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Picking Losers
December 2011

Board silly: Why doesn't Harriet Harman practise what she teaches? 

Our coalition government finds itself in a tricky position. It wants to retain its reputation for being pro-business while also pushing businesses around. For example, it is trying to make banks lend more to politically preferred borrowers, such as manufacturers and small businesses, and it plans to make public companies appoint more women to their boards. David Cameron said last month: "I want to see more women in Britain's boardrooms."

How to explain such bullying from a pro-business government? Obvious. Parents love their children but still push them around because children often do not know what is in their own interests. The same goes for businesses. Banks that do not lend to "perfectly sound businesses" are missing an opportunity for profit which the government's targets merely force them to take. Women make excellent board members and companies forced to have more of them will increase their profits. 

The same argument is often made to justify tax-funded subsidies for politically favoured industries, such as "green technology". The politicians who arrange these compulsory "investments" claim that they will yield great returns. They force us to invest only because, like silly children, we fail to see the wisdom of it.

The usual objection to such policies is that politicians are no good at "picking winners", which is quite right. But those who bother to make this argument are being earnest dupes. The politicians themselves do not believe they have picked winners. If they did, rather than forcing others to make investments, they would make them themselves. 

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