The secret story of capital spending

THE absence of a strong capital spending improvement has been one of the lamentable stories of the post-global financial crisis recovery. Investment growth is often still below pre-crisis levels, seven years after the crisis. Even with interest rates at record lows in developed economies, companies seem reluctant to invest in the future.

What makes the weakness of capital spending even more confusing is the fact that in many countries the number of businesses has continued to grow, without any interruption in that pace of growth. More businesses should mean more offices, more office furniture, more computers and more machinery - but in recent years there have been more businesses but less capital spending. This just seems weird.

One possible answer to this conundrum lies in the fact that in many economies, there has been an increase in self-employment and small businesses. For example, roughly three-quarters of the businesses that exist in the UK today do not employ anyone (because they are self-employed people running their own business or consultancy).