John Dixon wonders whether Welsh economic policy is merely a matter of observing and copying the rituals of others
The cargo cults on some Pacific islands reached their peak just after the Second World War. Although they’d started earlier than that, the extent of contact between the natives living on those islands and outside civilisations increased so much during the war years that they gave a massive impetus to the cults.
It’s easy enough to understand how people who did not understand the technologies which they were witnessing would have assumed that the planes bringing cargo were coming from the gods, and that they were summoned to bring their cargo from the gods by the strange rituals of the outsiders. Many also believed that the cargo was really intended for them and had been wrongly purloined by the outsiders.
When the outsiders left, the islanders often tried to replicate the rituals which they had observed. They built their own rough airstrips, wooden control towers, and even wore headsets carved out of wood and the best imitations of American uniforms that they could make. The planes didn’t come though. Whilst aeroplanes needed airstrips and control towers, the mere presence of those things and the associated rituals was not in itself sufficient to bring the planes back. Which would have been just as true had the towers been filled with the latest fully operational technology rather than mere wooden imitations.
In essence, the cults are just an example of a common fallacy – usually referred to as ‘Post Hoc Ergo Propter Hoc’. It’s a fallacy to which we are not immune here in Wales. Sometimes I wonder whether our politicians’ approach to economics is really that much different from a cargo cult, based on observing the rituals of others and then copying them.
One of the old chestnuts is the regularly repeated demand by business and opposition leaders for the Welsh Government to invest more in ensuring that we have a trained and skilled workforce available. I wouldn’t argue against having a highly skilled and trained workforce of course, but it will never be enough to bring the planes and their cargo.
Similarly, much of the debate around the electrification of the railway seemed to be based on a belief that shaving 15 minutes off the journey time between Cardiff and London would bring about some sort of economic miracle. Again, I wouldn’t argue against electrification; but it is not a solution to anything very much in itself.
I could add superfast broadband, or city regions, an M4 relief road, or even last week’s call for reduced energy prices. Some I’d support, some I would not. But all of them seem to be geared to a belief that performing the right rituals will bring the planes and their precious cargos to Wales.
And, just like the Pacific islanders, when our politicians do divert their attention from their ‘demanding infrastructure’ rituals, it is usually to criticise those wicked outsiders who have diverted the planes which the gods clearly intended for us, and stolen the cargo.
There’s nothing wrong with infrastructure building per se, and it’s easy to see why politicians concentrate on that. It’s under their control, and it is (comparatively) easy for them to control. But it’s about facilitation rather than action. It is built on the assumption that the solution lies with others whom we need to appease, rather than with ourselves.
One of the more interesting suggestions in the Offa’s Gap paper which Plaid produced a few weks ago was the “creation of publicly-owned Welsh enterprises” to bid for contracts. Another lies in the creation of more co-operative and social enterprises. Neither is particularly original, although they’ve fallen out of favour in recent decades. Neither is as simple or straightforward as complaining about what others are not doing. But both are about taking some responsibility for action ourselves – and that has to be a better starting point than performing rituals or criticising others.
Very much enjoyed, and agree with, John Dixon’s analysis. This continual staring at other societies, and putting ourselves down, is one of our most annoying traits. I’ve always thought that we have to internalise, and seek to build on those areas that we do well in. Another thing we should encourage is expenditure on indigenous products. When I go shopping I always source Welsh bread, cheese, honey, beer, even wine, before I peruse other products. Let us help each other out, and build our economy from within, rather than always searching for the emerald beyond.
The main fallacy in this jejune piece is that you can criticise any policy as if it is being presented as “the answer”. Of course fast, universal broadband will not make Wales rich on its own, nor will adequate training and education, nor electrified trains nor good roads. Yet does anyone doubt that if we had all those things our prospects would be improved – especially in education?
If Welsh people want to take responsibility for their economic future, the obvious way to do it is to start private businesses where your own money is at risk. Publicly owned business is using other people’s money, surely a less responsible thing to do. There’s nothing to be said against co-operatives but look around the world and no example of a successful largely co-operative economy is to be found, though attempts have been made. It is essentially a failed form of organisation. To prosper Wales has to embrace enterprise rather than looking around for substitutes.
Tredwyn: “look around the world and no example of a successful largely co-operative economy is to be found, though attempts have been made. It is essentially a failed form of organisation”
You’ve obviously never heard of Mondragon then?
Henry, What proportion of the Spanish, or even the Basque, economy is Mondragon? Those economies are based overwhelmingly on private enterprise. Yes, and John Lewis is a very good store. I didn’t say you can’t have a successful co-operative enterprise but as a structure for a whole economy or even most of one it has never worked. It’s nice to see swallows but one (or two) don’t make a summer.
As Tredwyn says, high-speed broadband, better road and rail links are necessary but not sufficient conditions for improved economic performance.
Publicly-owned enterprises may have their place, but I’m not convinced that they offer a panacea for the Welsh economy. They may sound more ethically or politically appealing than capitalism ‘red in tooth and claw’, but aren’t you ultimately putting taxpayers on the hook for financial risks that should be borne by shareholders? And aren’t you going to crowd out entrepreneurship?
“Jejune”? Guess Tredwyn didn’t like it a lot then.
The comparison with the cargo cults may have been a little tongue in cheek, but it was trying to make a serious point, which is that the Welsh Government’s economic policy seems to be based largely on laying down the pre-conditions, hoping that the companies and jobs will arrive from elsewhere or be created by entrepreneurial individuals within Wales, and criticising someone else if they don’t. And the opposition’s economic policy is based largely on criticising the government for not doing that well enough or enthusiastically enough. There is little real critique of whether it’s actually the right approach.
I’m not opposed to the idea that people creating businesses (but I’m not sure that “using their own money” is all that common even then) would help; but that’s still a case of laying the foundations and hoping that the relevant individuals will respond, and in that sense is exactly the policy currently being followed. The problem is that it is demonstrably not working, and hasn’t been working for a long time.
Why it hasn’t worked is an interesting question, but not one with a short answer. I’m certainly not convinced by the line about the public sector crowding out entrepreneurship; it’s a line oft-repeated, but it seems to be based more on an ideological perspective about the ‘right’ type of economy than on any hard evidence about cause and effect.
There’s another ideological element to this as well. Some see the state as being something external to ourselves which takes ‘our’ money and spends it badly on pursuing its own objectives. Others see it as the expression of a collective will whereby we pool resources to achieve shared ends. From the first perspective, state enterprise is inherently a bad thing – we should really leave that to individual motivations such as competition and personal aspiration. From the other, it’s a collective approach to dealing with a failure of the individualistic approach.
I wasn’t actually arguing for an entirely state-based approach in Wales. What I was suggesting was that the rejection of any role for the state – a rejection which seems to have become the collective wisdom of politicians of all parties – leaves us with no alternative to the ‘facilitation’ approach. But for how long do we continue repeating the same actions in the hope of a different outcome?
John, contrary to your assertion that ‘crowding out’ is an ideological objection, a quick Google of “state enterprises” + “crowding out” immediately reveals articles in academic journals showing that Government-owned companies have reduced the growth of private enterprises in India and Vietnam. This is a very real, evidence-based criticism and can’t be swept aside so dismissively.
More broadly, there’s a bigger economic literature showing that productivity growth is higher in industries that face more intense competition. There’s a process of ‘creative destruction’ in a properly-functioning market economy whereby competitive pressures force firms to improve: more efficient ones grow and less efficient ones close. State enterprises have a Government-backed guarantee that undermines market competition and exposes the taxpayer to risks when things go wrong.
You say that politicians of all parties reject an economic role for the state, but this seems to fly in the face of reality. The public sector accounts for over a quarter of employment in Wales, and the Welsh Government controls important economic levers including policy on education, land use planning and many aspects of transport. I think everyone in Wales acknowledges a role for Government in encouraging investment and entrepreneurship, which is rather different from the views espoused by people like the IEA thinktank.
I don’t disagree at all with what John Dixon says in his last post. It strikes me as very reasonable. I don’t reject a role for the state at all. I am just concerned there is an element of escapism in the sudden enthusiasm for co-operation. Stimulating private enterprise is hard but somehow we need to do it; co-operation is fine too but not as a complete replacement of private business.
In response to Llareggub’s comments on ‘crowding out’, I’d say that there is a difference between demonstrating a correlation and proving a causal relationship. I can’t claim to have perused all the evidence in detail, but it seems to me that the suggestion is generally based more on correlation than on causality. And that’s just another form of the ‘Post hoc…’ fallacy.
For sure, if some enterprises receive preferential treatment in terms of loans or the awarding of contracts, then it can be harder for others to compete. But that doesn’t only apply if those receiving preferential treatment happen to be state-owned; it’s the preferential treatment which has the effect not the ownership. If you reword your proposition to state that “businesses receiving preferential treatment will crowd out those which do not”, I’d have to agree with it. It would be a very different proposition, however.
I take the point about the size of the public sector disproving the contention that politicians see no economic role for the state. Sloppy wording on my part. I wasn’t referring to the role of the state as a provider of services in this context, but as to whether it has a role, acting on behalf of the collective whole, in starting and owning enterprises which operate outside that limited ‘provision of public services’ arena, and I’m sorry if that wasn’t clear from the context. It is that wider role which has fallen out of favour with politicians.
John, when it comes to confusing correlation with causation, it’s difficult to either make or rebut that criticism without looking at the methodologies used by individual studies.
I know that in the example of Vietnam, state-owned enterprises have had easier access to land, capital and markets than private businesses – hence the crowding out. The Chinese have their own term for this sort of thing – ‘guojin mintui’ – meaning “the state advances while the private sector retreats”. Of course the context in Wales/Britain is very different to these developing countries, and you could hopefully ensure a greater degree of official neutrality between private and state-owned operations.
Nevertheless, I’m still far from convinced by your argument that creating more state-owned enterprises is a viable economic development model. In many respects, it doesn’t seem like new thinking but a return to the postwar nationalised industry paradigm. I remember Patrick Hannan quoting someone saying that Wales in the 1960s had “the biggest public sector west of the iron curtain” – is this really your vision of the future?
The ‘problem’ with that model was lack of competition, meaning that the nationalised industries had no motivation to improve productivity. Worse, their managerial decisions were sometimes taken for ‘political’ rather than economic reasons. These issues aren’t simply features of a particular time and place: I’ve seen contemporary evidence from Australia that state-owned enterprises generally achieve rates of return lower than their commercial peers.
Of course, there are sectors and services where natural monopolies or the public interest means that state ownership is the most appropriate model – I’m not arguing for wholesale privatisation of remaining public assets. But we need to be very careful about extending the economic role of the state ever wider. There seems to be widespread agreement that the challenge facing Wales lies in growing its relatively small private sector – surely the solution can’t lie in substituting public enterprise for commercial dynamism.
I accept your point that, in Vietnam, easier access to land, capital and markets make it easier for state enterprises to succeed than private ones, but I think we’re in agreement that that’s not a necessary concomitant of the ownership model.
I think there are some areas where we are going to have to agree to disagree. I’m not actually arguing for a statist model for the economy. My starting point was, rather, that waiting for others to set up businesses and create jobs isn’t working, and we need to find an alternative. In light of that failure, we need to look at what we can do for ourselves – and using our collective power, which is what the state should be, as a means of doing that is one option. Your option seems to be to stick with what we’re doing but try harder. Perhaps it will work; but empirically it isn’t working at present.
(PS – I also don’t agree with some of what you say about competition, productivity, and commercial dynamism. But that is an argument for another time – it would be way off the point at issue in this post!)