The Philosophy, Economics, Politics & Psychology Tested with a Hammer

23 Things they Don't Tell You About Capitalism
By: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics

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         Thing 12: Government Can Pick Winners

         We are told that government bureaucrats cannot be good businessmen because they are are motivated by power not profit. Furthermore they are playing with other people's money and therefore have a much smaller personal stake in the decisions they make with that money. And lastly businesses are in the business therefore they know better than outsiders what is possible and profitable than any bureaucrat. These three factors make it much less likely that government can pick winning companies and industries. Therefore they should not even try because that is the job of business in a free market.

         However the truth is that there are many examples of governments choosing winning companies and industries. Sometimes the detailed knowledge of a business may hamper its long term viability and growth. The author hints that a mixture of the long term outsider view with the down and dirty inside perspective will most likely lead to the best results.

         The best example of this is how the Korean government developed its steel, car and semiconductor industries in spite of all the naysayers around the world. The government invested in industries and helped the industries in ways that any free market economist would predict would fail: for example tariff protection, subsidies and putting soldiers as the CEO or presidents – even using the secret police to convince some industrialists to follow the government line. Modern economic theory says it should not have worked.

         The author is careful to point out that government can and has picked losers but that government can pick winners too. The author hints that government's successes are proportionally greater than businesses' successes based on the high rate of business failures in all western countries around the world.

         The best way for the government to pick the winners is by working with businesses and the academic community so as to get the best information and theory working together.

Added on: 2012-10-05 12:19:24

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