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His after-dinner speech to the CBI on Wednesday night paid lip service, once again, to his view that employers and shareholders need to invest more profit back into their companies; not simply by updating the cogs in the machines, but by upskilling their workers as well.

This is to make a common error.

We don’t want, desire or even care about how much any one company invests in itself. We do care that the system as a whole continues to invest. For investment in doin’ stuff is what makes that future richer.

Often enough it’s the investments in the new stuff that makes that future richer. Further, it’s usually new companies that do the new stuff, or even the old stuff in new ways. Technological change tends not to come from incumbents but from insurgents that is.

So, what we desire within the system as a whole is some manner of channelling profits from old investments that have come good into new investments that might come good. That is, we want flows of cash across companies, not have it simply recycled within the same corporate wrapper.

Companies that make good profits should be paying out dividends, buying back their shares. That puts the money in the hands of investors, who then make the decision of where to reinvest their earnings.

The idea that companies should reinvest their own earnings is simply wrong. Dangerously wrong in fact.

Sure, we want that river of cash coming out of BP to be investing in – say – lithium mines. But it would be absurd to have BP investing in lithium mines. Having individuals – or pensions funds, insurance companies – investing in Cornish Lithium makes sense. But that means that the money has to come out of BP so that it can be spent on lithium.

Reinvestment comes from profits being paid out to investors.


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