Britain’s inner cities reveal a situation of worsening neglect and urban blight. Whether it is weeds growing out of pavements or buildings, roads seriously potholed, road verges no longer maintained and public assets such as schools and hospitals sweated way past their designed life cycles.
The situation in the US is even worse, with electricity “brownouts” being common in many states as utility companies struggle to keep the lights on. Every year, American bridges collapse, buckling under weights for which they were never designed and over time frames way past their original designed lifespans. President Joe Biden’s Bipartisan Infrastructure Deal cannot come soon enough.
Contrast this situation with that of China, where the government has spent enormous amounts on infrastructure and where they now enjoy high returns on investment. The same largely goes for most Far East Asian economies such as Indonesia, where infrastructure spend has been huge in recent decades.
There is a pattern here. Countries with low and/or declining infrastructure spend tend to have high rates of personal consumption spending and vice versa. The US and Britain have high consumption to GDP percentages but low gross fixed capital formation (GFCF) percentages of GDP.
China has the opposite situation, with a relatively low consumption to GDP percentage but an extremely high fixed capital formation to GDP percentage.
This can be seen in World Bank figures. Globally over the past 50 years, GFCF as a percentage of GDP peaked at 25.7% in 1979, since when it has been in secular decline. It is now 23.8%.
Any country with a percentage lower than 23.8% is spending less than the world average and vice versa. China is on 43%, Indonesia on 32%, South Korea on 31% and Myanmar on 30%. The US is on a fairly low 21% and the UK on 18%. That most decrepit of countries, Cuba, has a very low 11%.
Failed states
SA comes in at 12%, hardly surprising considering the tiny amounts of infrastructure development post the Fifa World Cup in 2010.
And the World Bank also tracks the big spenders — those countries with high household consumption expenditure (HCE) as a percentage of GDP. The countries with the highest HCE/GDP percentages are often close to or failed states, such as Somalia, which leads the global rankings at 158%.
Liberia, Haiti and Sierra Leone are all more than 100% with Palestine and Lebanon just more than 90%. Greece, Vietnam and the US are in the high 60s with Brazil, Mexico and the UK about 65%. Italy, SA and India are bunched at about 60%. The Scandinavian countries of Norway, Denmark and Sweden are all a relatively low 45% and China is even lower at 39%.
What appears to be happening in the West is that governments since the 1980s have taken the view that if tax rates are kept low people will spend their higher discretionary incomes on a variety of consumption. And wherever you look, these governments have effectively been financing consumption spending via ever-increasing debt and without necessarily spending any more on infrastructure.
The Sars-CoV-2 pandemic has highlighted the infrastructure deficit. The UK’s National Health System (NHS) has been woefully underfunded for many years, especially in comparison with many European countries. And that is apparent not just in crumbling infrastructure but also in a lack of medical personnel. So when the pandemic was at its peak, there was a distinct possibility that the NHS would be overwhelmed.
SA catches all the negatives on these measures. GFCF is low and declining, consumption spending remains relatively high and government debt to GDP is rising at an alarming rate, especially after the pandemic.
There is undoubtedly a crying need for much more and better infrastructure in SA but the government no longer has the money. The private sector certainly does, but is reluctant to throw good money after bad.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.