Picking Losers

Our coalition government finds itself in a tricky position. It wants to retain its reputation for being pro-business while also pushing businesses around. For example, it is trying to make banks lend more to politically preferred borrowers, such as manufacturers and small businesses, and it plans to make public companies appoint more women to their boards. David Cameron said last month: “I want to see more women in Britain’s boardrooms.”

How to explain such bullying from a pro-business government? Obvious. Parents love their children but still push them around because children often do not know what is in their own interests. The same goes for businesses. Banks that do not lend to “perfectly sound businesses” are missing an opportunity for profit which the government’s targets merely force them to take. Women make excellent board members and companies forced to have more of them will increase their profits. 

The same argument is often made to justify tax-funded subsidies for politically favoured industries, such as “green technology”. The politicians who arrange these compulsory “investments” claim that they will yield great returns. They force us to invest only because, like silly children, we fail to see the wisdom of it.

The usual objection to such policies is that politicians are no good at “picking winners”, which is quite right. But those who bother to make this argument are being earnest dupes. The politicians themselves do not believe they have picked winners. If they did, rather than forcing others to make investments, they would make them themselves. 

Harriet Harman, Labour’s deputy leader and shadow culture secretary, goes even further. She claims employers discriminate against women and pay them less than they are really worth. By proposing to pass a law that imposes compulsory female quotas in boardrooms, she forgoes a wonderful business opportunity. She could start a business, hire all these brilliant but underpaid women and kick the butts of competitors that employ mediocre men at the same wages. Or Mr Cameron could let some of his mates know about the banks’ mistakes and they could make a killing lending to small businesses.

If you had the prescience that allowed you to pick winning Lotto numbers, would you pass a law forcing everyone to select those numbers? Would you even announce the numbers in public? Are you that selfless? Politicians who claim their bullying is merely an attempt to force unnoticed profit opportunities on to stupid business people would have us believe that they are. 

There is ample evidence that politicians are neither business geniuses nor saints. A policy that requires us to believe them to be both should be greeted not simply with scepticism but with howls of laughter.

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