An article in the print edition of the Wall Street Journal, Thursday February 14th, ran with the title, Paid by a Federal Grant, Workers Played Board Games. As a neo-economist, this got my blood boiling. An LG Chem factory in Holland, MI, was half funded by the Federal Government and it was meant to produce battery cells for electric vehicles for GM’s Chevrolet Volt among others. Since demand has not been forthcoming (ie the market has not developed as desired by government types), the workers were thus paid to do literally nothing. Rather than idle the resources and/or not use the money, LG Chem’s employees entertained themselves.
This is the result of government seeking to “pick winners” as a substitute for industrial policy. I don’t mean to say that those workers should be let go, and so increase unemployment in a midst of a downturn; what I mean to say is that there is a time and a place for government to influence how markets move and such direct investment tends to be ineffective. Unfortunately voters don’t seem to understand this and they tend to like the idea of free government mney – so the vicious cycle continues to repeat itself.
The right time for an industrial policy is NOT, as with the UK, to protect established industries from the effective brunt of competition, but to nurture potentially new industries. This should be achieved by working more closely with education and business leaders in those areas where the marker shows some sign of interest. VISA quotas can help, for uncommon resources not indigenous to the country; tax breaks for core R&D and other capital investment also. These do not distort the market dynamics as much and create potential markets – that others – close to the market, can interpret and exploit. Why bureaucrats think they know best I just don’t know. Just ask mom.
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