Picking Winners is a Losing Game

Posted on March 21, 2005
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When government picks winners and losers, it's often a losing proposition for everyone. 

Take the excitement over biotechnology exemplified by Phoenix mayor Phil Gordon's recent State of the City address.

Only a curmudgeon can't get excited about the mayor's vision of an "Opportunity Corridor" in downtown Phoenix, where new businesses bearing such names as "Surgical Robotics" and "Molecular Diagnostics" could spring up.

However, betting that a particular industry, like biotech, will be the "economic engine" for Phoenix is risky business.

First, dozens of other cities are also betting on biotech, making competition to lure that industry to Phoenix particularly costly. Since city officials aren't actually ponying up their money for the enterprise, they don't directly feel the cost. But taxpayers sure do, in the form of targeted tax breaks, subsidies, and city-built facilities and infrastructure.

Second, as University of Toronto professor of geography Pierre Desrochers noted at a Goldwater Institute conference in February, politicians, no matter how well-meaning, are rarely good at actually picking a winning industry. Technology industries in Silicon Valley, northern Virginia, and Boston largely arose through happenstance, as particular events, such as layoffs of highly-skilled workers in one industry, caused new technology entrepreneurs to set up shop.

Given how difficult economic forecasting is for the most experienced venture capitalists, it's little wonder that politicians fare so badly. The city would be better served by avoiding the messy, complicated, and unfair game of picking winners and losers, in favor of an approach that rewards entrepreneurs through a lower taxes and fewer regulations.

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