Have you noticed the recent headlines on manufacturing? President Obama has been all over the Midwest, touting the latest high tech industrial start up. Senators and congressmen are becoming outspoken advocates for revitalizing our manufacturing sector. State and local governments are falling all over themselves offering incentives for companies to relocate to their particular area. Everyone wants to get in on the high tech or green bandwagon. Government officials love all this stuff. It makes great press. Unfortunately, it’s not great industrial policy.
Other than support for basic and applied research, governments have a terrible record in picking market viable technologies to support. These decisions are influenced by political winds that usually overlook the defining economics of an industry. Let the markets take the risk, not the taxpayer.
Some will argue that start ups are the source of most of the new jobs and that we need to support start ups to get out of the recession. However, a company that is already established and has a marketable product can add jobs much more efficiently if there is a place in the market for their increased output or new products. Indeed, conflicting analysis of Census data makes it easy to support either side of the argument about which firms create jobs – start ups or existing companies.
In the August 23 & 30, 2010 issue of Newsweek , an essay by three authors from McKinsey concludes that instead of trying to pick winners, government should focus on getting the basics right – stable laws and legal systems, efficient infrastructures, strong competition within sectors (no subsidies), transparency in regulated sectors, and providing workers with on-going education and skills needed for the 21st century.
Instead of a local official having a press conferences with a high tech entrepreneur who will create four or five jobs in the next year with his $1 million government grant, how about a press conference with a company that can create four or five jobs this month with a stable business environment and a $10 thousand training grant. It’s not as sexy, but it’s a lot more effective.