Excellent post and picture by the Economist. First the picture:
Then the post:
Mr Cable has a point. It is hard to fault measures, like the Automotive Council and the HVM, that correct what economists call “collective action problems”—where firms can only solve their difficulties by clubbing together to share costs and risks. By inviting joint bids for funding, the government is encouraging businesses to form such talking shops. On the same day that Mr Cable gave his speech, for example, a group of 242 employers in the creative sector announced a proposal for a co-investment partnership.
Yet however scientific the spending decisions, the risk of faddishness or cronyism will exist so long as politicians are the ultimate paymasters. Creating lists of priorities, even when their purpose is to root out market failures, can generate new distortions: if the government supports eight great technologies, for example, what happens to the ninth? And why invest in specific skills that fallible businesses think they need when Britain suffers from a shortage of employees trained in general disciplines like maths that can be applied across a wide range of industries?
The new interventionism is one of the few areas on which all three main parties agree—making these questions all the more pressing. On September 18th Nick Clegg, the deputy prime minister, told the Liberal Democrat conference that “businesses across every region are being given billions to help them grow.” Such talk is worrying—and smacks of the age-old urge to throw money at problems. That is the thing with industrial activism: for politicians elected to “do something”, it is much harder to own up when inaction, not action, is the best policy.
But let us be a bit more careful. There are limits to our knowledge – both of the impact, and what the impact “means”. If we are not careful the determination to improve outcomes for the society we all care about can quickly become the determination to create work which provides us income, which other people in society are being forced to pay for.
Government is a institution that helps with co-ordination. So are firms, co-operatives, communities. Within this, implied prices help to determine this coordination (either shadow prices or explicit prices – prices are at least implicit even with government choice) – let us make sure that we keep this in mind, and that we ensure our explanations remain consistent within areas of policy advice.
Government has a role in delivering services and helping co-ordination when the broad public asks for it, but we have to be incredibly careful that we have a consistent and accepted argument for intervention before doing so.
Of course, this is where New Zealand is good – policy advice is careful, considered, attempts transparency, and there is a recognition of limits! As the public we should always be poking and prodding to find out more though
Note: I’ve seen people commenting on the Economist article saying “that is what a democratic organisation can do” and “should do”. I appreciate that argument but we can take it too far, as a result I think there is some confusion here. If every party decides they want to do this type of intervention with specific businesses largely behind closed doors then society hardly has a choice, and they are forced to allow this sort of experimentation to occur. The government is extractive in that sense. Even if society is pro the concept, then we also need to make sure there are safeguards in place to avoid this becoming “subsides for business”.
A large institution that convinces the public it controls their everyday lives, extracts resources from them to transfer to businesses who rub them up, and does so under the “faux coordination” claiming a democratic mandate is not really what we picture when talking about a democratic regime. Instead, that sounds more like the United States 😉