“More” local investment may lead to less
Posted October 15, 2008on:
The National party has announced that it wants more of the Cullen fund to flow into domestic investment projects.
Now it may seem to make sense to “increase investment” at home – but we have to think about what this capital is doing when it moves around.
If capital at home made the highest return, then we wouldn’t need to legislate a 40% investment – as the Cullen Fund would put all its dosh there anyway. As a result, by “forcing” the fund to keep 40% onshore, we are reducing the return on our investment plain and simple.
Someone might say that “we are making job, and we’re making money” but they would be practically illiterate – just like the buy NZ made campaign. “Employment” and “domestic production” are not a positive externality. If we are investing money overseas and getting more goods back in return, then we are effectively getting “something” for “nothing” – what is wrong with that.
Investing our capital overseas does not throw it down a black hole, and if the return overseas is greater, it is the best way to reduce our current account deficit, or increase our wealth, whatever random macroeconomic aggregate our government is targeting.
Update: Kiwiblog discusses here.