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Appraising Selective Financial Assistance to Industry: A Review of Institutions and Methodologies in the United Kingdom, Sweden and West Germany
Abstract
The ability to forecast and evaluate the impact of selective financial assistance is crucial to the formulation of effective policies of selective industrial intervention. A survey of institutions and methodology across the three countries reveals inadequacies in the quality and the extent of governments’ appraisal of industrial assistance measures. The principal problems of quantitative appraisal are identified and discussed and suggestions are made for improvements in the procedures and methods of appraisal, with the purpose of improving the formulation and the implementation of policies of selective industrial assistance.
... Cost Benefit Analysis (CBA) was not chosen as the preferred option given that it is more useful for project/investment appraisal as opposed to project evaluation. As Grant, 1983 outlined, the technique of CBA has been developed first and foremost for the appraisal of individual investment projects within the public sector. His main argument is that CBA is faced with significant difficulties when applied to the disbursement of industrial activity. ...
This article presents an innovative approach to estimating the additionality of financial assistance awarded to firms by an Irish regional development agency. The ‘self assessment approach' is used to derive estimates of deadweight and displacement for firms in the Shannon region of Ireland. Irish studies have derived high estimates of deadweight by international standards. In light of this, and the fact that successive Irish governments have placed emphasis on Foreign Direct Investment as an engine for growth, the primary objective here is to address the question of whether the type of firm ownership matters with respect to resulting deadweight and/or displacement estimates. The latter question is addressed using logistic regression analysis to test whether, ceteris paribus , firm ownership is a key-determining factor for estimates of deadweight and/or displacement. The results show that ownership does not matter in the case of deadweight, but regarding displacement there are differences between indigenous and foreign-owned firms albeit at very low levels. More precisely, as expected, indigenously owned firms are more likely to lead to higher estimates of displacement.
... However, it was noted above that one of the reasons evaluation fell out of favour in the late 1970s was that the level of sophistication and complexity developed by studies became incomprehensible and divorced from the policy process . Grant (1983) noted that it is difficult and possibly inappropriate to apply cost-benefit techniques in the evaluation of financial assistance to industry. As a result, few evaluations of this type have been attempted . ...
Focuses on a number of leading evaluation studies which have examined major economic policy initiatives such as the Urban Programme, Enterprise Zones and the Regional Enterprise Grant. Throughout this paper, and the majority of evaluation studies completed in this area, the emphasis is primarily on employment growth and job creation. The first part considers the background to the growth in evaluation studies, the methodological difficulties relating to economic evaluation and the merits of using job creation as a measure of success in evaluation studies. The second part consists of a review of nine major studies which have been completed in the last 8 yr. This review is used to highlight the evolution of evaluation methodologies. In addition, it provides an opportunity to consider the effectiveness of major economic development initiatives. Finally, the validity of comparison between evaluation studies using job creation as a measure of success is examined. -from Author
... (a) Sound calculations demand detailed data on agricultural inputs and outputs which are not generally available. (b) An assumption is made that a capital grant for improvement would have been paid, but there is no test of the economic or technical viability of the proposal (comparable to that for industrial developments--see Grant, 1983). (c) No allowance is made for risk involved in agricultural investment. ...
The Wildlife and Countryside Act 1981 established that Sites of Special Scientific Interest would be protected by management agreements between a landowner (or farmer) and the Nature Conservancy Council. The landowner receives a compensation payment to reflect the loss of profit forgone as a result of voluntarily abandoning a proposal for agricultural intensification in the interests of wildlife conservation. Such compensation has proved controversial in principle and practice. A detailed case study of a theoretical but realistic proposal to reclaim and drain Skipwith Common shows that the financial guidelines can be manipulated to increase or decrease compensation by varying the estimates of productivity, capital costs, interest rates and borrowing periods. If agricultural use of a site is abandoned, as in this case study, management by a conservation body may be necessary which imposes further costs additional to any compensation payable.
... Although, as a technique, it definitely has its merits (for example, one of its most positive features is its grounding in welfare economics), (1) it is questionable whether, given that the focus here is on the evaluation of industrial policy (as opposed to appraisal), cost^benefit analysis is the most suitable technique. Grant (1983) has argued that cost^benefit analysis (the principle technique for appraising public expenditure decisions) is confronted with serious problems when applied to the disbursement of industrial activity. These problems relate to the fact that cost^benefit analysis is based upon static, partial equilibrium welfare analysis, whereas selective industrial intervention occurs in response to dynamic problems. ...
The evaluation of industrial policy interventions has attracted increasing policy and academic attention in recent years. Despite the widespread consensus regarding the need for evaluation, the issue of how to evaluate, and the associated methodological considerations, continue to be issues of considerable debate. The authors develop an approach to estimate the net additionality of financial assistance from Enterprise Ireland to indigenously owned firms in Ireland for the period 2000 to 2002. With a sample of Enterprise Ireland assisted firms, an innovative, self-assessment, in-depth, face-to-face, interview methodology was adopted. The authors also explore a way of incorporating the indirect benefits of assistance into derived deadweight estimates -- an issue which is seldom discussed in the context of deadweight estimates. They conclude by reflecting on the key methodological lessons learned from the evaluation process, and highlight some pertinent evaluation issues which should form the focus of much future discussion in this field of research.
... 1. It is difficult to find hard evidence to support this contention, but Grant (1983) detects an early shift to selective assistance in several European countries. Recent surveys of state aids, carried out by the OECD (2001) and by the European Union (CEC, 2001), ignore the method of aid disbursement, since the interest is in competition policy, so that they collect information on the purpose and form of the subsidies (eg. ...
The paper analyses the existence and efficiency of discretionary industrial assistance schemes under asymmetric information between an uninformed government and a uniform distribution of firms with differing productivities. Discretionary assistance allows the government to scrutinise projects in an effort to learn the type to reduce the 'informational rents' of automatic assistance, where firms take up any contract on offer. Two discretionary grant schemes are analysed, which either exclude 'non-additional' projects or reduce the assistance to the minimum necessary for a project to proceed. The paper finds the conditions under which discretionary assistance exists and is more efficient than automatic assistance.
As intense international competition along with rapidly changing product markets and technology have come to dominate the economic environment for firms, industries, and nations, government pursuit of a coordinated, proactive industrial policy has increasingly been viewed as a key to national economic success. Owing largely to its utility in generating consensus-formation, corporatist concertation has been suggested by a number of commentators as an ideal mechanism for implementing industrial policies. However, the legitimacy of corporatism as a mode of interest intermediation rests on the capacity of interest group representatives to win benefits for all their members, while industrial policy decisions are by nature selective or discriminatory. This feature of industrial policy casts doubts upon its compatibility with corporatism. The postwar policy-making experiences of Japan, Sweden, and West Germany support this skepticism.
The Labour Government of 1974-79 formulated the Industrial Strategy to transform Britain's industrial performance. Sector working parties were established to assist companies to become more efficient. The paper examines the policy response of the Tyre Industry Sector Working Party (SWP) to overcapacity and declining competitiveness in the British tyre industry. Policy solutions focused on implementing 'efficiency dialogues' to increase output and efficiency underpinned by job security. Discussions on strategic issues were constrained by the oligopolistic structure of the industry. This restricted the work of the SWP to communication and employee involvement. It confirms the difficulty of reforming the existing institutional arrangements to legitimise company-level interventions.
Project appraisal methods are used to evaluate capital-subsidies to industry. The estimation of employment as a consequence of this aid, compared to that which would have resulted without the policy, is discussed, as well as the secondary effects elsewhere in the labor market. Investment projects are evaluated in private financial terms, public exchequer costs and returns, and social costs benefit analysis. Only limited inference can be drawn from ex-post evaluations as to the appropriateness of exante decisions. Ex-ante appraisals of selective financial assistance to firms, which have been undertaken, rarely seem to be adequate assessments.
Although nonsurvey input - output (I - O) models have been used to estimate the employment impact of particular industrial aid programmes and policies in terms of their multiplier effects, their accuracy is questionable. Nonsurvey I - O models are estimated for Wales and Staffordshire and compared with previously published surveyed I - O tables for these areas. Disaggregating national I - O tables by location quotients produced biased multiplier estimates when compared with survey results. Incorporating some local information and using constrained (for example, RAS) nonsurvey techniques improved the accuracy and correlation between survey and nonsurvey multiplier estimates. An appreciation of the bias involved in different nonsurvey techniques should allow planners to evaluate the impact of economic events more accurately.
At a time when protectionist tendencies are on the upswing world wide once again, it is important to gain evidence on the cause of such movements. Proper diagnosis of the determinants of protection may provide a more promising avenue to avoiding discriminatory economic policies than reiteration of the welfare losses of protection has been able to do. For this purpose Germany constitutes a potentially fruitful case study. First, historically, economic and political regimes have varied widely. Second, institutional conditions at the present are unique enough to warrant and require a closer look at the mechanisms which provide protection. Third, Germany constitutes a large and still relatively liberal market for the products of the less developed and newly industrialized countries. Hence, trade policy developments in Germany are likely to lead to serious repercussions in those countries. The general framework chosen for analysis of German protective mechanisms posits the existence of a political market for protection, and follows from the work of Downs (1957), Buchanan and Tullock (1962), and Ohlson (1965), as well as the application of this principle to international trade and protection issues by a number of authors. Very briefly, the demand for protection on the part of producing units is derived from firms' opportunity costs in eliciting protection; and the supply of protection is derived from governments' opportunity cost in granting protection. In applying this guiding hypothesis to Germany, explanatory variables are sought which messure or proxy those opportunity costs, both on average over time, and across industries at a point in time. The specific hypotheses tested must in part be derived from institutional features peculiar to Germany. In the next section of this paper, this framework is applied historically to the period 1880 - 1978, and in the section thereafter, it is applied to explain the structure of protection in manufacturing industries in 1974. Developments since then are briefly discussed.
Summary Increasing problems of EEC farm price policy in balancing allocative and distributive objectives have evoked much criticism
and several suggestions for alternative policies. In this paper a proposal gradually to complement price policy by direct
income payments to farmers is made. Methodological problems of estimating the economic effects of such a policy shift are
discussed. Results of an empirical study for German agriculture are presented. Political problems of implementing this policy
are considered. The paper is based on a study prepared for the German Ministry for Agriculture.
From the methodological point of view the emphasis is on specific problems of applying cost-benefit-methods to farm price
policy. The need for multidimensional objective functions, definition of a reference system, dynamic analysis and consideration
of market distortions are stressed. The empirical study shows positive potential benefits of a reduction in price support
for a fairly wide range of circumstances.
The mixed economy, for purposes of this paper, is taken to encompass, in varying form and degree, the economies of all non-communist societies. For purposes of comparison and contrast attention is here centred for the most part upon the mixed economies of the United Kingdom and the United States of America. In certain respects, this paper departs sharply from approaches which still dominate UK writings in the field of industrial economics, arguably with significant policy implications. Specifically, in Section A account is taken of recent developments in public choice analysis in analysing the actual policy interventions of governments and their bureaucracies, of recent developments in the economics of rent-seeking in analysing the actual responses of firms to regulatory initiatives, and of recent developments in the theory of property rights in analysing the predictable economic performance of corporate enterprise. In Section B, the paper explores the implications for industrial policy in its various aspects which are influenced by these perspectives and which render the development of an acceptable industrial policy ever more complex in the mixed economies. Some relevant proposals for long-term industrial policy are then outlined.
The Society for Long Range Planning is one of six European member societies of EPLAF, the European Planning Federation. The recent discussions in Stockholm arranged by SORA, the Swedish Operations Research Association, proved to be of great interest when set against the European scene, and the U.K. delegates were able to contribute in full measure to the discussions which interspersed the formal presentations given by speakers representing Swedish organizations and closely involved in various aspects of industrial policy making.
This paper describes the latest version (MDM4) of a large-scale model of the UK economy that has been developed for economic policy analysis by the Cambridge Growth Project. The model is both dynamic and multisectoral so that it can be used to investigate the effects of policies on individual sectors of the economy as they vary through time. Just as importantly, the model can simulate the effects of changes at a sector level on the whole economy and its implications for policy, for example a change in the price of oil. The five sections of this paper could be regarded as five different ways of describing the model: the first section is a verbal description; the second section gives the condensed form of the model, which is a numerical summary of its main equations; the third section presents some properties of the model of interest to the economist; the fourth section shows the effects of economic policies as simulated by the model; and the final section illustrates the use of the model for policy analysis.
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