“Teaching an elephant to dance”

Israelis, usually free-wheeling spirits, seem to be addicted to government intervention. Even after many costly failures of government programs, they still insist that government can become an efficient instrument of social—and hear this—economic advance.

This is a dangerous conceit. Those who advocate greater public-sector intervention rationalize it on the basis of a utopian vision of its future benefits. They ignore, however, the very great damage already caused by the bureaucratic stranglehold that increased public sector activity already inflicts, the kind of damage that has undermined several mega-government attempts to “develop” the Negev and Galilee at the cost of many billions. For a putative future “vision” they are ready to sacrifice the present.

An impressive conference organized earlier this month by the The Marker business publication and the Reut Institute demonstrated this unfortunate proclivity. Reut’s young and intelligent academic activists are determined to teach this country how to leapfrog into a position of one of the 15 most developed economies by building an elaborate system of public-sector bodies that will “direct” economic development, especially in the periphery.

They believe, with no reasoning offered to support this conviction, that “the public sector creates the infrastructure [whatever this means] for leapfrog development,” while “market forces cannot create [it] on their own, because without government involvement and initiative the private sector will refrain from taking the huge risks of the fast development…”

THOUGH REPLETE with modern sounding catchphrases, the Reut people seem to be oblivious to modern economic developments. Otherwise how could they miss the stupendous development of the Internet, only one prominent feature of a modern economy that debunks their assertion that the private sector is too risk averse to undertake large-scale development.

Reut’s best and brightest entertain the ambition to make it “a primary resource for strategic support for all agencies of the government of Israel.”

They could do it more effectively if they showed a better understanding of economics generally, and of what ails the economy in particular.

It is audacious to believe that without much experience a bright mind can re-engineer an economy without first understanding what went wrong with it. The Reut people do not seem to realize, apparently, that it is excessive public-sector dominance that has been strangling development. Otherwise how could they suggest that this country make its economy grow faster through greater public sector involvement?

It may be possible, of course, to teach governments to make long-term plans and execute them efficiently, as it may be possible to teach an elephant to dance. The odds, however, are against it. It is hard to imagine why governments, famous for their ineptness, are suddenly going to become efficient; it is uncertain that trying to make them so is worth the time and money it will require.

Reut believes it could make government efficient by better coordinating its many activities (many of which are contradictory) through a “central brain.”

Knowing how easy it is to coordinate between even two ministries, Reut’s “central brain” sounds like another conceit that will prove its impossibility at a heavy cost, as central planning has since Stalin’s days.

YOU WOULD think that the repeated failures of most macro planning would teach us by now that they are a manifestation of problems innate in all political institutions, like governments, that are generally hostile to economic calculation. To be elected, politicians must satisfy the demands of vested interests and pressure groups, so they and their institutions cannot be expected to care about the efficient allocation of resources. It is irrational to expect them to instigate a leapfrog in economic development that requires cost effectiveness.

The “central brain” inventors must have recognized this difficulty, so they suggest “the promotion and assimilation of institutions and processes that support quick social and economic change.”

But as is often their wont, the Reut people fail to explain who will promote such institutions, by what means and at what cost.

Institution building is a very complex and lengthy process, much of it spontaneous and unpredictable. This is why in real life it is economic development that catalyzes the formation of institutions in a bottom-up process, as is happening now in China and India, and as has happened in Europe since the industrial revolution. All we can say about this spontaneous process is that it works best in an environment of freedom that allows individuals to fulfill their creative potential, and not in planned economies that stifle individual initiative with top to bottom direction, as Reut recommends.

Reut’s is a view common in academia. Influenced by Marxist prejudices, intellectuals, who protest that they love freedom, always look for excuses to deny individuals economic freedom. Instead they recommend that economic activity be “encouraged”, “shaped”, “directed” from above by an “elite of people in positions of authority, influence and leadership such as political leaders, professionals, academicians, heads of NGOs, philanthropists and businessmen” (notice who ends the list) who presumably, like Reut, “have expertise in identifying strategic opportunities or surprises” (whatever that means).

It is not clear how such a know-it-all “elite” can actually generate growth. It is known that attempting to “direct” growth always leads to enormous waste of time and resources. This is a pity, since even after the recent gas discoveries the country cannot afford to waste resources and hope its economy will flourish.