Assalam alaikum wr wb,
Menarik... Untuk tidak memanjakan suatu industri...
Salam hangat dan selamat menunaikan ibadah shaum Ramadhan.
The State and Business
Governments seem to have forgotten that picking industrial winners nearly
always fails
Aug 5th 2010
LISTEN carefully, and you may detect a giant
sucking sound across the rich world. In the 1990s this was the sound
protectionists in the United States thought (wrongly) would accompany
jobs disappearing to Mexico as a result of a free-trade deal. This time,
too, there are big worries about jobs and growth, but the source of the
noise is different, and real enough: it comes from the tentacles of the state
, reaching into more and more areas of business in an effort to get the economy
moving. It is the sound of Leviathan Inc.
Politicians are reviving the notion that intervening in individual
industries and companies can drive growth and create jobs (see article). It is
not just the usual suspects —although it is true that France, the land of
Colbert, is busy taking stakes in toy manufacturers ,
video-sharing websites and fallen national champions. Elsewhere in
Europe, from Berlin to Brussels, demand for industrial policy is back.
Japan’s new government is responding to what it sees as the increasingly
aggressive policies of foreign competitors by deepening the links
between business and the state . In America Barack Obama , the effective owner
of General Motors
and a chunk of Wall Street, has turned his back on the laissez-faire
approach of the past: a strategic-industrie s initiative is under way.
Although an understandable panic over economic growth in the rich world
explains much of the state ’s
new meddling in business, other forces are at work as well. After the
finance and property bubbles some influential companies—such as EADS and
Rolls-Royce in the aerospace industry—are pressing for policies that
support manufacturing. Bail-outs and billions of stimulus spending,
however justified at the time, got government back into the habit of
intervention. The case of Fannie Mae and Freddie Mac ,
America’s housing-finance giants, illustrates both the perils of state
meddling (implicit state guarantees distorted the mortgage market with
fatal consequences) and the difficulty of giving it up: having rescued
the pair, the federal government lacks any plan to pull out.
Related itemsInnovation prizes: And the winner is…Aug 5th 2010Brazil's
development bank: Nest egg or serpent's egg?Aug 5th 2010Face value: Li Shufu:
China's lucky man bags VolvoAug 5th 2010The global revival of industrial
policy: Picking winners, saving losersAug 5th 2010
And Western politicians cannot fail to be influenced by the success
of emerging countries like Brazil, India and China, where a big role
for the state in business seems to be working wonders. Nine of the world’s 30
largest listed firms are emerging-market companies that count the state
as their dominant shareholder. In the 1980s, the last time industrial
policy was in fashion, the West was in awe of Japan and its inexorable
rise; now it is in awe of China and its state capitalism.
Déjà voodoo
Yet the overwhelming reason for China’s miracle is that the state
released its stifling grip and opened the country to private enterprise
and to the world. The likes of Li Shufu, who runs Geely, the car firm
that has just bought Volvo (see article),
are entrepreneurs, not bureaucrats. India’s wildly successful software
and business-process- outsourcing industries blossomed not because of
help from the government, but precisely because its Licence Raj did not
understand these nascent fields well enough to choke them off. In
Brazil, where it is often said that an activist industrial policy helps
to explain why the economy has been thriving, a surging state-owned
development bank, BNDES, is probably crowding out other sources of
finance (see article).
The likes of Petrobras (oil), Vale (mining) and Embraer (planes) were
indeed created by the government. But they have all flourished because
they were privatised, to a degree, and forced to compete with foreign
firms in the 1990s. Part-privatisation and competition created in a
short time what decades of industrial policy had failed to do.
In the rich world, meanwhile, the record shows, again and again, that
industrial policy doesn’t work. The hall of infamy is filled with
costly failures like Minitel (a dead-end French national communications
network long since overtaken by the internet) and British Leyland (a
nationalised car company). However many new justifications are invented
for the government to pick winners, and coddle losers, it will remain a
bad old idea. Thanks to globalisation and the rise of the information
economy, new ideas move to market faster than ever before. No bureaucrat
could have predicted the success of Nestlé’s Nespresso coffee-capsule
system—just as none foresaw that utility vehicles, vacuum cleaners and
tufted carpets (to cite examples noted by Charles Schultze, an American
opponent of state planning) would have been some of America’s
fastest-growing industries in the 1970s. Officials ignore the potential
for innovation in consumer products or services and get seduced by the
hype of voguish high-tech sectors.
The universal race to create green jobs is the latest example. Led by
China and America, support for green tech is rapidly becoming one of
the biggest industrial-policy efforts ever. Spain, blinded by visions of
a solar future, subsidised the industry so lavishly that in 2008 the
country accounted for two-fifths of the world’s new solar-power
installations by wattage. This week it slashed its subsidies, but still
has a bill of billions.
How to keep the beast at bay
Not all such money is wasted, of course. The internet and the microwave oven
came out of government-led research; the stranger
stuff that governments do can prove surprisingly successful. A few
governments, such as America’s and Israel’s, have contributed usefully
to the early development of venture-capital networks. Some advocates of
industrial policy argue that the government, like a pharmaceutical
company or a seed-capital firm, should simply increase the number of its
bets in order to raise its hit rate. But that is a cavalier way to
behave with taxpayers’ money. And the public funds have an odd habit of
flowing towards politically connected projects.
Fortunately, there are now some powerful constraints on governments’
ability to meddle. In an age of austerity they can ill afford to lavish
money on extravagant industrial projects. And the European Union’s
competition rules place some limits on the ability to do special favours
for particular firms.
That points to the first of three ideas that should guide a more
sensible approach to securing the jobs of the future. Straightforward
steps to improve the environment for business—less red tape, more
flexible labour markets, simpler tax and bankruptcy regimes—will be more
effective than handouts to favoured firms or sectors. Europeans ought
to be seeking to strengthen the rules of their single market rather than
pushing to dilute them; a long-overdue single European patent process
would be a good start. Competition will do far more for jobs than
coddling.
Second, governments should invest in the infrastructure that supports
innovation, from modernised electricity grids (a smarter way to help
green energy) to basic research and university education. The current
fashion for raising barriers to the inflows of talented researchers and
entrepreneurs hardly helps. Third, rather than the failed policy of
picking winners, governments should encourage winners to emerge by
themselves, for example through the sort of incentive prizes that are
growing increasingly popular (see article).
None of this excites politicians as much as donning hard hats and
handing out cash in front of the cameras. But the rich world has a clear
choice: learn from the mistakes of the past, or else watch Leviathan
Inc grow into a true monster.
