The Pretence of Knowledge

This article was written in response to the recently discussed Sector Strategy for Attracting Investments in Bulgaria. The title was taken from the Nobel lecture “The Pretence of Knowledge” by Friedrich Hayek in 1974.

What kind of investment do we want? There are countless opinions on this matter. Some want agricultural investment, others want trade investment, others want to see investment in green technologies, etc. There are plenty of different opinions, but is the question itself correctly set? What does it mean to “want” any specific investment? Actually, who are we? I may want a lot of things, but what gives me the right to present it as some kind of a collective goal? Behind each investment there is someone who gives money and takes the risk and the collective (that’s us) can either enjoy it or feel bad about it, but that doesn’t give us any power over this investment.

Every day in every corner of the country people invest – some invest a lot, others invest a little, but they all fuel the economy of the country. These investments rarely (if ever) are subject of pompous comments like: „this particular investment doesn’t provide enough added value“. Why don’t the experts in question go and convey this personally to the investors, explaining how their investment doesn’t fit in their reverie of a high-tech green economy? As we are a democratic country, it’s unlikely they will actually forbid them from developing their business, but there’s always a place for an “informational” campaign – so that it is clear who generates value and who doesn’t. Here’s an example of how each bakery may be obliged to inform its clients: „Your pie is of low added value, for which we apologize … Coming soon: a high-tech, green and intelligent pie, which will establish Bulgaria as a leader in innovation …”

You may now accuse me of blathering, since this strategy relates to large “strategic” investments from abroad, rather than to some bakery. In fact, there is no difference, the principle is the same – investment is made with the goal of making profit, thus creating jobs, etc. The fact that a given investment is large doesn’t automatically make it the prerogative of the state – to negotiate, to choose etc. Who gave the state the power to determine who and where to invest anyway?

What is going on now is quite simple – a group of people dressed in some sort of power, want to impose their views on everyone else. They are obsessed with innovation, green “clean” technology, wellness tourism, etc. According to them, this should be encouraged – through advertising, marketing, financial and legal incentives. Note that improving the business environment is not mentioned, as this is designed to promote specific investments. Here’s what “promoting specific investment” means in this case:

• “Subsidies for both labor costs and training” – Bulgarian taxpayers give money to some companies;
• “Subsidies for research and development” – Again, the taxpayer give money to some companies;
• “Direct negotiation of incentives (rules) for major investments” – Government deals explicitly with large companies (corruption?).

Basically, this is the idea – stating which investments are to our liking and pouring resources into certain companies. For larger investments (over 100 million euro) we develop specific rules – the state gets to negotiate with large investors and thus “stimulate” them. In other words – as he is so big, normal rules don’t apply. Let the one that owns the bakery help himself, we’ll create a special environment for the big ones. Along with all the questions of principle, we are facing an imminent and serious threat of corruption – just imagine the bureaucrat who negotiates “incentives” for a specific investment over 100 million euro.

The more investment the country attracts, the better. They do not hinder each other – investment in real estate does not mean there will be no investment in electronics. If the issue is the administrative obstacles facing investors – it’s all good, but drawing centralized plans for an innovative Bulgaria is nonsense. You can’t achieve this through plans developed in the Ministry of Economy. We can waste all the money we want trying to achieve this reverie, just to come to the inevitable – the bureaucrats got the plan wrong. No bureaucrat can plan this process, because the information is in each one of us – that’s why the market can manage the resources and the state can’t. Market decisions are taken by the majority and so any preference and/or piece of information is relevant, while the state makes its centralized decisions based on insufficient information. To claim otherwise is just “pretence of knowledge”.