The speech by Vince Cable to the annual conference of the Liberal Democrats, the junior party in Britain’s coalition government, has attracted both attention and criticism. Isn’t it the job of the UK business secretary to promote business?
Up to a point. Mr Cable has a more subtle intelligence than his critics: some of them did not recognise that some of his negative remarks about business people were not expressions of his own view but quotations from Adam Smith. The sage of Kirkcaldy understood that trade was the source of the wealth of nations, but had little admiration for merchants. There is a difference between being pro-market and being pro-business. There is also a difference between being pro-business – in the sense of wanting industry to be healthy, profitable and innovative – and being supportive of the interests of particular companies.
Like Smith, Mr Cable is sensitive to these distinctions. But it is hard for a government business department to maintain them. If you seek advice on the problems faced by a particular industrial sector and what government can do to make the market work better, you go to the established market leaders in the industry. Where else could you go?
If you were a government department pondering the future of the computer industry in the 1970s, you would naturally have turned to IBM for thoughtful experts and presentations. You would not have consulted Bill Gates or Steve Jobs, who were barely out of school, or Michael Dell, who was barely in it. But IBM did not know the future of the industry. If it had known, it would have tried to prevent it. The interests of the industry and of consumers were not only different from those of the dominant business: they were diametrically opposed.
If a decade later you had wondered what government could do to promote Britain’s civil aviation industry, you would have asked British Airways – and perhaps its main rival, British Caledonian. The government tried to promote competition through liberal policies that particularly favoured Caledonian. All irrelevant, of course – Caledonian would disappear and the people who controlled the future were Michael O’Leary and Stelios Haji-Ioannou. But as business minister, you would have had no reason to give them the time of day.
Confusion between the interests of an industry and the interests of existing companies pervades last year’s Digital Britain policy document and the legislation that followed. An admirable desire to promote Britain’s creative industries is translated into a wish list for corporate lobbyists, hired by large companies and trade associations. Who else could they be hired by?
There are few certainties about how these creative industries will evolve. But one such is that if an industry is to advance, much – perhaps all – innovation will come from businesses that do not exist yet. Their founders may not even have imagined the activities that will one day make them celebrities.
So the proper interpretation of a business secretary’s task is the promotion of markets. His job is not to reward grandees with knighthoods and favours but to encourage a new generation of people such as Gates, Dell and Jobs, Stelios and O’Leary, none of whom he is likely to meet unless he stays in his job for 20 years. Promoting innovation means making it easy for new entrants to develop new products and business processes, not subsidising existing research and development.
In his speech, Mr Cable identified areas in which the interests of business people do not necessarily coincide with the interests of a dynamic market economy. These include executive remuneration, obsession with mergers and acquisitions, and the toxic combination of quarterly investment performance and quarterly corporate reporting. A business secretary should focus on issues such as these that enable business to improve how it serves the public. He should not act as a super lobbyist collating the suggestions of the chief executives and public relations consultants constantly banging on his door.