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.