Hi,

Maybe the review of theories and practice in this short paper for the FAO and World Bank based on the European experience can give you some ideas on the role, the references to the fundamental theories behind are important: http://www.eastagri.org/meetings/docs/meeting35/evolution_web2.pdf

Many thanks Jorge. I will read the paper critically, and perhaps discuss more issues subsequently.

When one goes through all the answers given above on whether public investment contributes to sustainable investment or not, one may say that public investment may do so when the investment is undertaken with the goal of sustaining both the economic development and the resources needed to create the development process. Short of that public investment may create unsustainable development (i.e. imbalance) and consequently have economic disaster in the long run. That-notwithstanding, since public investment may not necessarily be based on "profit maximization" as is the case of a private investor, public investment is more likely to be in position to undertake projects based on sustainable economic development.

Sure, if they invest in infrastructure for humain capital,,

Let me go at this with some simple economic theorizing. The below answer is overly simplified as a complete answer will take too much space.

There is economic justification for gov't intervention in providing public goods (where benefits exceed costs but it's difficult/impossible to get people to contribute voluntarily). One such public good might be the resolution of a coordination problem; the Keynesian story would be "everyone's paralyzed with fear and so does nothing and ultimately suffers for it." Another public good is institutions that encourage and allow productive cooperation through trade.

Things like training are difficult to justify on these grounds if the training is worth the cost. Let's say you give me $30,000 to learn how to be a plumber. I go through the training, and then I make lots of money. Let's say I make enough money that I can pay you back with interest, then you're acting like a profitable bank. If I can't afford to pay you back with interest then maybe you're acting like a bank that makes money on average, but makes some bad loans too (just like real banks do). A third scenario is that I can't afford to pay you back and we both saw that coming; in that case you aren't acting like a bank at all. In the first two scenarios we don't need a government to enable the policy (giving me $30,000), but the third policy can only be sustained if that net loss can be imposed on someone else (taxpayers). Clearly the third scenario is bad for the economy; it wastes resources, and by requiring taxes disincentivizes other workers from providing value in the economy. It's not a huge loss for this little policy, but it can add up, especially when voter-taxpayers insist on projects to train their children, etc.

But that was a simplification. That second scenario should give us pause. Banks do expect to lose on some loans, but with a student loan they don't have collateral. Young people don't have assets to put up and it doesn't seem like they can get assets until they've gotten the training necessary to get a high paying job. So the bank would like to make these loans, but they're afraid to. If the government guarantees these loans, banks are happy and young people get training. We should worry that this program would be subsidizing banks, so let's be sure to offset it with a tax on banks.

Now the trouble is how to determine which loans are eligible for this subsidy. This requires defining what an eligible school looks like and this will inevitably make schools less dynamic and poorly equipped to adapt to a changing world. There are also public choice problems involved in administering such a program. There are opportunities for corruption (favoring certain banks or schools, hiding costs and overstating benefits to create net-subsidies to certain groups).

And adding programs like this also reduce oversight of other programs. If the government only provides services X, Y, and Z, then it's relatively easy for people to watch for waste and corruption. But if there's a plethora of programs, then it's difficult to discipline politicians and bureaucrats. Firstly, there are too many things to keep an eye on. Secondly, politicians offer policy platforms that combine many different things and you're only able to choose one bundle (imagine you went to the grocery store and you had to buy a pre-assembled basket; if you really want spaghetti but it's only available in a basket that also includes diapers you don't want or need, then you're stuck with those diapers).

So far we've only looked at two plausible alternatives: No training and everything is bad; government guarantee of student loans resulting with attendant costs. But there are other options. Senior year of high school is basically a waste for many students, so what if a 17 year old took the GED after their junior year, and spent the next year working as an unpaid intern or apprentice? This would save the government a few thousand dollars on average, would provide value to their employer, would give the student real world experience and wouldn't cost the parents anything. Sure the student misses a year of learning about Shakespeare (something I really enjoyed, but many of my peers didn't), but they've gained something they do value. Who am I to impose brilliant literature on unwilling minds? This isn't a perfect solution, but I think it's plausible and maybe even likely to become somewhat popular over the next few decades.

**TL;DR:** It depends! These programs have costs (including many hidden costs), that have to be weighed against benefits. There are also many alternatives that have to be considered. My suspicion is that the strongest justification for government investment is in short run scenarios where the beneficiaries will ultimately pay for the program (for example, providing loans to retrain displaced construction workers after the Great Recession). In the long run people have a way of establishing patterns of behavior that encourage mutually beneficial trade. When government programs pile up, oversight becomes increasingly difficult and public choice problems become especially costly and important.

**Update:** I didn't focus much on the word "sustainable." There are two ways to take the word: environmentally friendly, and economically viable in the long run. I think it's difficult to make statements about a program dependent on taxes being sustainable since the costs are being placed on people who aren't volunteering the necessary resources. There are two extremes here: if taxes are so high that a revolt results then clearly the program is far from sustainable; if taxes are supported by unanimous vote then there's no problem. Between those two extremes is hard to say. When we start talking about the environment, we're back into the world of externalities and we need to start thinking about the rules of the game. Rather than drag out my answer any further, let me suggest that you search YouTube for "Coase Theorem." Learn Liberty has a very accessible video on it.

Private investors least bother about sustainable economic development; it is the good government have to think about preservation of natural resources. Government have to invest in activities related to preservation and development of natural resources for future dividends such as healthy society, enhanced labour productivity, protection of national economyetc. Public investments in infrastructure development and industries of course helpful to comman man but more than 70% benefits are availed by private big-bulls but their contribution to sustainable development is very poor.

I find this discussion astonishing, one sided and politically rather than intellectually motivated. Public expenditures AND private investments both generate a huge range of impacts-- good and bad and depending on who you ask. Corruption hardly exists only in governments (look at Wall Street today). Would you all say that government investments in e.g. public health or universities or highways are money down a rat hole? Keynes policies are associated with a decline in the boom and bust of the US Economy whatever else you might think of what he says, and have probably resulted in more human welfare than any one else's as can be shown empirically ---, at least that can be argued. Population growth, peak oil (national) , soil depletion and so on can explain much of what is attributed above to aid alone, (whatever its problems). I do not want to be involved in a sandbox fight and will not respond to the vitriol I expect, but lets get some balance and nuance and real analysis here.

I strongly agree with Charles Hall. My two cents are: it all depends on the investments. Also, maybe the finance inspired "return on investment" measure is not appropriate to public expenditure. Why public sector spends money ? Are we sure the goal is (or should be) to make money in return ?

I know what I shall say is somehow ideological, but it seems to me all "economy" (and economics) is about how individuals gain the right to do something AND how these rights become effective freedoms. Just think about consumer preferences in standard microeconomics.

When public investments help reinforcing freedom (the actual possibility for any individual to live a life he/she esteems worth to be lived), yes, they strengthen the "social" side of sustainability. When they avoid (and even just try to avoid) short-minded depletion of natural capital, they do it too. Ask Asian people living in over polluted cities, for instance.

On the contrary, when public investment serves lobbies, they reduce the freedom of all other actors. Hence they destroy sustainability and, I have in mind lot of protectionist acts, destroy fair competition too

Yes and no.

I break my silence: Nice to get some positive feedback! Thanks Claudio (and others) . And for those who are disenchanted with conventional economics wish to dig into these issues of development may I recommend two of my books:

Energy and the wealth of nations: Understanding the Biophysical Economy (Springer, 2012 ) ($72 Amazon or 40 something electronic)

Making World Development Work: Scientific alternatives to Neoclassical Economic Theory (Univ of New Mexico Press)

Or google "Charles Hall Energy"

I also strongly agree with Charles Hall -- i did not read his books, but I think we are in the same line. An additional comment is that the way the question is written inevitably calls for these ideological types of answers. I am tempted to comment too, but I am afraid my own answer will be also ideologically biased. I would eventually suggest another formulation for the question. Such as... (not so easy) How do governments contribute to the development of markets and stimulate economic growth? Bit first, I am not sure it is more "objective" and "scientific" and second, the notion of sustainability has disappeared...

Think of it in terms of "business climate" and what policies set the state for economic growth and development. In a political setting, as well as most public discussions, people equate a positive business climate with low taxes and limited regulation. If you are to maintain low taxes the level of public investments must be equally low. Here-in lays the nature of the debate.

Public investments in strategic (social or technological) areas can certainly assist in economic development. In the crisis that began in 2007, the reason was the exit of countries from the negative situation and return to growth; many countries have put billions of dollars to revive the economy.

For sustainable economic development, there is need for public investment in core sector.

https://www.oecd.org/dac/Post%202015%20Investment%20for%20sustainable%20development.pdf

http://unctad.org/en/PublicationsLibrary/diaepcb2015d5_en.pdf

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