Un procedimiento lógico que permite en base a lo probado o basándose en lo probado establecer un hecho ignorado

Chapter 8 provides the base for the discussion in the remaining chapters, dealing with potential explanations for productivity puzzles. Capital formation also plays its role, as labour productivity, TFP and capital deepening are linked to each other.

Many studies on capital formation in the recent past have set their primary analyses on the public sector, addressing the issue to the public capital stock. However, besides public investment, also private investment has experienced a sharp decrease over the last decades in the world’s major economies. For the present study, many variables of the investment category contain informative value. It is tried to select the most important ones for the purpose of shedding light into the darkness of productivity

puzzles. For a detailed and more comprehensive analysis of investment dynamics in Germany over the last (almost) three decades, please see Hagemann et al. (2016, especially chapter 3).

For an international categorisation, figure 18 provides trends of (developed) countries with regard to their total gross capital formation42_{. It shows gross capital formation as the fraction of the economy’s}

GDP. Almost all countries are exposed to a declining trend, varying by the extent, however. In a first superficial view, the German rate of investment appears to be on a rather sufficient level; unfortunately offering only slightly better numbers in relation to the starting values. In the 1990s, Germany has shown significantly high values of 25.5% (1991) - over and above OECD-average (23.9% in 1991) - but has dropped below OECD-average and shows only 19.2% in 2014. Over the last years, it has slightly recovered to almost 20% (19.8% in 2017). The US-value has peaked in 2000 (23.5%) and is currently (19.7% in 2016) ranked in the same regions as Germany. Like in most countries considered, the French ratio (France chosen due to similarity with the German economy and importance for the European Union) has dropped in course of the financial crisis (2007-2009) but has recovered then in 2017 (23.5%) - an even higher value compared to the ones shown in the 1990s (i.e. 19.5% in 1997). Greece, in contrast, has not yet recovered from the ramifications of the global crisis and ranks among low-level productivity countries, currently providing gross capital formation of around 11.7% (2017). Its drop seems to be remarkable, as for most of the years considered, Greece has circulated around the 25%-mark - and it has outperformed Germany and others.

42_{Total gross capital formation includes the two parts of sectoral demarcation of an economy’s capital stock - the}

Figure 18: Gross Capital Formation (in per cent of GDP) 1991-2017. Source: World Bank (2019); own illustration.

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Depreciation of capital goods plays an important role in the evaluation of an economy’s capital stock, so that gross values can only tell one part of the story. Net capital formation43_{is another, maybe}

even more accurate way to show the (rather poor) development of the German case. Figure 19 provides net capital formation, as well as a separation between investment in the public and private sector. Especially the public sector’s rates are subject to concern. Negative net values imply a “consumption” of the public capital stock (i.e. infrastructure, military or ecological aspects) (i.e. see Expertenkommission „Stärkung von Investitionen in Deutschland“ (2015), Grömling et al. (2019)). Generally speaking, the supply of public goods not only plays a direct role for aggregate welfare of an economy in the short run, but it also positively shapes and stimulates the environment for private investment (see chapter 9.2.3 and the discussion of the so-called “Aschauer-hypothesis”).

Back in the 1990s, net public investment has circulated around the 1%-mark but has now dropped below the zero bound (2014: -0.2% and in 2018 just slightly positive: 0.1%). For the private sector,

the dip is even stronger, however, numbers are still positive. Starting with almost two-digit values (1991: 8.5%), the private sector’s net investment fell back to 2.4% (2015) - hereby neglecting the lowest value in 2009 (0.7%) as part of cyclical fluctuations. Whereas the private sector hardly manages to maintain the (quantity) of its capital stock, the public sector has failed completely. However, one could carefully interpret the last three years (2016-2018) as a sign of moderate recovery. Currently, net capital formation for the private sector has rebounded to the 3%-mark (2.9% in 2018).

Figure 19: Net Capital Formation (in per cent of GDP) 1991-2018. Source: Statistisches Bundesamt (2018b); own illustration. -1 0 1 2 3 4 5 6 7 8 9 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 % GDP Public Private

In addition to net capital formation (and in order to highlight the effect of depreciation), the degree of modernity of total capital equipment can be used to provide information about the modernity of a nation’s capital stock. It is defined as the ratio of net to gross fixed assets and provides a stock- based view (contrary to the flow-perspective of investment). Figure 20 shows the declining trend of the German capital stock’s degree of modernity (Statistisches Bundesamt (2017c), Code: 81000-0118). Over the years, the degree of modernity has dropped from 63% (1991) to 59% (2018). Future, positive

net capital formation is necessary to oppose the decrease and modernise the capital stock. A modern capital stock is crucial, as a requirement for any kind of technological progress, high rates and levels of productivity and more generally economic development.

Figure 20: Degree of Modernity (total economy) 1991-2018. Source: Statistisches Bundesamt (2017c); own calculation and illustration.

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As a short side note on the discussion about capital stocks and gross capital formation - this only describes the quantitative evaluation. Quality and efficiency aspects are not captured so that one might come to contrary messages on the state of Germany’s capital stock. Moreover, decreasing trends do not reflect a calculation of setpoints or optimal values; they just suspect insufficient equipment of business infrastructure. Detailed information and data on the (quantitative) need is required, in order to derive explicit policy implications (Hagemann et al. (2016, pp. 196 ff.)).