Investment, growth and government policy in an economy characterised by oligopolistic and competitive sectors
This thesis investigates the theoretical coherence and empirical validity (in the UK context) of the economic school whose main proponent is Alfred Eichner. The main questions addressed concern (1) the duality of pricing, savings and investment behaviour between competitive and oligopolistic sectors and (2) the implications of the cyclical financial surplus that emerges in the oligopolistic sector during the upturn. The cycle is explained as the outcome of government reaction to the consequences of this financial surplus, rather than as a reaction to capacity or trade constraints. The thesis investigates the role and effectiveness of policy instruments aimed at strengthening and prolonging the cyclical upswing so as to achieve an upward revision to the secular growth rate. The thesis makes original contributions by extending the formal treatment of the effect of the oligopolistic financial surplus. It also locates the theory in its historical theoretical context and demonstrates that it can apply also to the case of an open economy. It collates evidence on capacity and trade constraints on the UK economy to support the argument that they do not constitute sufficient reasons for government deflationary action. The duality of the UK economy is demonstrated in respect of pricing behaviour by collating the results of existing studies. Duality in respect of savings and investment behaviour is confirmed by an original study of Company Accounts data. Investment duality is confirmed as a by-product of two further studies which have the main aim of establishing that traditional investment-directed instruments are not effective in the short-run for the oligopolistic sector and thus cannot be relied on to reduce its financial surplus. These studies are supplemented by a survey of existing literature on investment. Finally, the role of heterodox policy instruments in prolonging a cyclical upswing is examined in the context of the theoretical approach adopted.