Economic Theory explained by football – 17. Endogenous Growth Theory

In the seventh of his deep-thinking articles, our in house Economist Stuart Fuller tries to explain famous Economic theories by using football as the model. Today, he explains why we don’t need any outside investment at Lewes FC to be successful in the long-term….probably.

It’s been a long-held belief that growth of any business or economy is reliant on exogenous, or external, factors such as cash or government policy. Endogenous growth theory holds that investment in human capital (players), innovation (new training methods), and knowledge (player analysis) are actually significantly bigger contributors to economic growth than influxes of external investment (TV money). The theory also focuses on positive externalities (positive performances by our national sides) and spill-over effects of a knowledge-based economy (social media) which will lead to economic development.

Not convinced? OK, let’s look at two examples from last season. Leicester City certainly weren’t the biggest spenders in pre-season, nor did they have the “best” manager. Yet they ended up winning the Premier League. Why? Partly because the biggest challengers went into meltdown but also because they invested internally into player recruitment, new training methods and avoided injuries and suspensions to key players. As the season progressed, the squad believed that they could upset the 5000/1 odds on winning their first ever Premier League. With a manager at the helm who knew example how to get the best out of the squad, without resorting to upsetting the balance in the squad by spending money, they epitomised the theory of endogenous growth perfectly.

Closer to home we all admired the superb season that Bognor Regis Town had, reaching the Play-offs and the semi-finals of the FA Trophy where they narrowly lost to Grimsby Town. They played more games last season than any other Ryman League side, yet only used 26 players in the process. Granted, that requires some serious luck with injuries but it also reflects on the skill of their manager, Jamie Howell, in knowing how to cut his cloth according to the budget he was given at the start of the season. Whilst they would have earnt around £35,000 in prize money from their run in the FA Trophy, the timing of that cash would have not allowed Jamie to spend much of it, thus relying on the internal investment to carry his team forward.

Football today is awash with cash at the top level, especially now that the TV deals have been renegotiated. At the level Lewes play at we will see little of that cash and so it is up to us to generate our own revenues, not relying on someone else to “bail us out”. And that, ladies and gentlemen, is The Theory of Endogenous Growth in a nutshell – success comes from within rather than with the help of external investment.

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