As a result, much of the state aid to industry goes to larger companies with lots of employees: the bigger the better is almost the case, since more jobs can be ‘saved’ that way and the photo ops are better too. But the biggest companies are often also the most ‘successful’ in terms of output and turnover, and therefore the ones which could probably most easily obtain additional funding on commercial terms.
Governments are also afraid of being associated with ‘failure’ – here in Wales, for instance, the opposition parties (the Tories in particular are guilty –“With almost a company a week shedding jobs – after previously obtaining a business grant – Labour ministers have clear questions to answer”, although not exclusively) are quick enough to criticise the government when any company which has received government funding goes belly-up. This can lead to a degree of caution when providing aid to smaller, less well-established companies – which are often the ones which would struggle to obtain commercial finance.
But here’s the thing – anyone involved in start-ups and innovative products knows only too well that failure is frequently the result. Governments have to be willing to kiss an awful lot of frogs before they find a handsome prince, and oppositions will seek the headlines every time a frog fails to turn into a prince. Doing the investing at arm’s length, through an executive agency or a government-sponsored investment bank doesn’t get them off the hook either; the opposition parties will still blame the government of the day for exercising inadequate controls.
Is there a way out, which allows government to take more risks in the hope that the rewards of the few successes will more than make up for the failures? I suspect that the answer is “not without more mature politics”, where parties stop trying to pretend to be business-friendly and do more to understand the way investment in businesses actually works. That doesn’t mean not applying proper scrutiny to ensure that the decisions being taken are sensible and aligned with a transparent strategy, but it does mean not assuming that the strategy is failing just because many companies turn out to be frogs. It means judging governments not on the individual decisions being made, but on the overall success of the programme. I won’t hold my breath. Headlines are too easy to come by.