In the US election the size of the state is the central, feverishly contested issue. So, too, in the political debate in the UK and Japan, where large overhangs of public sector debt make fiscal retrenchment as much of an imperative as it is in the US. Yet in all three countries a fundamental point is missing from the discussion – namely, that the state is hostage in each case to a corporate sector that poses a huge obstacle to public sector shrinkage.

The background is a subtle shift in the relationship between business and the state. Historically, companies have run fiscal surpluses – that is, saved more than they invest – in recession, while going into deficit when they invest during the recovery. In the US and UK this longstanding pattern has strikingly changed over the past economic cycle. Because of a secular decline

in fixed capital investment and a similar secular rise in profit margins to exceptionally high levels, business is continuing to save well into the upturn by investing less than the sum of its retained profits. These business savings surpluses are running at about 6 per cent of gross domestic product in the US and 3 per cent in the UK.