Tuesday 27 September 2011 7:18 pm

Ministerial favouritism isn’t business-friendly

VINCE Cable’s Department for Business announced a plan last week to give the UK’s 50 largest firms ministerial “business buddies”. For example, Nissan will make friends with enterprise minister Mark Prisk, Vodafone will get chummy with culture secretary Jeremy Hunt and British Gas will have Cable himself as a ministerial pal. What will government ministers do for their big business buddies? The Department for Business has been somewhat vague. But the answer must be favours. That’s what buddies do for each other. And what else could entice busy corporate executives, who surely already have friends, into otherwise unrewarding relationships with the likes of Cable? Do not let the words “business” and “buddies” fool you; this is not a pro-business policy. If the Football Association used its powers to do Manchester United favours, they would not be helping football. Similarly, ministers do not help business by using their powers to help particular businesses. Like football, business thrives on competition. It is the engine of progress, inspiring effort, innovation and the elimination of bad practice. But what is good for business is bad for individual businesses. Competition is the only serious problem a business faces. Eliminate it and, no matter how poor the favoured firm’s performance, profit is assured. A business with a ministerial buddy will seek to use this influence to stifle competition, helping itself but damaging the economy. Indeed, this would happen even without the favoured company’s executives asking for it. Imagine Prisk, Nissan’s ministerial buddy, approaching his annual performance review and fretting about what Nissan has to show for all his friendship. What can he do? As a government minister, only two things. He can change the arrangement of regulatory burdens faced by companies in a way that favours Nissan or he can subsidise them at taxpayers’ expense. Ministerial business buddies are effectively employed to tilt the playing field in favour of their pals – or, to put it the other way around, against everyone else. They have nothing else to offer. The avowed goal of the buddy policy is to boost investment. Alas, this is unlikely. The 50 favoured firms will attract investment, of course, but all the smaller firms and start-ups that bear the cost of this favouritism will become less attractive. Nor will it be a zero-sum transfer of investment from new and smaller companies to the biggest 50 incumbents. By generally increasing the political risk of investing in British firms, the policy will increase their cost of capital and hence decrease aggregate investment. In 2006, inspired by the eponymous TV programme, Tony Blair suggested imposing state employed “super nannies” on families that government officials deemed dysfunctional. His choice of terminology was sufficiently honest to kill the idea. We already suffer the nanny state. Who wants to live in a super nanny state? Similarly straightforward language should kill off this idea. Crony capitalism, anyone? Jamie Whyte is a management consultant and author of Crimes Against Logic (McGraw Hill, 2004).

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