Thursday, November 01, 2012

Introducing the meaning (or otherwise) of the term picking winners

I have always struggled with the use and abuse of the term "picking winners" in economic and industry policy. It is one of a suite of terms used in policy discussion that carry connotations. They are in fact shorthand, code if you like, for a set of linked arguments and opinions.

To illustrate this, consider the most common us of the term, "Government's mustn't pick winners". Or, alternatively, "Governments should pick winners".

Now at the most general level, the use of the term in either way is pretty meaningless. All Government activities create a pattern of winners and losers. If we drill down further, we find that the term is generally used for the provision of direct support by Government for certain firms, sectors or activities expected to yield longer term economic gains. Again, the term is too broad. When Governments invest in infrastructure they obviously do so in the expectation of  longer term gains. Further, in choosing how much to spend, where to spend and how to finance that spend, they advantage some and disadvantage others. I don't think that most would deny that Governments should invest in infrastructure, so we have another definitional problem.

If we drill down further still, we find that the term is most commonly used in Australia to describe Government support for activities where the combination of the private sector with market forces might otherwise be expected to yield the best results. Those who use the term pejoratively argue  that Governments are bad at second guessing markets. Those who use the term in a positive way argue that market failure or market short termism leads to bad results so far as the country is concerned. In both cases, you can be reasonably certain of what those arguing are likely to argue in other economic or policy contexts.

Now before going on, to further illustrate the confusion the term creates, have a look at this short US example.

But why am I rattling on in this way? Well, it's partly because of my experience in trying to get new Government initiatives through that became partly mired in a pick winners debate. It also reflects my own review of my past thinking in the context of Australia's economic future, including assumptions about the role of services built into current discussions on Australia in the Asian Century. Finally Evan, one of my regular commenters, specifically asked my views about picking winners in the context  of my discussion on the international future of the Australian services sector. 

In my next post, I will try to explain my cynicism about the language and concepts surround the picking winners discussion and also outline the conceptual basis I use myself in discussion. 

Note to readers:

This post is part of an irregular series that began with Economic threads & the need for a new view. I am listing all the posts there.


Winton Bates said...

Jim, it seems to me that there is no problem in anyone trying to pick a winner, as long as they use their own money.
Good luck next Tuesday!

Jim Belshaw said...

Winton, I thought this post might draw you in! Will be interested to see your later reactions.

Thank you for wishing me luck!

Evan said...

Thanks Jim, looking forward to the next post.

Rod said...

You never know if you've picked a winner until they win (or lose)... we'll that is my simplistic bit of wisdom!

PS. I've got a blog post up that you may be interested in