It's not that government shouldn't it's that government can't
An interesting conclusion from an attempt to create an industrial cluster:
Every city wants a cluster, a concentration of high-productivity firms and workers beavering away in a particular industry in a particular place. Proximity means ideas and productivity growing and spreading. Who doesn’t want their own Silicon Valley?
David Cameron certainly did. In November 2010, he announced the “Tech City” programme, aiming to grow a digital cluster in Shoreditch, east London. The plan was to use branding to get firms in, networking to ensure those ideas get flowing with focused support for high-potential firms.
But did it work?
That is, obviously enough, the question we’d like answered. Our treasure, taken from us through taxation, was spent upon this plan:
But the policy didn’t raise productivity – for small firms, higher rents may have outweighed the pros of being round lots of other hipsters. More importantly, it’s not clear that the policy drove the cluster, rather than just being a response to it already getting going. As the author puts it: “Instead of catalysing the cluster, policy generally rode the wave.”.
The conclusion? A good bit of PR, yes, but the research reminds us that clusters are born of thousands of decisions by firms and people, which we struggle to understand, let alone influence. If only humans were simpler, policymakers would have a much easier life.
It didn’t work, no. Our resources were spent to no avail unless we’re to regard a bit of PR as worth it all.
We can be more precise as well, in that the same resources, if not wasted in this manner, might have achieved something elsewhere.
Which gives us our outline of what economic planning actually should be. Get the basics right - the rule of law, property rights, a non-crushing taxation system - and leave the rest alone. Such laissez faire also allows government to expend its efforts and our treasure where there is at least the possibility of competence.
It’s not that government shouldn’t try to plan and manage the economy, nor even that they’re just not very good at it. It’s that they can’t. So, don’t.