From What’s wrong with Economics? (Robert Skidelsky, 2020) p36
The sweeping denunciation of government failure pays no attention to the character of governance, or the distribution of power It assumes that all states are inherently incompetent if not also corrupt and predatory. But performance of the pre modern state is no guide to what a modern state might achieve. The neo Classical parody ignores the fact that governments, dedicated to full employment or growth, have often picked winners. Consider Toyota, the Japanese automobile manufacturer. Starting as a tiny textile manufacturer it was propelled to world rank by acts of government: tariffs, exclusion of competitors, and subsidy. In Ha Joon Chang’s words: “had the Japanese government followed the free trade economists back in the early 1960s, there would have been no Lexus. Toyota today would, at best, be a junior partner to some western car manufacturer, or worse, have been wiped out. The same would have been true of the entire Japanese economy.’”
The real story behind Silicon Valley and other dynamic centres of innovation is not explained by the state getting out of the way, so that risk-taking venture capitalists and garage investors could do their thing. From the internet to nanotechnology, most of the fundamental technological advances of the last half century – on both basic research and downstream commercialisation – were funded by government agencies, with private businesses moving into the game only once the returns were in clear sight. Even military spending which is, almost by definition wasteful, can have growth-creating spinoffs.
This profound disagreement about the role of the state in economic development has run through economics from the start. In every epoch you find a debate between those (the majority of economists) who believe laissez-faire desirable, with ‘every departure from it, unless required by a great good, a certain evil’ and those who believe that economic development needs the active support, and often the leadership of the state.
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