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7 - What can we Learn from Germany’s National Development Bank?

Published online by Cambridge University Press:  11 March 2021

Susan Himmelweit
Affiliation:
The Open University, Milton Keynes
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Summary

What's the issue?

The private financial system is not designed to support the real economy and, therefore, cannot support or sustain a new industrial strategy either. With an appetite for short-term, high-return speculation, it simply doesn't fund enough longerterm investment in risky innovation, neglects sectors including physical and social infrastructure, and fails to adequately support small and medium-sized enterprises (SMEs). Therefore a national investment bank (NIB) will be a valuable asset in helping to achieve more productive investment – to help the UK economy become more dynamic, greener and fairer.

What role could a national investment bank play in creating a better investment environment to support industrial policy?

Analysis

The NIB would be a strategic instrument for channelling financial resources required to deliver industrial policy, to help both rebalance the UK economy towards manufacturing and useful services, and increase dynamism and productivity.

The 2007–08 financial crisis brought renewed support for national development banks worldwide, as the problems of a purely private financial sector became more obvious. The private financial system has been pro-cyclical, over-lending in boom times but rationing credit during and after crises. It has also tended to under-fund long-term investment in the riskier innovation that many firms need to not only grow but also create high productivity jobs in the process. Funding for key sectors, such as infrastructure (physical and social), has also been neglected. SMEs – especially start-ups – often have difficulty in accessing credit, which is usually both costly and short-term. The implication is clear: delivering enough finance, at the right price, to achieve economic and social policy objectives, requires public banking institutions.

National development banks have long been an important feature of most developed as well as emerging economies – especially the most successful ones such as Germany, China, India, South Korea and Japan. The UK is an exception, having no such bank, despite its evident need. Both private and public investment have been historically low in the UK economy, falling further since the 2007–08 crisis, not least as a result of misguided austerity policies. The UK remains in last place among both the G7 and OECD (Organisation for Economic Co-operation and Development) countries, with the lowest share of investment in GDP.

Type
Chapter
Information
Rethinking Britain
Policy Ideas for the Many
, pp. 132 - 135
Publisher: Bristol University Press
Print publication year: 2019

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