24 March 2005

Government cannot pick winners

The death of John DeLorean is a good time to remind ourselves that government picking winning products doesn't work. In this case it was a futuristic-looking sportscar, into which the British Labour government poured ₤55 million taxpayers' money. The Thatcher Government later topped that off with a further ₤30 million. Within 21 months, receivers were appointed, the car went out of production and the workers at the DeLorean factory in Northern Ireland lost their jobs. Fewer than 9000 cars were produced.

Governments aren't much better when it comes to picking winning industries, and for exactly the same reasons: it's cannot respond quickly enough to changing circumstances, it doesn't adapt to local conditions, it doesn't understand markets and it has no financial incentives to be efficient.

So why should we assume that a government is any better at picking policy mechanisms? If the government wants to achieve, say, better health outcomes, that's fine. Democratic governments are good at articulating their citizens' wishes. But that's quite different from picking the best ways of actually achieving better health outcomes. (See Mickey Mouse targets, below.) Government is no better at choosing activities and policy programmes than it is at picking winners in other areas. Let the government do what it's best at: representing our wishes and raising revenue to achieve them. But then let the market take over, and work out how best to allocate taxpayer resources. A Social Policy Bond regime would bring about such a division of labour.

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