IT’S BEEN ONE OF THE MANTRAS of economic policy since I was a kid: the government shouldn’t try to “pick winners” but leave the fate of industries and firms to the market. Anyone who has unthinkingly accepted the free market dogma that has dominated economics for the last 35 years might think this is one of the founding laws of the discipline, rather than a Thatcherite political slogan dreamt up in the 1970s. You even hear left-wingers reciting it, especially when they’re trying to show how “serious” they are.
Writing in the Guardian last Friday, Martin Kettle (hardly the most left-wing hack on that paper) has challenged this dogma using the example of Team GB’s remarkable success at the Rio Olympics. Almost everyone accepts this was largely down to the investment of public money, mainly but not exclusively from the national lottery. This money wasn’t spent on just anyone, nor was it left to the market. Public money was invested in the athletes that experts thought had a good chance of winning. We tried to pick winners, and in many cases, it seems we picked right.
If experts appointed by government can pick winning athletes, might other experts not be able to appoint winning industries and firms, the ones that, with the right support, will drive the sustainable economy of the future? At the very least, Kettle says, we ought to be asking the question.
Of course, Thatcherites will thunder back that picking pole vaulters, divers and sprinters is very different from picking companies and industries – a notoriously difficult task which even expert investors get wrong. This would be a fair argument if they actually came up with any reasons why it’s so different. No one said picking athletes was easy and the sports bodies entrusted with spending public money don’t always get it right either. It would be an even better argument if it weren’t an activity that millions of people around the world are already involved in every day (many of them ardent Thatcherites as it happens). For stock market traders, analysts and investors, trying to pick winners is the only game in town, even if their definition of a “winner” is narrowly self-interested.
The malign genuis of free market economics is that it makes crazy things seems not only believable but entirely natural – in this case, that thinking about the future and planning for it is a bad thing. When you think about it, this taboo against picking winners in industrial policy is fantastically odd. It doesn’t apply anywhere else. Governments, including Conservative ones, try to pick winners all the time. They try to pick the right companies to entrust with public contracts; they try to choose the right people to employ as public servants and advisers; they try to pick the best policies for the future from a mass of competing alternatives. No one tries to suggest that they choose these things at random or leave it to “the market”.
Those decisions always involve some assessment of what would be good for society a whole and for the public purse in the long term. Not even the most ardent Thatcherite minister would let NHS contracts on price alone, without some assessment of quality, for example. And that means asking one of those bloody experts to work out how things might pan out in the future. Sometimes the experts are right, sometimes they’re wrong. They may even be wrong more often than they’re right. But what matters is that they more likely to be right than trusting to chance or hoping that cheapest option will turn out all right.
We all try to pick winners all the time – as employers, as consumers, as investors and savers, as teachers, as workers. If we’re wise, we take expert advice before making big decisions about who to employ, who to work for or how to spend or save our money. It’s called doing your homework. Why should we suddenly stop doing that when it comes to the future of our economy?
The real reason for the downer on on picking winners is entirely political: the government wouldn’t pick the right kind of winners for Thatcherites. With a long-term industrial policy, government wouldn’t be looking for firms which just want to make a quick buck for shareholders or pay big bonuses to directors. It wouldn’t be interested in firms that undercut wages and offer insecure jobs (not least because the government would have to pick up the tab in welfare payments further down the line). It wouldn’t waste public money on industries that don’t produce anything of value to the rest of society, like advertising or overly-complex financial instruments. It wouldn’t bother supporting pointless rebranding exercises, anti-competitive takeovers, or businesses that damage the environment or rip people off.
A proper long-term industrial policy means indentifying the industries and firms which will innovate and are prepared to invest for the future, rather than prioritising short-terms returns for shareholders. Firms that will bring secure, well-paid jobs. Firms that involve their workers and their local communities. Firms that produce what economists calls “public goods” – goods and services than benefit society as a whole, as well as their producers. These may not always be the most profitable ones. In some cases, like railways for example, they may not be be profitable at all (although they may drive profitability elsewhere).
All this brings Thatcherites out in a cold sweat – and with good reason. In the 35 years after World War II Western governments pursued proper industrial policies and tried to pick winners. As this recent report from some Cambridge dons shows, industrial production soared (despite the ravages of the war) and growth per head was roughly double what it’s been since. It was a time of remarkable innovation, rising living standards for working people and the steady erosion of inequality. Industrial policy wasn’t the only reason for that, but the fact remains that since we stopped picking winners most of us have been losing out.