Why we need public spending
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0:00 - 0:03(classical music)
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0:03 - 0:05- [Announcer] The
government's plan to sell off -
0:05 - 0:08state assets and cut public
services is a radical one -
0:08 - 0:11that will affect all New Zelanders.
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0:11 - 0:13But what is the evidence it will improve
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0:13 - 0:17the economy or benefit the
country in the long term? -
0:17 - 0:19Is New Zealand out of line
with other modern economies -
0:19 - 0:22with its weight of public spending?
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0:22 - 0:26Is our debt so high that the
government has no other choice? -
0:26 - 0:29David Hall, Director
of the Public Services -
0:29 - 0:31International Research Unit
-
0:31 - 0:33at the University of Greenwich London
-
0:33 - 0:35is an internationally recognized expert
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0:35 - 0:39in public service
investment, privatization, -
0:39 - 0:42asset sales, and
public/private partnerships. -
0:43 - 0:45He was recently in New
Zealand at the invitation -
0:45 - 0:50of the PSA to raise
awareness of these issues. -
0:50 - 0:51In a debate in Wellington,
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0:51 - 0:55he summed up the evidence
that shows public spending -
0:55 - 0:58is actually the driver of economic growth.
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0:58 - 1:00- So what I have to say starts by
-
1:00 - 1:03simply talking about 140
years of human history. -
1:03 - 1:06140 years of economic
growth and development -
1:06 - 1:11in which the steady growth of economies
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1:12 - 1:16has been accompanied by a steady
growth of public spending. -
1:16 - 1:19Not just at the same speed as economies,
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1:19 - 1:22but rising even faster than growth.
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1:22 - 1:24In other words, as economies grow
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1:24 - 1:27they spend an increasing proportion
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1:27 - 1:31of national income on public services,
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1:31 - 1:33public spending, and so on.
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1:33 - 1:36So this is not something that
holds back economic growth. -
1:36 - 1:38It's something that
delivers economic growth. -
1:38 - 1:42In the world now we're
all currently spending -
1:42 - 1:47in the rich nations something
between 40 and 60% of GDP -
1:48 - 1:49on public spending.
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1:49 - 1:50Very high levels.
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1:50 - 1:53Sometimes people say it
should be lower than that. -
1:53 - 1:56Maybe we wanna get back to 20% of GDP.
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1:56 - 1:59That's where we were in the 1920s.
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1:59 - 2:02That's where some African
countries still are. -
2:02 - 2:0630% of GDP, that's where
we we in the 1960s. -
2:06 - 2:09That where a lot of South
American countries still are. -
2:09 - 2:11But modern economies are all in the band
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2:11 - 2:14of around 40 to 60%.
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2:14 - 2:19So this accompaniment of economic growth
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2:19 - 2:24by public spending is
because public spending -
2:24 - 2:27brings drivers of economic growth.
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2:27 - 2:28This isn't just absorbing it.
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2:28 - 2:29This is driving it.
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2:29 - 2:33And it drives it in
three or four key ways. -
2:33 - 2:35The first one is infrastructure.
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2:35 - 2:36Notoriously, private companies
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2:36 - 2:38don't invest in infrastructure.
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2:38 - 2:41The roads, the electricity,
the railway systems, -
2:41 - 2:44the telecom systems,
water and sewer systems, -
2:44 - 2:48all countries of the world
over the last 140 years -
2:48 - 2:53that investment has come
through public spending. -
2:53 - 2:58The second area is developing
what's sometimes called -
2:58 - 2:59the soft infrastructure.
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2:59 - 3:00The public services.
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3:00 - 3:02The big services of health, education,
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3:02 - 3:05libraries, et cetera.
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3:05 - 3:07The stuff that supports the growth
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3:07 - 3:08and development of people.
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3:08 - 3:11The stuff that supports and generates
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3:11 - 3:15an educated, competent workforce
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3:15 - 3:17capable of productive work.
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3:17 - 3:20As economies grow, the
demands get more complex. -
3:20 - 3:22You need more education.
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3:22 - 3:24You need more higher education.
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3:24 - 3:27And that's why services continue to grow
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3:27 - 3:30as economies grow.
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3:30 - 3:33Why do we do it through the public sector?
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3:33 - 3:35The answer, big surprise to some people,
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3:35 - 3:38the economic answer is
because it's more efficient -
3:38 - 3:40to do it that way.
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3:40 - 3:43Now the clearest way you can
see this is with healthcare. -
3:43 - 3:45And you can see it by looking at the USA,
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3:45 - 3:48which has carried out a unique experiment
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3:48 - 3:51of trying to run privately
financed healthcare. -
3:51 - 3:55The USA spends twice as much of its GDP
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3:55 - 3:56on healthcare as other countries,
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3:56 - 3:58other advanced countries.
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3:58 - 4:02It spends a sixth of its
national income on healthcare. -
4:02 - 4:04And it gets worse results.
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4:04 - 4:09And has the 33rd place in
terms of life expectancy. -
4:09 - 4:11It's poor in the USA.
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4:11 - 4:15Child mortality rates in the USA are twice
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4:15 - 4:17what they are in the Czech Republic.
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4:17 - 4:19So this is, this private healthcare,
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4:19 - 4:23is a system that's both
inefficient and ineffective. -
4:23 - 4:27If we look more broadly
across various sectors -
4:27 - 4:30we see that the evidence
from empirical studies -
4:30 - 4:34comparing the efficiency of
public and private operators -
4:34 - 4:35in water, electricity, accounting,
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4:36 - 4:38a whole range of services,
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4:38 - 4:42prisons, airports, the results come back,
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4:42 - 4:45again and again, there's
no significant difference. -
4:45 - 4:46This is reality.
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4:46 - 4:48It's not what people, many people believe
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4:48 - 4:51or assume or expect.
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4:51 - 4:53But the reality from
the empirical evidence -
4:53 - 4:56is there is no superior efficiency
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4:56 - 4:58from private performance.
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4:58 - 5:02So the third element of efficiency
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5:02 - 5:04working in favor of the public sector,
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5:04 - 5:06and this is particularly relevant
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5:06 - 5:08to the issue of PPPs for example
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5:08 - 5:10is raising of finance,
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5:10 - 5:12because the public sector
can always raise finance -
5:12 - 5:15more cheaply than the private sector.
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5:15 - 5:17It raises finance more cheaply
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5:17 - 5:20because our collective readiness
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5:20 - 5:24to carry on paying taxes
is a stronger underwriting -
5:24 - 5:27than any enterprise can deliver.
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5:27 - 5:30So we have efficiency as a core function
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5:30 - 5:35that the public services and
public spending are delivering. -
5:35 - 5:37How can we afford this as economies grow?
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5:37 - 5:40How can we afford to spend more
and more on public services? -
5:40 - 5:41The answer's simple.
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5:41 - 5:43It's the same way we can,
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5:43 - 5:46we afford to spend more and more
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5:46 - 5:49on television, mobile phones, et cetera.
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5:49 - 5:51It's just that the things we get,
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5:51 - 5:56the things we need in
terms of infrastructure, -
5:56 - 5:58healthcare, education,
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5:58 - 6:00we have to get through public spending.
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6:00 - 6:03We can get it most efficiently
through public spending. -
6:03 - 6:06So rather than spending it out
of our own pockets on that, -
6:06 - 6:09we spend increasing
amounts through taxation -
6:09 - 6:10and public spending on that.
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6:12 - 6:13The other thing we get
out of public spending -
6:13 - 6:16and public services is greater equality.
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6:16 - 6:19In all societies, in market economies,
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6:19 - 6:23the initial distribution
of income is very unequal. -
6:23 - 6:24Taxes and benefits go a long way
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6:24 - 6:26to redistributing that.
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6:26 - 6:29So the poorer get more
from where they started. -
6:29 - 6:31But the other elements of redistribution
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6:31 - 6:33is public services themselves.
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6:33 - 6:35By providing education,
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6:35 - 6:37healthcare, and other services,
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6:37 - 6:40we're providing enormously valuable things
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6:40 - 6:42to people who otherwise
wouldn't afford them. -
6:42 - 6:44And for example in the UK
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6:44 - 6:47for the poorest 20%,
those services are worth -
6:47 - 6:51almost as much as their
entire monetary income. -
6:51 - 6:54So equality has a big social advantage.
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6:54 - 6:57It also has an economic advantage
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6:57 - 6:59because it redistributes money to people
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6:59 - 7:01who spend a higher percentage of it.
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7:01 - 7:04So it means that there's
more demand in the economy -
7:04 - 7:08than there would be if it
remained with the rich. -
7:09 - 7:11One result of all of
this is that it sustains -
7:11 - 7:14high levels of employment.
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7:14 - 7:16And we've done a rough estimate
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7:16 - 7:19that about 50% of all
the jobs in the world -
7:19 - 7:22are supported by public spending.
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7:22 - 7:24That's not just by direct employment.
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7:24 - 7:26By public employees.
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7:26 - 7:28For every one public employee
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7:28 - 7:30supported by public spending,
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7:30 - 7:32there's two private sector employees.
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7:32 - 7:34Because governments purchase goods
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7:34 - 7:36from the private sector
and the multiplier affect -
7:36 - 7:39of those employees to those employees
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7:39 - 7:41generates furtherward.
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7:41 - 7:43So for every one public sector job
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7:43 - 7:46you have two private sector jobs.
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7:46 - 7:49Sometimes this catalog of achievements
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7:49 - 7:51of the public sector isn't enough,
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7:51 - 7:53and people say, oh, it's not innovative.
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7:53 - 7:55And I suppose that's right
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7:55 - 7:57if you don't count inventing computers,
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7:57 - 8:00the internet, space travel, jet aircraft,
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8:00 - 8:01and penicillin (audience laughing).
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8:01 - 8:05All of which came out
of the public sector. -
8:05 - 8:08Okay, but has the economic
crisis changed all this? -
8:08 - 8:10Has the economic crisis
shown us we can't afford -
8:10 - 8:12to do this anymore?
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8:12 - 8:16I think not, and I think not
for some very strong reasons. -
8:16 - 8:19The first is and a big
reminder to all of us, -
8:19 - 8:23the economic crisis was not
caused by government spending. -
8:23 - 8:25It was not caused by government borrowing.
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8:25 - 8:27It was not caused by government debt.
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8:27 - 8:29Anywhere in the world.
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8:29 - 8:32Government debt in the
world was level for 10 years -
8:32 - 8:34before the economic crisis.
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8:34 - 8:36What caused the economic crisis
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8:36 - 8:38was unsustainable levels of private debt.
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8:38 - 8:42And irresponsible behavior
by impeccably private banks. -
8:42 - 8:47How did we rescue
ourselves from this crisis? -
8:47 - 8:49Well, it was by using public spending
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8:49 - 8:52to nationalize in many cases
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8:52 - 8:54those irresponsible private banks.
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8:54 - 8:57We used huge amounts of money to do that.
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8:57 - 9:00The money we spent
nationalizing those banks -
9:00 - 9:03was the equivalent of all the revenue
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9:03 - 9:05from all the privatizations
in the whole world -
9:05 - 9:07over the last 30 years.
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9:07 - 9:10That's what it cost us
to prop up those banks -
9:10 - 9:12and stop them failing.
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9:12 - 9:14We then went further,
right across the world, -
9:14 - 9:19in an unprecedented coordinated
act of economic policy, -
9:20 - 9:23deliberately increasing public spending,
-
9:23 - 9:25deliberately increasing
government deficits, -
9:25 - 9:27in order to boost demand,
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9:27 - 9:30in order to stop unemployment
rising even faster. -
9:30 - 9:32That worked.
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9:32 - 9:34Unemployment would be far worse worldwide
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9:34 - 9:35if that hadn't been done.
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9:35 - 9:38It meant that public spending
and government deficits -
9:38 - 9:42worldwide went up by the
equivalent of 4% of GDP. -
9:42 - 9:44But we thought that was
a price worth paying, -
9:44 - 9:47and we still should think that's the price
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9:47 - 9:48worth having to pay.
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9:49 - 9:51What happens now?
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9:51 - 9:55I think that the crisis is not yet over.
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9:55 - 9:58The threat of recession is not yet over.
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9:58 - 10:01This is not a time to
be starting to cut back -
10:01 - 10:04on public spending.
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10:04 - 10:05We still need it to protect us.
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10:06 - 10:08Is privatization, or PPP,
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10:08 - 10:11some kind of substitute in some way?
-
10:11 - 10:13Well, you've had as up
and down an experience -
10:13 - 10:15with privatization as
any country in the world, -
10:15 - 10:19so, I won't go through the
details of that experience. -
10:19 - 10:22Perhaps some of the other panelists will.
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10:22 - 10:24But I will say something about
-
10:24 - 10:26the idea that partial privatization
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10:26 - 10:29can somehow result in a sort of
-
10:29 - 10:34mom and dad's popular
ownership of industries. -
10:34 - 10:35Because that's what we thought in the UK.
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10:35 - 10:38That's what Mrs. Thatcher
thought in the 1980s. -
10:38 - 10:39And we were all sold shares
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10:39 - 10:42in these new privatized companies.
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10:42 - 10:44But what we all then did,
-
10:44 - 10:45because we're fairly smart investors,
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10:45 - 10:47is that when big companies
came along and said, -
10:47 - 10:50we'll give you 25% more for those shares,
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10:50 - 10:51we sold them to them.
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10:51 - 10:54And as a result, the privatized companies
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10:54 - 10:55in the UK are now owned,
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10:55 - 11:00to a very large extent, by
foreign based multinationals. -
11:00 - 11:03They're owned by French
companies, German companies, -
11:03 - 11:05Spanish companies, Chinese companies,
-
11:05 - 11:08Malaysian companies,
Singaporean companies. -
11:08 - 11:13So beware of the illusion
of selling shares -
11:14 - 11:16to small shareholders.
-
11:17 - 11:22What also happens to prices
is that you get increases. -
11:22 - 11:26And in water, for example 15% increases.
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11:26 - 11:28So finally, to wrap up,
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11:28 - 11:30I would say that we
need public spending now -
11:30 - 11:31as much as ever.
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11:31 - 11:33We need to hold our nerve.
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11:33 - 11:34It's rescued the world economy
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11:34 - 11:36from the worst crisis.
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11:36 - 11:37We need it now.
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11:37 - 11:38We need it in the future.
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11:38 - 11:40And we're gonna need it
for future needs as well -
11:40 - 11:42like combating climate change.
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11:42 - 11:45(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
- Video Language:
- English
- Duration:
- 11:52
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