I’m still going through The American Challenge by Jean Jacque Servan-Schreiber, the 1968 book which opines on what Europe needs to do in order to not be economically dominated by America.  A consistent theme for Servan-Schreiber is that European governments should direct investment towards key industries which he thinks are important for the economy of the future.  In some cases he was incredibly prescient, he urges Europe to invest in semiconductors and computers years before they hit the mainstream.  In other cases he seems woefully misinformed, claiming that all future air travel will be supersonic and the Concorde will be surpassed by American supersonic planes.  And in some places he’s oddly silent, saying little to nothing about the future need for renewable energy and global reductions in carbon.

Now of course, he shouldn’t be dismissed for not correctly predicting the future, should he?  Who knew that supersonic flight would never take off?  And how accepted was the idea of global warming in 1968?  Yet this is exactly my problem with his economic model, he can’t predict the future, and no one can.  So his claim that the cure for Europe is to decide which industries are “the future” and invest heavily in those industries above all others doesn’t strike me as very sensible.  Instead of the government choosing which industries to invest in, why not create an economic system which allows good industries to start up and flourish?  A government is by its nature a centralized organization, and that centralization comes with both costs and benefits.  Notably, the people directing the government’s economic investments can’t always be experts in every industry they want to invest in, it’s just not possible for a few hundred government workers to include an expert in everything.  So what if you panel on government investment doesn’t include anyone familiar with computers?  Do you pass the idea up?  And what if your panel does include “experts” in cold fusion, do you redirect all efforts towards a futile project?

This to me isn’t an idle criticism, I don’t think a centralized entity can replace a decentralized market with the same kind of efficiency.  I’m not some harebrained anarcho-capitalism mind you, I’ll try to write later about where the government should get involved, but the maxim of “the government shouldn’t try to choose winners and losers in the market” is one I think has merit, the government just can’t be expected to have enough people and enough breadth to be an expert on all the decisions a market can make.

I think there’s more to this “can’t predict the future” argument too.  Servan-Schreiber has what I have called before a “Sid Meier’s Civilization” view of technological progress.  In essence, this viewpoint is that technology costs a certain amount of “something,” be in money or man-hours, and once you discover a technology it’s yours to use while your opponents don’t have it.  Technology thus progresses as a race where countries need to either catch up to the techs their opponents have (by spending money and man-hours) or find new techs their opponents don’t have (so they can have a decisive advantage).  The problem with this view is that there are many technological paths that prove to be a dead-end where you’d have been better off not spending your resources, and we don’t know which are dead-ends beforehand.  I said last week that the Concorde jet was one such dead-end, it costed billions of dollars with not a lot to show for it, and that was money that could have been invested in the NHS or other government services.  The idea was that if we just keep pouring money into Concorde, eventually we’ll create supersonic flight and it will be just as profitable and useful as we’ve always dreamed it would be. Or at worst we’ll learn a lot of lessons about what we need to do in order to create profitable supersonic flight and our next project will be the one that works.  That wasn’t the case, it turned out supersonic flight just couldn’t compete with moving a massive amount of people slightly more slowly.  Another dead end would be fusion power, an area where we still don’t know if we can do it with modern tech let alone tech from the 20th century.  Many many people predicted that fusion was The Future, and urged governments to invest in it.  But fusion wasn’t the future and it’s probably a good thing that a lot of money wasn’t spent on it.

You can’t predict the future, so a government can’t reasonably be expected to know which opportunities to invest in and which to avoid.  A market uses the wisdom of crowds to decide, and so can be relied on to provide at least some of the efficiencies a government board lacks.  It’s easy to look back 50 years and say “if only Europe had invested more in computers!  We could have had European versions of Apple, Google, Microsoft and Amazon!”  But it’s hard to sit where you are today and decide which of the many investment opportunities are “the one” to invest in.  For example, if Europe should have invested in computers in the 60s, what should it invest in right now?  What is the game-changing area, with returns equal to or greater than the computer industry of the 60s, that Europe should throw all its money in?  3D printing?  Genetic modification?  Robotics?  What is the “investment of the future?”  I’d hazard a guess that no one can agree, and so it’s probably better to rely on the wisdom of the crowds than the political decisions of a government.