(2022) for more details. To better understand this missing-investment puzzle we conduct a regression analysis, using historical national accounts data to study the relationship between investment and the wedge since 1970. Chart 7 shows the observed investment rate (orange line) and its estimated value from its historical relationship with the wedge (blue dashed line). The increasing unexplained gap between the two lines illustrates and quantifies the extent of the puzzle. It shows that UK investment has remained persistently below the levels that would have been predicted from the observed changes in the wedge since the early 2000s. Page 12  Chart 7: The missing-investment puzzle in the United Kingdom  Note: The chart shows the observed investment rate (net investment to lagged capital stock, in orange), and its value predicted from its estimated historical relationship with the wedge (in blue), both in percentage points. See Appendix B to Bailey et al. (2022) for full details. Source: ONS, Jordà et al. (2017) Macrohistory Database and authors' calculations. The key question, then, is what structural factors can account for this puzzle? To explore this I will draw on new analysis in the accompanying paper, using industry-level data for the United Kingdom. [19] That analysis considers the role of mismeasurement of capital, as well as the role of competition, financial frictions and corporate governance. In contrast with the existing literature studying the United States, the results find little role for changes in competition. [20] For the United Kingdom, intangible investment plays the most important role.
But, from what I gather as an observer from afar, there are a number of other factors, less tangible, which also contribute to that scepticism. I shall go through some of them with you, noting once again that perception from many miles away may indeed be quite different from reality. The first factor concerns structural rigidities, which appear to observers from my side of the world to be more serious in Euroland than in many other economies, big and small. The severity of these structural rigidities is seen to be undermining the ability and the efficiency with which Euroland can respond to change. Of course, we recognise that some loss of adaptability may be the price that has to be paid for a relatively stable society and a comfortable social safety net, and that the trade-off has effectively been arrived at through a democratic process. But it is hard to believe, as an outsider, that the trade-off is an optimal one. I cannot imagine, for example, what goal of social stability could justify labour market and social security arrangements that deliver an unemployment rate of double digits; or contribute to delaying, if not preventing, the arrival of the “new economy” in Euroland. I understand that some still do not believe that there can be a new economy, in which the technological revolution enables productivity gains that are capable of sustaining a much higher rate of non-inflationary growth. Of course, we should always question and critically examine any unusual phenomena, rather than embrace them blindly.