisis?
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    Well, it was by using public spending
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    to nationalize in many cases
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    those irresponsible private banks.
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    We used huge amounts of money to do that.
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    The money we spent
    nationalizing those banks
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    was the equivalent of all the revenue
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    from all the privatizations
    in the whole world
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    over the last 30 years.
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    That's what it cost us
    to prop up those banks
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    and stop them failing.
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    We then went further,
    right across the world,
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    in an unprecedented coordinated
    act of economic policy,
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    deliberately increasing public spending,
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    deliberately increasing
    government deficits,
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    in order to boost demand,
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    in order to stop unemployment
    rising even faster.
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    That worked.
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    Unemployment would be far worse worldwide
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    if that hadn't been done.
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    It meant that public spending
    and government deficits
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    worldwide went up by the
    equivalent of 4% of GDP.
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    But we thought that was
    a price worth paying,
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    and we still should think that's the price
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    worth having to pay.
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    What happens now?
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    I think that the crisis is not yet over.
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    The threat of recession is not yet over.
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    This is not a time to
    be starting to cut back
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    on public spending.
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    We still need it to protect us.
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    Is privatization, or PPP,
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    some kind of substitute in some way?
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    Well, you've had as up
    and down an experience
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    with privatization as
    any country in the world,
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    so, I won't go through the
    details of that experience.
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    Perhaps some of the other panelists will.
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    But I will say something about
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    the idea that partial privatization
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    can somehow result in a sort of
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    mom and dad's popular
    ownership of industries.
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    Because that's what we thought in the UK.
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    That's what Mrs. Thatcher
    thought in the 1980s.
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    And we were all sold shares
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    in these new privatized companies.
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    But what we all then did,
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    because we're fairly smart investors,
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    is that when big companies
    came along and said,
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    we'll give you 25% more for those shares,
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    we sold them to them.
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    And as a result, the privatized companies
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    in the UK are now owned,
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    to a very large extent, by
    foreign based multinationals.
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    They're owned by French
    companies, German companies,
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    Spanish companies, Chinese companies,
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    Malaysian companies,
    Singaporean companies.
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    So beware of the illusion
    of selling shares
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    to small shareholders.
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    What also happens to prices
    is that you get increases.
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    And in water, for example 15% increases.
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    So finally, to wrap up,
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    I would say that we
    need public spending now
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    as much as ever.
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    We need to hold our nerve.
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    It's rescued the world economy
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    from the worst crisis.
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    We need it now.
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    We need it in the future.
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    And we're gonna need it
    for future needs as well
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    like combating climate change.
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    (classical music)
Title:
Why we need public spending
Description:

David Hall, an internationally recognised expert in public service investment, privatisation, asset sales and public private partnerships, argues that public spending drives economic growth. Download his paper "Why we need public spending" here: http://www.psiru.org/reports/2010-10-QPS-pubspend.pdf

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Video Language:
English
Duration:
11:52

English subtitles

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