Wednesday, March 10, 2010

Thinking Back to Think Big

There is often concern, for good reason, when governments get involved with the business of business. Most people agree that governments aren't usually very good at 'picking winners and losers'. Nevertheless sometimes Keynesian economics (stimulating an economy through government spending) does work. Sometimes, however, it does not work.

It is worth considering, though (and with the benefit of hindsight), why a decision to fly to the moon creates a great deal of technological innovation, with associated economic benefits, and why other schemes, such as New Zealand's 'Think Big', don't.

It would seem the answer is relatively obvious. An activity like flying to the moon was only possible because new technology had to be developed. Existing technology just couldn't do it. Despite huge costs borne by the taxpayer technology was developed that only American manufacturers had. This translates into industry leading and that is valuable.

Think Big, however, made a relatively typical mistake. This 'strategy' was to pick up on well established technology that isn't particularly prevelant and build capacity. This seems smart enough but the problem is, unless you have picked up on a technology where you have some form of natural or other strategic advantage then you are probably doing exactly the same thing as any number of other countries and developers. As a result you may have some significant capacity in valuable production but worldwide demand gets swamped by a now very large worldwide supply. If you are lucky you may have a majority of new products that may at least have a small margin but some production will go the way of many new tech bubbles and fall over. The total new economic activity will be very small and may even be negative of the costs of implementation.

There really is no such thing as a conservative transformational strategy. You either 'stick to your knitting' or you be bold. If you 'stick to the knitting' then you may have to accept very limited economic growth, which isn't necessarily a problem if you are careful not to increase your consumption costs. If you want to consume more then you need to grow, if this means transforming your economy then this means being bold. This is risky and it isn't necessarily pleasant but it is the only way that a transformational strategy will be worth pursuing (except for the other 'strategic' approach - blind luck).

A conservative transformational strategy will, almost certainly, be relatively low risk. It will also be very low return, in fact it may never pay back. Unless you're using an aspirational goal to drive world leading technology development then anything you pick that is leading now will be following tomorrow. Think Big was Think Back.

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