The Department for Picking Winners
06 Jun 2009 - Bruno Prior
The press seem determined to ignore a crucial aspect of Peter Mandelson's accumulation of power. They are very interested in the symbolic and honorary aspects, such as the award of the titles of First Secretary of State and Lord President of the Council. But most of them are reporting that he remains in charge of BERR. He does not. BERR no longer exists.
The Department for Innovation, Universities and Skills has been merged into the Department for Business, Enterprise and Regulatory Reform to form the Department for Business, Innovation and Skills. I am all for reducing the number of departments. But the nature of the merged departments indicates something more important: the revival of industrial policy continues apace, and this department will be its powerhouse.
This government knows nothing about entrepreneurial innovation. Its only contribution to the field is the negative one of providing perpetual competitive advantage to corporate incumbents, who have vested interests in maintaining the status quo and disadvantaging innovative new entrants. This government couldn't distinguish a real entrepreneur (not the fiction-peddlers in the City, nor the publicity-hunting media-darlings, but the iconoclasts who try to build real, innovative businesses) from a trades-unionist.
Hence the appointment of Suralan (soon to be Lordsugar) as Enterprise Czar. This was presumably inspired by the huge success of Lorddigby (most recently seen marching in support of protectionism for our car industry). If the Government and Suralan understood entrepreneurialism, they would know that entrepreneurs do not want or need a Czar to represent them in government. They need the Government to stop meddling, micro-managing and picking winners, so we can have genuine competitive markets in which innovative ideas thrive or fail according to their merits, and not according to how well they fit with the Government's latest ideas of what the outcome of the market should be.
A department that combines responsibility for businesses with responsibility for the least commercial group in the world (academics), run by people (ministers and civil servants) who have absolutely no commercial experience themselves, will end up rewarding those who try to implement academic cloud-cuckoo schemes and punishing those who are more interested in commercial reality. This has been the effect of the various grant schemes in the energy sector (and probably elsewhere) since time immemorial, and yet these efforts to sponsor white elephants are about to be re-doubled, at a time when we can afford them even less than usual. The new department will throw money at grandiose schemes dreamed up by academics who promise the earth without the responsibility of having to put their money and reputations where their mouths are. And because these grandiose schemes will require enormous amounts of finance, the big corporations will be invited to participate, in exchange for providing that part of the funding that is not provided by taxpayers. The commercial advantage this will provide to big businesses, and ideas that would be uncompetitive without the public funding, will crowd out private efforts, genuine innovation, and the smaller businesses that have usually been responsible for real innovation.
On the other side of the equation, industrial policy will appear to create jobs, and profits for those businesses favoured by involvement in government-approved enterprises. It will create the illusion of economic recovery, which is exactly what the government is reckoning on, whilst embedding uncompetitiveness and corporate influence further into our economy. Eventually, many years down the line, we will discover that we have created our own General Motors, just as we did with our nationalized industries.
Economic development is only sustainable and real where it allows genuine competition undistorted by government intervention, favour and planning. But a lot of people can be fooled otherwise for a long time, especially when they have forgotten or misunderstood their history. It wasn't public ownership that was the big problem in the seventies, but the protected position of favoured, and consequently lazy and ossified, enterprises. There are many ways to achieve that without full public ownership, but with just as negative long-term implications for innovation, competitiveness and the economy. The Government has been driving in this direction for many years in the energy sector, and probably many others. It is about to get worse.
The opposition parties do not have a significantly different attitude, as Tory policy on STEM (Science, Technology, Engineering and Maths) demonstrates. It is past time for entrepreneurs to get out of the country.