1 thought on “The problem with European champions”

  1. Posted 28/09/2019 at 10:17 | Permalink

    It is fair to say that national industrial policies have acquired a bad reputation because all this talk about creating and protecting national champions, and picking winners, has only diverted attention from the most pressing issue for businesses in the European Union – how to deal with the problem of lack of competitiveness in both, the single market and in global markets.

    Time and again, this government has made it absolutely clear that it would like see the competitiveness of British industry improved significantly, both in the domestic and export markets, so that the UK can pay its way in the world, post-Brexit. This central objective is unlikely to change, irrespective of a deal or no-deal outcome on 31st October 2019.

    The problem with intervening in the market with public funds is that, the decision to do so is in the hands of elected politicians who are highly susceptible to cronyism – the nexus between the governing elite and the business elite that contrives to put the interests of business first, ahead of the wants, needs and expectations of ordinary citizens. This is because the twin evils of lobbying and corruption rear their ugly heads every time taxpayers’ money crosses the boundary between the Public Sector and the Private Sector.

    It is, as the economist Randall Holcombe puts in his book Political Capitalism a “system in which the economic and political elite cooperate for their mutual benefit.” The political elite tilt the economic playing field in favour of the economic elite, privileging them through subsidies, regulatory protections and targeted tax breaks. In exchange, the economic elite then help to ensure that the political elite remain in power. The rest of us pay the bill for this quid pro quo through higher taxes, higher prices, and a less efficient, less dynamic economy.

    On the other hand, it is right to say that the job of government is to foster an environment which causes the Private Sector to innovate, grow, create jobs and make a profit. It is not the job of government to create jobs.

    It is the misinterpretation of this responsibility, on the part of some well-meaning people that has persuaded them to support the idea of an Industrial Strategy, which entails the government intervening in the market with public funds, to stimulate economic activity, boost productivity and export-led growth.
    However, this means that people in the pay of the State get to choose which industry sector receives the subsidy, and which does not – leaving them exposed to the charge of favouring the privileged few at the expense of the many, and also skewing the market in favour of the same selected few, for decades to come.

    Additionally, there exists an extremely high risk that public funds committed in this way will not deliver the return on investment as advertised, or worse still, squandered altogether because:

    (a) Civil servants in Whitehall who are charged with negotiating the contract details are ill-equipped to deal with the Private Sector, which means that they will be duped into spending taxpayers’ money on poorly conceived projects – only for this to come to light years later, when some Select Committee of the House of Commons produces a report on its findings.

    (b) The internal business process used to select recipients for state support is susceptible to manipulation and distortion by parliamentary lobbyists in the pay of those Private Sector players who can afford to spend the most.

    (c) It is certain that the final decision on the choice of recipients, which is in the hands of the governing elite will be made, not in the national interest but to serve the interests of career politicians.

    So, until these fundamental problems are addressed and dealt with, this government should be wary about intervening in the market with public funds.

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