The chaos wrought on the UK economy by the Conservative government has been very costly. The Tory’s mini-budget is a perfect example of the damage that policy shocks can cause.* Extreme uncertainty sent markets and the pound into a spiral. It was high stakes gambling on an enormous scale. But the focus of this piece is not the acute uncertainty brought about by shocks such as this. Instead, I want to discuss a gentler form of uncertainty. Let’s call it chronic uncertainty – the type brought about by bad habits. Bad habits that, over a long time, can erode credibility. The resulting uncertainty isn’t so likely to make the front pages but it isn’t harmless – it affects how people make decisions.

Uncertainty increases the cost of doing business. It causes chaos in the markets. It can make it difficult to plan, to coordinate, and to build. A country has the potential to be greater than the sum of its parts but uncertainty curbs that potential. It is a key responsibility of government, therefore, to reduce uncertainty. This is why it is so startling to see the British government shoot itself in the foot. But feet aren’t solely injured by gunshots. In failing to invest in the right footwear, and replace it when worn out, a country can limp from crisis to crisis. It may not make headlines, but it can sow the seeds of decline.

Appropriate, predictable and timely public investment reduces uncertainty and enables economic development. The opposite – poorly planned spending, in fits and bursts, long after it is needed – creates lingering uncertainty and is a drag on the economy. It is easy to bring to mind projects that are announced and re-announced. Rail lines, schools, hospitals, waterworks… One by one they enter project purgatory: shelved and uncertain of whether they’ll make it through the pearly decision gates or end up in flames. Years and sometimes decades go by. Will the project materialise and when? Should I buy a house in the area? Should I expand my business? The uncertainty ripples through the decision making of people across the economy. We rightly care about budget overruns but do we pay enough attention to the cost of this uncertainty?

That cost is borne by society in many ways. Citizens miss out on key services, such as trains or clean water. People use more costly substitutes: cars in the absence of a train, bottled water for want of clean tap water. These workarounds have increased environmental impacts. Homebuilders delay building in the area, uncertain of the market. Local businesses defer expansion, unsure if there will be new customers. Related public investments, that must be delivered sequentially, are put on the long finger. Ring-fenced funding is tied up and remains unspent. The earmarked site lies idle. Neighbouring resources come under increased pressure. Private sector investors follow the path of least resistance, taking their capital elsewhere. Underutilised workers take their skills and experience abroad. Suppliers, unsure of the demand for their produce, do not develop efficient supply chains.

The knock-on consequences of uncertainty in public investment are virtually endless. What’s more, without adequate investment, the economy is significantly more susceptible to shocks. We face an uncertain decade. We must confront several known crises, unsure of what other shocks may loom around the corner. One thing is certain: we need public investment. We need more homes, schools, hospitals, trains, wind turbines, and water treatment plants. In many cases, we need them yesterday. But all hope is not lost – we got it right in the past and can get it right again.

Between 1990 and 2010 Ireland got very good at building motorways. In 1990 Ireland’s motorway network consisted of the Naas bypass and a few kilometres of the M1. Motorways now link Dublin to Cork, Limerick, Galway, and Belfast, to name but a few. By 2035, the network is expected to expand to 1,100km, as Ireland’s western cities are connected to one another. This isn’t an argument for more motorways. I would rather a top-class rail network. But it is evidence that when we set ambitious but clear targets, provide adequate funding, and competently manage delivery, the results are transformative. In just 20 years, a sparsely populated country built over 800km of high-quality motorway. And it is high quality. If you ever rented a car in Spain, only to be jettisoned into fast moving traffic via a 100 metre on-ramp, you appreciate the peaceful comfort of Ireland’s 300 metre slip-roads. The key point is that whenever Government announced a new road, it was credible. Knowing each phase would be funded and delivered to schedule allowed businesses and individuals to make better decisions.

If we fail to reduce uncertainty, and to increase our credibility, we diminish Ireland’s ability to meet its potential. People across the economy will find it harder to plan, to coordinate, and to build something better. This is not a problem unique to Ireland. But few developed economies face such a large deficit in public investment. The US and the UK may desire to build back better, harking back to a time when their shiny infrastructure was the envy of the world. By contrast, Ireland’s humble history of stuttering investment sees us dream of building forward better. We can get to net zero emissions by 2050. We can become energy exporters. We can ensure everyone has a home. But to do so, the country whose people built America and rebuilt Britain needs to get serious about building at home.

CN
* For an explainer, see Natasha Browne’s excellent post – Explained: Why the UK mini-Budget Shook Financial Markets