How Well Can Politicians Pick the Winners?

Not very well. Here is yet another example, this time from the sugar industry in Australia [h/t to BrianF].

The sugar cane farmers lined up to receive $444m. in aid, but they didn't use it to diversify, as the politicians thought they should.

[Minister-in-Charge] Mrs Kelly said that a central element of the package - $75 million for regional and community projects aimed at getting the industry to diversify into new products such as ethanol - had been misused.

"I'm very disappointed that they've lined up for taxpayers' dollars for what amounts to upgrading their machinery when that is their shareholders' responsibility," she said.

"There have been three industry assistance packages since 1998. I would have expected that in six years, industry leaders would have come up with products that customers are willing to pay for."

This attack sounds so promising. A politician who doesn't like putting money in the pockets of shareholders and is upset with the recipients of gubmnt hand-outs. But then we learn the reason for her scorn:

Mr Ballantyne said ..."Her problem is that she thinks the only hope for the industry is ethanol, but that won't take hold until her Government mandates its use in fuel."

Summary: The gubmnt minister wants the country to switch to ethanol. She offers subsidies to sugar producers to induce them to alter their efforts and products and produce ethanol. The producers see no market for ethanol, so they use the money to upgrade their current production facilities. It all sounds like the usual round-about obfuscating efforts of politicians, who find it desirable to grant subsidies but not to raise specific taxes to alter incentives.

If gubmnts really want users to switch to ethanol (and I am not saying they should!), they should tax the use of petroleum-based fuels; then increasing numbers of consumers would gladly shift a portion of their purchases toward ethanol.