Can we build our way out of recession?

By Stuart Pemble on Dec 18, 09 05:11 PM in Commercial Property

As the political furore over the Pre-Budget Report dies down (was it an electoral sop to Labour's traditional voters or a genuine attempt to preserve a fragile economic recovery?), the brutal truth remains that our public finances are in pretty dire straits; and our political leaders face some stark choices as to where to spend our tax pounds.

One of the ways economists analyse the benefit of government spending is to calculate a multiplier which shows the additional economic activity stimulated by each pound spent. According to a recent report prepared by LEK, a firm of management consultants, railway transport, health and veterinary services and construction lead the way, each with a multiplier of over 2.

In fact, so far as construction is concerned, when the economic activity generated by consultants such as architects and engineers is factored into the arithmetic (they're excluded from the equation for reasons I don't pretend to understand by the snappily titled UK Standard Industrial Classification of Economic Activities), every £1 invested in construction results in £2.84 of total economic activity.

According to LEK, that's not the end to the benefit. We're talking about an industry that contributed 10% of the UK's GDP in 2008 and which employed approximately 3 million people, 8% of the total workforce. When you add in the fact that the industry has suffered severely during the recession with (at 28 per 1,000 employees in the first quarter of 2009) the highest redundancy rate of any sector of the economy, and the case for investing in construction seems pretty compelling.

However, there are some flies in the ointment. You'll probably have guessed that the LEK report was commissioned by the construction industry (in this case, the UK Contractors Group), so cynics amongst you may well conclude that it's no surprise that LEK reached the conclusions they did. And it's not as if I'm the most impartial of observers; after all, helping clients with construction projects is what helps to keep a roof over the heads of Family Pemble. That having been said, the report is also backed by the CBI, and there's no obvious reason to doubt it. Presumably the UK Contractors Group wouldn't have released the report if it didn't like LEK's conclusions.

However, I do have one big concern: If we are going to invest our scarce public funds in new buildings, we must ensure that they are the right ones. Spending money on expensive acts of public folly - The Public in West Brom must be a strong contender for that title - may mean that we end up with costly and publicly-funded white elephants which few (if any) people use.

But, as the current controversy over Brum's new library shows only too well, what constitutes the 'right' building is an entirely different debate.

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2 Comments

building contractor job management software said:

I totally agree. All too often, public money is spent on structures that don't serve the public in a way that is sustainable, environmentally sound and/or then become more of a strain on the economy. So how realistic is it to expect well planned, functional buildings which provide a real purpose? Unfortunately, I'm sure that's not the way it works.

January 28, 2010 12:14 PM

Stuart Pemble

said: