Thursday 25 August 2016

How much risk should we take?

I can’t help feeling that the coverage of the decision by former minister Edwina Hart to provide support for Kancoat has focussed largely on the wrong issue.  It is, I suppose, typical of the current state of political debate that it concentrates on the personal rather than on the substance, but the complaints about a potential ‘conflict of interest’ seem to me to be petty at best.  There are many constituencies close together in the valleys of the south; if the fact that a factory in one is within the travel to work distance of residents in another is considered sufficient to generate a conflict of interest for the AM, then it will become difficult for ministers ever to take such decisions.
I thought that the real issue here was, or should have been, about the ability of ministers to pick winners when it comes to supporting businesses – or even whether that is what we really want them to do.  It seems that the minister was advised that the business plan was ‘weak’; well, yes, but is that a reason for not providing support?  In the first place, if the business plan had been strong, the company could probably have obtained the necessary finance commercially without government support; and in the second, the nature of new businesses is that some – actually, a large proportion – will inevitably fail.  And many business plans are closer to being works of fiction than most people might suppose; although maybe a poor ability to produce fiction might suggest that a particular scheme is doomed for other reasons.
If the people starting the businesses, and seeking the finance, don’t know in advance which will succeed and which will fail, then on what basis do we ever expect civil servants, let alone ministers, to be able to make a better judgement?  It’s completely outside the bounds of their experience or knowledge.  Even some of the ‘entrepreneurs’ who are generally praised so highly get it wrong much of the time; some of the most apparently successful entrepreneurs are actually serial failures if one looks at their overall history rather than picking out the occasional outstanding success.
Empirical evidence suggests that a lot of frogs need to be kissed before one of them turns into a prince, and the fact that the money comes from government (and thus from the taxpayer) doesn’t change that.  If we want governments to be involved in the business of supporting businesses, then we have to accept that some of their decisions will, with the benefit of hindsight, turn out to be mistakes; what matters is the overall value for money of the whole portfolio.  The real question should have been about how decisions are taken, and how many failures we should accept as part of the price of taking a risk. 
Politicians seeking to ‘hold the government to account’ should be looking more closely at that aspect than criticising ministers (or ex-ministers) for individual failures.  The problem is that it doesn’t generate the same easy headlines.

1 comment:

Peter D Cox said...

Just catching up and wondering how I do without my dose of Borthlas?

As to the question, I can only answer from experience: I worked for a v large company in hospitality (pubs and stuff) and much money was spent trying out new ideas - perhaps a microbrewery here, an 'ale house' (yesI!) there. I was in a large part responsible for the creative decisions behind these ideas and translating them into something people liked enough to spend lots of money in. We did about a dozen such projects a year with spend from low to high hundred of thousands of pounds.
One such niche project was lovingly crafted for the Kings Road London - a gold-mine site in most situations. Our project opened with much fanfare and back-slapping: it did so badly in its first week it was closed after ten days.
The week of the closure I was due for a regular check-in with the group md - an a consultant my fate hung by such threads as the last job,
I remember his reaction vividly:
- we run the company's innovation arm and I expect about one project every two years to be a blinder, if we get a couple of exceptional ones a year too that's great and you've already notched those up. So mostly eight out of ten will be average or failures. Just remember that when we create a blinder it will make millions for a number of years and greatly impact on the whole business.
He the asked what lessons, if any, we had learnt from the failure.

Now that's how to run an investment arm in business, or government.