Vince Cable’s speech at Cass Business School was an interesting mix of the radical and the reactionary. Overall, it certainly reads no worse than speeches that have been given by most incumbents in his current job – though Vince Cable is certainly no Nick Ridley.
Adam Smith got a number of mentions and it was with regard to one of those mentions that the philosophy of the speech begins to fall apart a little. We are told that Adam Smith recognised the importance of public goods. This is true, of course, though what he would define as public goods and whether he believed they should necessarily be provided by the government is another matter.
One of those public goods, according to Vince Cable, is scientific research. Cable then moved on seamlessly to talk about the government allocating the training budget and investing in human capital (definitely not a public good) and having to choose between various priorities in this regard. The government would then not be picking winners in the sense of choosing in which firms to invest, but it would be choosing the general sectors in which the government should be investing through various indirect mechanisms.
Unfortunately, the issues are essentially the same. Cable specifically criticised the subsidisation of the shipbuilding industry as an old-fashioned form of picking winners. But deciding that universities should produce more mathematicians or engineers – decisions that he believes should be within the government remit involves the same problems. The government has no mechanism for centralising the dispersed information that is necessary to take that decision. Individual students, or people taking adult education courses, respond to a whole range of stimuli. They have to take into account the cost of doing a course; they have to allow for the increase in wages that might result; they make allowance for the lost wages whilst undertaking a course. You only have to look at the demand for plumbing courses in recent years to see how people who may not be brilliant business forecasters respond with remarkable astuteness to shortages and surpluses within the economy.
There are good reasons why we might want to subsidise further, adult and higher education. These are largely due to the difficulty of people accessing credit markets or effectively borrowing against human capital. However, as Alison Wolf has written so well for the IEA (in a monograph which I believe was welcomed amongst many in both coalition parties), the government is not best placed to decide how investment in these areas should be directed. Furthermore, the government could probably best proceed by removing the discrimination in favour of full-time education in every aspect of education policy (including higher education).
Cable also argues for the promotion of green technologies. He does not want to promote particular technologies (that would be old picking winners) but instead he wants to support green technologies in general. Again this is incoherent. It is quite true that the government is less likely to make a mistake the less discriminating it is. But Cable is still deciding that economic resources should be allocated to green technologies rather than to non-green technologies or simply to not undertaking energy-intensive activity at all. This is an extraordinarily inefficient way to achieve environmental objectives. If I want to cut my carbon emissions by (say) 4% do I switch off the lights more often, buy energy efficient light bulbs, walk instead of taking the car for journeys of less than a mile or switch to green electricity? Cable says I should do the latter. He does not know what I should do and never will, but if I faced the right price signals I would.
But let’s end on a happy note. There were bits of this speech to warm the heart such as:
“I am a liberal. I am a free trader. I believe in open markets…I think the WTO is a good thing…I will be pushing hard to get the Doha world trade round revived…Nor do I have a philosophical problem with big business.”
And one can never expect too much from the Secretary of State of a Department that should not exist and I am not sure that any Secretary of State in Vince Cable’s department would have said the above except, of course, Nick Ridley.