Access Investments-European Union- ROMANIA

Herr Juncker, the head of the European Commission, is about to announce a plan whereby the EU puts $26 billion or so into an investment fund which is then geared up with private money to amount to a $390 billion fund that will revolutionize the European economy, light the flames of the white heat of technology and so drearily on. Sadly, the plan is based upon a simple misconception. It’s possible that there’s a case for public investment in a number of areas: there are such things as public goods, after all. It’s also possible that there’s a case for greater private investment in certain areas: that is how the economy advances, after all. But there’s no case at all for trying to make those public investments, potentially in public goods, on private sector terms. Yet that is what the fund is trying to do: I suspect that some have been reading a little too much Professor Mazzucato here (to the extent that Mazzucato’s “work” is not just an extended justification for this type of action).  The European Union is planning a 21 billion-euro ($26 billion) fund to share the risks of new projects with private investors, two EU officials said.  The new entity is designed to have an impact of about 15 times its size, making it the anchor of the EU’s 300 billion-euro investment program, said the officials, who asked not to be named because the plans aren’t final. European Commission President Jean-Claude Juncker is due to announce the three-year initiative in coming days.  The commission will pledge as much as 16 billion euros in guarantees for the vehicle, which will also include 5 billion euros from the European Investment Bank, the officials said. Loans, lending guarantees and stakes in equity and debt will be part of its toolbox, with the goal to jumpstart private risk-taking so that stalled projects can get off the ground.  Here’s what the problem with this sort of idea is. It’s absolutely true that there’re such things as public goods. These are, in the jargon, non-rivalrous and non-excludeable. No, don’t worry, it just means that it’s very difficult indeed to make money out of them. That people can’t make money out of them means that we think that private investment won’t produce enough of them. So, to get to the optimal level of their production we should have government, which doesn’t have to worry about making a profit, do the investing. This is the argument in favor of government funding basic research and even of their funding primary schools. It’s fine, it’s a simple argument that we see as far back as Adam Smith.  It’s also true that there’s things that will be funded, happily, by private investment. Assuming success it’s possible to make a profit so people have every incentive to gather in some capital, invest, and try to make a success out of whatever it is. There is no need for government funding here as the necessary incentives already exist. Government wouldn’t be helping here, at best they might crowd out private investment and more likely to, due to incomprehensible paperwork (yes, I have looked at such schemes myself, in my day job in business), slow down projects and even make them less likely to succeed.  So there is an argument for government investing. But that argument only holds for those public goods, where it’s not possible (or very difficult) to make a profit assuming success. Government investment where profit can already be made is contra-indicated. So what does this fund intend to do? Invest government money on commercial, private sector terms. To take equity and bond stakes in the projects funded. But if a project is viable, in the sense that it is possible to profit from success, then we don't need nor want the government involvement. Where we do want the government involvement, where there is one of those public goods, then we can't, by our very definition, appropriate the returns from that public goods component. So there’s nothing there that we can pay back that government portion of the investment from.  In fact, by forcing the commercial, non public goods, part of the investment to share the returns with the public sector we then lower returns for everyone and make the project less likely to happen, not more.