My Biggest Mistake

David Stout, 61, is director of the Centre for Business Strategy at London Business School. He joined the centre - which assesses industry's performance - last year after having been chief economist with Unilever for 10 years. Before that, he had served as director of the National Economic Development Office (Nedo). During the the previous 17 years, as an economics fellow of University College, Oxford, he had advised several overseas governments on industrial, fiscal and incomes policies. He came to Oxford in 1954 as a Rhodes scholar from Australia.

MY BIGGEST mistake was imagining in all innocence that if I became an economist, I might help put the world to rights.

Although my first love (and degree) was English literature, I didn't want to spend my life talking about other peoples' books. What I failed to realise is that economists spend most of their time talking about other peoples' ideas.

Advising policymakers in government and industry has been fun, but looking back I can't say I've had much success in making the world a better place. Another of my mistakes was ever to suppose that an objective economic argument, by itself, could carry the day.

For instance, in 1972, during the tripartite voluntary incomes policy, in discussions under the aegis of Nedo, I put the case for wages indexation. Done in the right way, it could have taken the steam out of wage-push inflation. A year later, after the Heath government wage freeze, threshold agreements were introduced. But it was done when prices were rising for other reasons, such as rising import prices. So the agreements tended to boost the wage-price spiral instead of breaking it.

Then when the ill-fated so-called industrial strategy of the Labour government was launched in 1976, little of the efforts of the economists working with me at Nedo had a measurable effect on UK industrial performance. We laboured and brought forth mice that ministers tried to make roar.

Not that there was anything wrong with bottom-up planning. But a half-hearted, unmonitored and toothless exercise with emphasis on short-term results from which political capital could be made gave long-term planning a bad name, and an excuse to say later: 'We tried it and it didn't work.'

All economic advice is fallible, and most policy actions are compromises. But if you don't keep at it, other worse advice will be taken.

Not that I regret the 1976-79 Industrial Strategy experience. It encouraged the flow of information from successful companies to those less successful and from buyers to would-be suppliers. And I learned a lot about the reasons for poor industrial performance and the political process.

After 1979, the discourse changed. Industrial policy was not discussable. Government policy was 'no policy' though more recently industrial policy has re-surfaced as the pervasiveness of market failures has been recognised.

What I have also learned is that there is no relation between the necessary skills of persuasion and the quality of the advice that is offered or given. But one has to dress up things in the political sense, so that it is in the politician's interest to adopt the course of action being advised.

(Photograph omitted)