Wednesday, May 24, 2006

Picking Winners

At a cost to taxpayers of a mere £2.6 BILLION every single year, Gordo's Small Business Service perfectly illustrates the incompetent arrogance of Big Government.

Gordo set it up because for some unfathomable reason he believes he can pick business winners, and likes to back his hunches with our money. In particular, he reckoned many small businesses are failed by commercial lenders, who fuss too much over tedious details like whether a business will be able to repay a loan. His new Service would break free of all that to fund the white hot seedcorn of the new post-neoclassical endogenous sunlight uplands acorn thingie. Kind of idea.

The dismal results have just been assessed by the National Audit Office. They find that already, after just a few years, the default rate on loans made by the Service is NINE TIMES that of comparable commercial loans. What's more- surprise surprise- it seems that by favouring the weaker small businesses who can't get commercial loans, Gordo's soft loans actually damage stronger competitors- ie the businesses that actually are the seedcorn etc.

Other NAO findings are that the Service's role in "championing" small business in Whitehall has been a complete dud: red tape has not been slashed, and most government departments simply ignore the SBS. Even worse- but in common with many other agencies we've looked at- the SBS has not put in place any framework for measuring its success. So nobody knows just how pisspoor it actually is.

Meanwhile, government programmes aimed at small business continue to mushroom: "there are 15 government departments with 265 programmes aimed at small business and when those are added to regional and local schemes, the total climbs to over 3,000." As the late great Ronnie R was wont to observe: "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help."

The Pink'un sums it up:

"Mr Brown works on the basis that government intervention in business is helpful. Businesses know that very often it is not. Small businesses, with disproportionate regulatory costs, feel this most strongly. The real lesson is that people do not start businesses in the hope of closer contact with civil servants. They do so because they have skills or bright ideas and want the freedom to get on with working for themselves. The less small business hears from the government, the better."

When even a pink paper that has consistently backed Big Government Labour since 1992 says that, maybe we can see the first faint glimmerings of hope.

PS The issue of picking winners also came up at a talk last night given by the stalwart Prof Patrick Minford. He was talking about flat tax, and he pointed out how the wildly complex tax system we now have actually embodies the idea of picking winners: government is saying that it so well understands how the economy works it can fine tune its tax rates across thousands of variations in order to achieve maximum revenue for minimum economic distortion. Prof Minford and several other eminent economists in the audience seemed to find that hysterically funny.


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