Tuesday, March 14, 2006

Invest in People, Leave Markets Alone

“Invest in people and leave the market to look after the rest”, says economist Dr. Calvin Jones, a member of the Welsh Economy Research Unit at Cardiff Business School and Director of Econactive, an economic consultancy, last weeks Western Mail, 8 March.

He continues in a spirited blast at government attempts (usuall futile) to intervene in the Welsh economy, citing several case of waste and unfulfilled ambitions.

“The best thing politicians can do to help Welsh entrepreneurs win is get off the pitch,
Keep strategic industries nationalised? Yes. A bit of not- so-subtle protectionism when Indian textiles became too popular? Of course.

But the day-to-day running of the economy was considered well-served by Adam Smith's "invisible hand".

This all changed in the 1920s of course, when the invisible hand of the market became a dead hand on the tiller as the global economy slumped into the Great Depression. The economist JM Keynes deduced a new rationale for government intervention: market failure.
It is almost all in the labour market, and here is where the Assembly can do good work, and already does. Invest cleverly in Wales' people, and the rest will follow, albeit not for a fair while. And leave the rest alone.

Go on. Adam Smith would be proud.”

Apart from the irritating references to Adam Smith and invisible hands, its main target is spot on: government and its expensive, usually wasted, expenditures on business activity. When a business fails the least advisable action is to pump in money. As bad is the habit of pumping in money to suppress markets which indicate the business should not be subsidised.

This detracts scarce capital from business opportunities, spotted by entrepreneurs who don’t need government officials to try to out guess what markets will tell them for nothing: if it needs support maybe it shouldn’t be subsidized; if it doesn’t need support, why subsidise it? This tends to undermine the full blast of efficiency.

Dr Calvin Jones is right to direct any spending on educating and training young people through the entire range of skills for the kind of jobs they would seek in a growing economy. This echoes Smith’s points about education in the 18th century as a justifiable expenditure by adults, partly from taxes and partly from their own commitments to educate their children (Book V, Wealth of Nations).

A far better investment to direct it to people than second-guessing what markets tell the business community for nothing. Meanwhile, go easy on the rhetoric of invisible hands – there are none in markets and Smith never said there was. See earlier posts on this subject.


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