You must not encourage governments to believe they can pick winners

The front page story in the AFR today is Sims asks BCA to please explain picking winners and the first line of the story, before it goes behind the paywall is, “ACCC chairman Rod Sims has asked to meet with Business Council of Australia president ­Catherine Livingstone to explain governments that ‘pick winners’ from industry usually fail.” I mean, seriously, would any self-respecting economy really want their political leaders to shift massive amounts of taxpayer funds in particular directions because politicians think that’s where economic activity will now be heading. I don’t say governments never get it right, but their return on funds invested is massively negative, ten cents in the dollar.

Governments are clueless about where the next major advance in economic output is going to come from. In fact, so too is the business community in general. No one has any idea of the sectors in which Australian economic growth in 2016 and beyond will be based on. Anyone in the private sector, who thinks they do know, is welcome to put their own money up since the return on such certain knowledge would be very high. Governments never should since their track records are so poor. They will only lower our standard of living, not raise it by blowing our productivity on useless projects that pay less than they cost.

And even when introducing an industry policy, governments should never do anything business- or industry-specific. What governments should do is ensure to the greatest extent they can that an economy can adjust as rapidly as possible to take advantage of new opportunities. They should, for example, do what they can to ensure that the education and training structures of the economy are responsive to such adjustments and that industrial relations mechanisms allow new projects to get off the ground quickly and efficiently. But nothing governments ever do should be designed with any specific firm or industry in mind.

If there is money to be made in running a business in Australia, governments are the last people to know in advance where those opportunities are. No individual firm or industry should be directly assisted by governments. And more importantly governments should never be encouraged to think that they can make these decisions. They will only misdirect our resources and lower our potential growth rate.

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18 Responses to You must not encourage governments to believe they can pick winners

  1. ar

    If there is money to be made in running a business in Australia, governments are the last people to know in advance where those opportunities are.

    Tell that to Eddie Obeid…

  2. Driftforge

    Governments are clueless about where the next major advance in economic output is going to come from.

    Is this a failing on their behalf or simply the best that can be expected?

  3. Governments are clueless about where the next major advance in economic output is going to come from. In fact, so too is the business community in general. No one has any idea of the sectors in which Australian economic growth in 2016 and beyond will be based on. Anyone in the private sector, who thinks they do know, is welcome to put their own money up since the return on such certain knowledge would be very high. Governments never should since their track records are so poor. They will only lower our standard of living, not raise it by blowing our productivity on useless projects that pay less than they cost.

    Yes.

    The only people who claim to know the economic future are, in fact:

    a) people who call themselves Mystic [insert name here] a and make money out of flogging futures to lonely people on phone lines;
    b) dodgy investment firms who will help you make a loss in the ostrich industry;
    c) The guy who can give you a tip on a sure thing in the 8th at Flemington;
    d) certain prominent Pakistani cricket personalities;
    e) Martin Parkinson.

    You be the judge.

  4. Marion of the Glades

    With respect Sinc, we have already made policy choices that have established massive distortions. The willingness of governments to direct – and add on large tax incentives in bonus support – a very large share of income to random superannuation investments has massively inflated the finance sector, created a gigantic class of rent-takers, inflated prices in the limited pool of ASX listings and possibly contributed to the unhealthy accumulation of household debt.
    Our weak competition policy has allowed various monopolist tendencies to run wild, notably in grocery and transport and media.
    Banking is a bloated bucket of risk, characterised by the excesses promoted by policies that favour mortgages in the asset weightings and boosted by negative gearing tax policies.
    Management of tenements and other resources policies mean that we’ve a train smash of over-investment at Gladstone that has inflated project costs and will suck so much gas from the market that domestic businesses are facing cost inflation of many multiples of current prices.
    Meanwhile, no government seems to be able to deal with the simple union problems that real global competitors like Cochlear have. Instead, they load up businesse with the cost of cheap electoral bribes like the forthcoming PPL.

  5. Grumbles

    Turns out, the government is made up of people. We didn’t even choose smart ones… how dumb does that make us?

  6. H B Bear

    Tell that to Eddie Obeid…

    What Obeid showed is how much wealth is allocated via government fiat – hence the ability of ex-politicians like Boob Carr, Sinodinos, Hawke and Keating to “earn” hundreds of thousands of dollars providing nothing more than the ability to open Minister’s doors.

    Obeid also shows how utterly incompetent government is at capturing any of the scarcity value otherwise created through regulation, licensing and other restrictive activities.

    Anyone looking to see the impact of government ownership on an asset should be made to study CSL until they can explain why it is everywhere and always a bad idea.

  7. Percy

    We didn’t even choose smart ones

    Was it an option?

  8. Peewhit

    In the words of the late Bert Kelly, if any adviser, especially a government adviser is able to pick winners, he will already be retired in the south of France with his feet in a bucket of Champagne.

  9. .Dr.Sir Fred Lenin

    I would not trust ANY politician with ANY of my money,unis dont know how to make or earn money its not in their genes.All polies went to uni and did arts or lawtrade courses,only the lawtrade make money thru lying for crims,the arties have to bludge on the Taxpayer.this sums up the great majority in politics.they are mostly in it ti make a difference (to their present and future financial well being) .

  10. Grumbles

    The funny thing is, the government makes the rules and runs the umpires, how do they keep losing.

    Simply buying property, rezoning and selling it, is a guaranteed winner .

  11. Tim Neilson

    H B Bear
    #1399108, posted on July 30, 2014 at 3:41 pm
    Which is of course in itself a reason that government powers should be reduced to the lowest level possible.
    The less power a politician has, the less valuable their co-operation is to the dishonest, therefore the less the dishonest will pay them for their co-operation, therefore the less incentive on a risk/reward basis there is for the politician to become corrupt.
    The other side of the coin could usefully be a massive increase in punishments, including public floggings etc., for anyone who accepts a taxpayer funded position and then accepts outside benefits in return for how they use that position.

  12. Driftforge

    Which is of course in itself a reason that government powers should be reduced to the lowest level possible.

    Weak government’s are small government, power is widely distributed and decisions aren’t made.

  13. Driftforge

    are large governments

  14. Sally Moore

    “If there is money to be made in running a business in Australia, governments are the last people to know in advance where those opportunities are.”
    Hear, hear!!! Quote of the day.
    If Sims is so confident that bureaucrats can pick winners, why doesn’t he put his money where his mouth is? He should offer a business/investment advice service to budding entrepreneurs, with a personal guarantee that if their venture fails after following his advice of what is a “winner”, he will pick up the tab.

  15. Robbo

    The less governments do the better off we all will be. Want a good example of the failure of picking winners? The Cain Government in Victoria and its disastrous funding of companies that could not get private sector funding by the Victorian Economic Development Corporation The VEDC was so good at the job that it gave money to a company that was manufacturing illegal drugs along with a raft of other funding to pie in the sky outfits that had zero chance of success. The lessons from that massive financial disaster by the Cain Labor Government were not learnt by later Labor regimes under Bracks and Brumby and that is why Victoria has the biggest white elephant desal plant in the world, 1 billion dollars and no water, a north-south water pipeline and again no water to mention just two of that regimes disasters. Now the Labor Opposition in Victoria is promising to build a 7 kilometre long pier out into Port Phillip Bay for big container ships. Now what could possibly go wrong with that? Picking winners? Don’t make me laugh.

  16. Tel

    The less power a politician has, the less valuable their co-operation is to the dishonest, therefore the less the dishonest will pay them for their co-operation, therefore the less incentive on a risk/reward basis there is for the politician to become corrupt.

    That would explain why beach inspectors and garbologists don’t rake in big bribe money.

    However, someone still must operate the military and the cops, and all of the legal details that are consequential from powerful, institutionalised violence. You can’t turn around and say the military should have no power, because the other countries won’t. Once the military has power, we need to ensure it does not get misused (like what happens in 50% of countries around the Earth), so we have cops, and lawyers. Once we have cops, they insist on being well equipped and wanting to win most of their fights (fair enough, we can’t pay them enough to want to die on the job) but now we need to ensure that power does not get misused. So we have the bureaucrats to keep an eye on the cops (and the lawyers), but those bureaucrats might get the idea into their heads to start using the cops where it’s convenient so we need politicians to keep an eye on bureaucrats.

    How to disempower the politician, without empowering the hierarchy of violence sitting under him?

  17. Milton Von Smith

    The ACCC knows all about picking winners. That’s exactly what they did under Graeme Samuel when they endorsed the NBN and FTTH as their preferred technology in 2009, despite having absolutely no technical expertise to do so.

  18. JohnA

    What governments should do is ensure to the greatest extent they can that an economy can adjust as rapidly as possible to take advantage of new opportunities.

    And since governments are well-known for ossification, lethargy and the choking of initiative, the best way to achieve this is for governments to “Get Out of The Bloody Way!” – may be abbrev. to GO!

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