For anyone with a fleeting memory of past disappointments in British industrial policy - the EE-AEI merger to create GEC as a national champion in the electrical industry; the TSR2, Blue Streak and Concorde projects that were either cancelled or ran into large losses; the bail-out of Chrysler's plant at Linwood and many others that merely postponed the inevitable - these are worrying phrases indeed.
Mr Heseltine is one of the world's natural activists. He cannot sit still. He is a successful businessman with a sizeable share in the private Haymarket publishing group that owns titles such as Management Today and Campaign, and he evidently believes that government can and should behave rather like business, promulgating solutions to identifiable problems.
Moreover, his views have changed not one jot since the book that he wrote during his post-Westland wilderness years, and which was a rather more interventionist tract than anything the Labour front bench would dare to propose. 'Governments,' Mr Heseltine told the committee on Thursday, 'intervene all the time; the only question is what form it takes.'
Quite so. Markets fail. There is no such thing as a perfectly free market untrammelled by government intervention, because markets need property rights, anti-monopoly rules and contract law to work. But Mr Heseltine means rather more than minimalist government action to set the framework for markets.
He may even mean rather more than intervention to improve the climate within which businesses work - the education and training of the labour force, the ease of access to risk capital, and the general encouragement of research and development.
The phrase 'backing winners' is unhappily reminiscent of the old slogan that the Government ought to pick winners. In other words, the Government's role should not merely be to facilitate businesses' adaptability to changes in the market place, but it should actually anticipate and replace market decisions about products and processes.
The Government, in short, knows best. This is where the real danger lies, as the raft of economic literature about government failures makes abundantly clear.
The first potential source of government failure lies in the conflict of interest between the public good in which all governments claim to act, and the private objectives that all politicians necessarily pursue. It is not always in the public interest to secure the re-election of an incumbent government, yet incumbent governments invariably use their power and patronage to that end.
The Labour government of 1964-70 authorised the Humber Bridge in the hope of holding on to a nearby constituency in a by-election. The US Congress elected to put two of the 12 federal reserve banks within hailing distance of each other in Kansas City and St Louis, simply because the membership of the house banking committee was skewed towards the Mid-West.
The latest scandal over British aid for over-investment in a Malaysian hydro-electric dam, largely for the benefit of UK contractors, makes the same point.
Even if we were able to devise a political system in which marginal constituencies counted for no more than safe ones, where there was no association between politically decided honours and corporate contributions to the Conservative party, and where politicians could rise above any plausible accusation of venality, there would still be a hurdle for an interventionist industrial policy to leap: the considerable question of competence.
Those who advocate 'picking winners' both here and in the United States look fondly at the supposed exemplars of Japan and France. In both cases, the historical experience is far from favourable to the case for intervention. Whatever the erstwhile influence of Tokyo's MITI, most observers agree it is waning as Japanese businesses increasingly find themselves at the frontier of new products and processes and hence unable to catch up with an existing overseas model.
Even in Japan's copycat days, help for basic product research and development was usually shared between several competitors, which then fought fiercely for domestic and overseas markets. So the government did not try to pick winners. The sharp changes in Japanese market shares in cars or electronics show that these are highly competitive markets far from being orchestrated by an industry ministry bureaucrat.
The experience of French interventionism is even less helpful to the case, as a study by the Organisation for Economic Co-operation and Development made clear some years ago (1). Its special survey of French industrial policy said '. . . the assistance and protection extended to industry with the object of improving its export performance were in some respects ineffective and sometimes perverse in that they delayed necessary adjustments'.
The report cited electrical and electronic equipment as an industry that had received sustained support without any apparent improvement in its world standing, and concluded: 'The relative stability of industrial comparative advantages, despite the variety of industrial policy stances adopted by different countries, shows that ultimately governments have little scope for altering them.'
Mr Heseltine can, of course, point to the considerable success of the Welsh economy during the long tenure of the interventionist Secretary of State for the principality, Peter Walker, as support for his case. Wales was certainly a Thatcher-free zone for most of the Eighties, and it also steadily improved its industrial standing relative to the rest of the United Kingdom, as the graphs taken from a recent Welsh CBI paper show (2).
Since emerging from the 1979- 81 recession, Welsh manufacturing output has consistently grown at a more rapid rate than elsewhere, taking the principality's share from 3.8 per cent of the UK total in 1980 to 5.1 per cent in 1990. Manufacturing productivity leapt from 92 per cent of the UK average in 1980 to 106 per cent by 1990, sharply improving Wales's manufacturing competitiveness.
The CBI paper makes clear, though, that the real secret of Wales's success was the high level of manufacturing investment over the period, which made labour productivity gains much easier to achieve. In 1981, net capital spending in Wales was 6.8 per cent of the UK total, already a high share for a region with just 4 per cent of the UK manufacturing workforce. But by 1991 that share had risen to 7.7 per cent of the UK total. Throughout the Eighties, Welsh investment per manufacturing employee was two thirds higher than in the UK as a whole.
This investment did not come about because Mr Walker directed it, but because he succeeded, with the help of assisted area status, in selling the principality to overseas investors such as Sony, Ford and Bosch. The Welsh economy floated to success on a tide of inward direct investment, rather as the Flemish part of Belgium did in the Fifties and Sixties.
Encouraging inward investment is, of course, a thoroughly legitimate aspect of industrial policy, but it does not involve picking winners. Sony and Bosch pick them for you.
The most successful styles of industrial policy are likely to be those that foster a helpful climate for businesses rather than those that try to make specific decisions about risk and investment on behalf of businesses.
Markets have their limits, but governments do too.
(1) France, OECD economic surveys, February 1989. (2) Stephen Hill and Julie Keegan: Made in Wales - an analysis of Welsh manufacturing performance, CBI Cymru, Cardiff, 1993, pounds 20.
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