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Evan Davis on... being next door

Updated Thursday, 18th November 2010

Evan asks what are the advantages of being next door to the competition?

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EVAN DAVIS

I have a question for you, and it’s about industrial policy.  Now all governments like to do it, right, they like to attract companies into their nation, they like companies to be successful, big, employ people, pay taxes, all those kinds of things, and they often use their policy, their subsidies, their taxes, their concessions, their grants, their giveaways and their bribes, they often use these as a way to try and stimulate corporate activity.  Now there are two rules which I think governments have been taught, precepts which have been explained to policymakers and which govern their thinking, and my problem is that I think these two precepts tend to contradict each other.

 

The first, number one is don’t pick winners.  Don’t try and say let’s put all our eggs in the market for British Leyland Cars, for example, let’s try and get British Leyland to be a national champion, don’t try and pick a champion, you're bound to waste your money, you'll always pick the wrong one.  The men in the ministry, they don’t know who the winner is going to be, so they shouldn’t be putting your tax dollars and pounds behind any particular company.  And it’s a perfectly arguable and reasonable proposition to think that civil servants are not the best people at choosing which the companies to succeed should be.

Now the second premise is this.  It’s something that governments have learned and everybody now observes about companies, which is they like to cluster.  They tend to group together; they tend to be in company.  So if you can get one company in an industry to locate somewhere, you'll often get half a dozen others circling around it, suppliers as well.  Now what that tends to indicate is that you get a huge bang from your buck if you can pick a winner.  You get, you say, the first company to settle there, you don’t just get that company and its taxes and its economic activity, you get all that of its competitors as well, as they all come and surround there.

Wouldn’t it be wonderful if you just had to plant one little seed, and instead of one tree growing, you got a whole forest?  It really is like the sort of re-siting of the kite in the Chiltern Hills, you know, you put a couple of couples there, let them breed, and you soon have more kites than you can count.  So that tells you not that you shouldn’t engage in industrial policy, but that you should engage in industrial policy, because the returns to it can be hugely disproportionate to the initial investment.

Now I believe in both these premises.  I believe that governments probably shouldn’t pick winners, I don’t know they're particularly equipped to make a good job of that, but I also do believe there’s a role for planting seeds and trying to get whole forests to grow out of them, to try and stimulate clusters, with the huge external benefits that accrue from them.  So my question is, how do you foster clusters, attract bunches of companies to arrive on your shores, without picking winners?  Because I don’t know how you can do it.  That’s the question; you can answer it with the Open University.

(3’08”

 

 

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