Coffee House

The view from Davos: Boris Johnson’s economic adviser on infrastructure

26 January 2013

As the speaker for yesterday’s Davos British business leaders’ lunch, Boris Johnson had the audience in his hand in his usual colourful way. I grabbed his very new Chief Economic Adviser, Dr Gerard Lyons, former Chief Economist at Standard Chartered, on the way out.

How did he think we are doing economically? He told me the last big economic gathering was the IMF last October in Tokyo.  There, he said, the mood about the global economy was pessimistic, but now, three months later, the mood had improved, if only slightly.  There was more confidence about China and the US but still a lot of caution about Europe. Many continental economies, he said, are focusing less on the Europe debate that David Cameron seems to want to get going and more on the need to get their own economies out of recession.


Infrastructure is the buzz word at Davos: In his speech Boris called on the Chancellor to ramp up investment in housing, road and rail. ‘There’s a boom in infrastructure,’ said Lyons. As to his new job he said  – ‘I’ve gone from one great role to another’.   There speaks the economist politician.

What do business leaders say about the economy?  Ian Cheshire is the Group Chief Executive of Kingfisher plc – Europe’s largest home improvement retailer and the owner of B & Q. This is his third Davos and he agrees that this year the mood is less gloomy than last, when there was fear for the future of the Euro and what might happen to it. ‘This year’, he said, ‘the feeling is no longer suicidal but we are still fairly depressed because of the lack of growth in Europe.’  With China’s economy showing 7 per cent growth and the U.S. with 3 per cent growth, he said, many are asking what is the starting gun to re-start growth in the UK where growth is nearer 0 per cent?

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  • Edward Harkins

    A deal of confusion and conflation around the need for stimulus and recovery, and the ill-advised use of additional infrastructure spend to achieve that.

    The fact that Davos participants joined in the ‘buzz’ of infrastructure, is just further confirmation that a great many self-interested parties are joining in the chorus of ‘extra infrastructure spend to take the UK out of recession’.

    The reality is that nowhere in all of modern economic history has it been irrefutably demonstrated that additional (Government) spending on large capital infrastructure has been a route for taking an economy out of recession or worse. Additional infrastructure spend is a costly, inefficient and largely ineffective tool for recovery – indeed, the opportunity costs entailed may skirt with the risk of depression (by drawing short and medium term government funding away from other measures that would stimulate recovery far more quickly, effectively and cheaply).

    In the case of the UK there are further arguments against prioritising additional spend on infrastructure – the comparative under-performance of the UK infrastructure industry for one, as attested by the UK Treasury’s own ‘UK Infrastructure’ arm. And, of course, let’s just draw a veil over the construction industry’s and its associates’ looting of the public purse – otherwise known as PFI, PPF, etc.

    Higher UK spending on infrastructure is desirable, indeed essential as demonstrated by OECD analyis etc. But that is for the longer term, and not as a tool for UK recovery – here and now – out of an enduring recession.

  • Hornblower

    The two characters in the photograph should be arrested and prosecuted for dissipating 10 billion pounds on a shindig this country could ill afford

    • Daniel Maris

      LOL That was a Gold Medal comment. Still it gave us 3 months’ of “respectable” 0.9% growth thanks to the ten billion. :)

  • Terrence Henderson

    Just one sentence before I do go for the night!
    Davros speaks on on Davos!


    Mr Cheshire may not have understood that P I G S will not grow until they have all 3 elements of the standard IMF package in place – AUSTERITY + DEFAULT + DEVALUATION – in their cases of course leaving Euro. But for DSK bouncing IMF into Greek package, I don’t think that they would have got involved in self-defeating AUSTERITY ONLY packages. Lagarde just had to start from the situation she found herself in. I thought at the time that UK support for her appointment was wrong and I don’t know what Obama’s advisers were telling him but the IMF report in June in which they said that Euro would never work with ALL current members was being attributed to US influence.

    Also in ? November the IMF came up with new research on the ‘multiplier-effect’ of the recent austerity measures. Their working assumption was that a fiscal tightening of 1 % GDP would result in a .5 % fall in GDP i.e. that the economy would get a .5 % BENEFIT. What they found for the simultaneous tightenings in S Europe was that a 1 % tightening PRODUCED A TWO PER CENT FALL IN GDP.

    .This explains the strange case of the Greek debt:GDP ratio. (Holmes would have sussed it out!) Private bondholders took a 50 % hit on their holdings of Greek debt (apparently a 70 % hit in REAL terms) but the debt/GDP ratio ROSE.

    The US economist Irving Fisher postulated the concept of the ‘debt-deflation trap’ in NINETEEN THIRTY-THREE. (In fact it’s junior school maths.) If the denominator of a fraction falls the fraction will increase. If fraction was 120/100 = 1.20 but if GDP falls to 90 it is 120/90 = 1.33. What would you think of someone in any field who did not apply knowledge from EIGHTY YEARS AGO?

    The best nutshell analysis of the IMMISERATION of the S is by a US professor of economics. ‘Countries with large amounts of INTELLECTUAL capital can make BAD mistakes for NOBLE reasons’ and Professor Monti did it some more in the autumn and will presumably do the same in the Left-Centre Italian govt that will get elected in FEB. Mr Draghi is a great advance on the disaster of M Trichet and has come up with some ingenious mechanisms ( an Cambridge Mass. graduate) but it has become clear that he is singing from the same hymn-sheet as all the others – civilisation = EU = EURO.

    I did a calculation that the total pop. of PIGS is 130m. These peopled are being pauperised – attached to a cross of the EURO to adapt W Jennings Bryan’s phrase. Expenditure on HEATING OIL has fallen by 78 % year on year in Greece. The tree that Plato may have sat beneath at the site of the Academy was cut down by an enterprising Greek for firewood.

    There is a humourous definition of madness – ‘doing the same thing and expecting a different result’. Hail Barroso, Rompuy, etc!

    • Terrence Henderson

      If you do have so much Inflation cuts over so many years, imported cheap labour and so much donations to the bankers of whatever bank, and fight abroad ,donating both all cost towards the other Nations.
      Then your people are too poor to buy a loaf of bread.
      Same thing happened in Germany after the First WorldWwar.


        UK is not in EURO thank God! Our problems come from Blair/Roche/Straw’MANAGED MIGRATION AGENDA’. The stark changes in population composition between 2001 and 2011 were down to this and ministers accepting without challenging a report that found that on the ASSUMPTIONS used by the man who wrote (and he said that if his assumptions are WRONG his conclusions were wrong) the report only 13000 would come in each year. He had to compute the population inflow into UK GIVEN that we were the ONLY LARGE economy that did not put on the 7-year transitional measures (these were invoked for ROM BULG and will expire on 31.12.2013)

        He himself said that he used the numbers for SAUDI ARABIA and YEMEN to do his calculation – I have NO IDEA why he chose those countries but it is certainly not a choice that even a bright 5-YEAR-OLD would have made.

        The other part of the story is the ‘MANAGED MIGRATION AGENDA’ which ministers told us about only about FOUR YEARS after it started – Asian % African immigration – about TWO MILLION 2001-2010.

        MigrationWatch obtained the ORIGINAL executive summary of the White Paper. There were EIGHT bullet points. Compared to the document as published all references to the ‘GOVERNMENT’S SOCIAL OBJECTIVES’ were R E M O V E D. M. Marrin

  • Noa

    The view from Davos? Weltanschauungen.

  • Barbara Stevens

    Boris may be right, many are now saying cuts have gone far enough and to do more without growth would make us go deeper into a double dip recession. It has long been known investing in infrastructure prodjects, like rail, roads, and housing, does not bring on inflation but increases tax revenues as people get jobs. Some companies are sitting on millions of pounds just waiting for the up turn to come, it just needs direction from government and a push in the right way. You have to have more revenue for the country to function, couple that with sensible cuts and you begin to pay your way more securely and more definately. Unemployment is terrible for the people who suffer it, but those in work too, will have to play their part, like on private pensions, in the public sector, we cannot afford to keep funding them completely. People may find they have to fund their own pensions at some point during their working lives; such is the change we face. Even the elderly are not escaping, they too are paying the price of this financial crisis. Stress now is widespread in all sections of socieity, and relieving it is getting harder and harder.

    • Tom Tom

      Barbara we just had a £9 billion infrastructure project in London for the Olympics for which they IMPORTED Ghanaian labour ! Build more railways and keep Siemens factories busy; build more rails and keep German steel mills busy. Building Schools for the Future (BSF) has been great for HSBC Infrastructure Fund in tax havens. Nuclear power stations will be great for France or China or Russia.

      • dalai guevara

        You demonstrate perfectly in a list how some activities are deeply questionable, whilst other schemes are just the nature of what we call trade. Now, can you identify which is which?

        • Tom Tom

          EU Directive on Procurement means public cntracts do not benefit British companies or workers. We have run Trade Deficits since 1981 to reflate the World

          • dalai guevara

            Then why have we closed down our wind turbine manufacturing?
            Why will hardly anyone order British manufactured tram technology?
            Why do they buy Siemens every time?

            a- because they are better, so market economic rules apply.
            b- because they were bribed

            You have got to make your mind up what you want, do you want a ‘socialist’ controlled market for our nation, or NOT?

            • the viceroy’s gin

              That is a marvelously incoherent post.

              It is simultaneously off topic and self contradicting, a very rare combo
              of stupid. Well done.

              Delete it and start over, would be my suggestion.

              • dalai guevara

                So you take bribes when it suits you, but otherwise favour the market economy?
                Not that that was not obvious right from the start, as logic involving more than one twist appears to be too much for you…

                • the viceroy’s gin

                  You are a triumph of stupid.

                  How do you do it?

    • Daniel Maris

      Is housing productive infrastructure? I am not sure it is. The important thing here in the UK is to stop the ever increasing demand for housing resulting from mass immigration.

      • andagain

        Is housing productive infrastructure?

        It is if it allows people to move from where jobs are scarce to where they are plentiful.

  • In2minds

    So meet all the other EU luvvies and talk about the HS2. How very on message and radical, pathetic!

  • Hexhamgeezer

    ‘Infrastructure is the buzz word at Davos’

    No, the buzzword is desperation if that’s all these mega-brains can come up with.

    • Coffee House the Wall

      But refreshing to hear Boris coming out of his shell.
      Dare we hope he will soon find a safe seat

      • telemaque

        No we dare not.
        Boris is a populist joke.
        The clown is tolerated as an antidote to the real opposition, David Davis and his Baronial friends.

  • dalai guevara

    There is so much wrong with this ‘article’.

    1- there is a boom in infrastructure – where are the cranes?
    2- ‘many continental economies…are focusing less on the Europe
    debate that David Cameron seems to want to get going and more on the
    need to get their own economies out of recession’ – well why bloody shouldn’t they?
    3- ‘In his speech Boris called on the Chancellor to ramp up investment in housing, road and rail.’ – surely, he did not have to travel to Davos to tell GeorgeOs that, we was talking to…the Chinese!

  • the viceroy’s gin

    This guy is a clown, complete with floppy shoes, funny haircut and red nose.

    So his grand solution is to borrow and spend even MORE?!?

    Would somebody explain why this albino leftist is considered anything other than the buffoon he is?

    • Tom Tom

      He is a journalist making potloads from the Torygraph and has the ability to do great things for Speccie journos or bad things to them from his time as editor. He appeals to Networker Queen Carole Stone just as he hired Guto Hari to polish his image before Guto moved to News International. It is a gravy train and nothing to do with morons who put pencil crosses on pieces of paper behind a shabby curtain. This is a game of influence and money which is what Davos is about……just how many Bilderbergers attend ?

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