Energy targets, biscuits and Mao Zedong

When Mao Zedong set national targets for steel production during the Great Leap Forward in late 1950s China, the end result was a massive misallocation of labour and resources ultimately leading to inefficient, poor quality steel production.

It is surprising then that the recent report from the Scottish Parliament Economy, Energy and Tourism Committee into Scotland's renewable energy targets did not ask the simple question - why is a state mandated target for the equivalent of 100% of Scotland's electrical energy production to be generated from renewable resources by 2020 actually necessary?

Clearly, with sufficient production subsidy, capital will be attracted to invest and the target will be met on schedule. But therein lies the problem. Capital from banks or elsewhere needs to be repaid, and with a suitable return on investment. What will no doubt be welcome investment for the renewable energy industry will in the end be a cost to be borne by consumers and other industries. The key question is not whether arbitrary targets can be met, but if the associated investment is productive.

By analogy, if the state mandated that the equivalent of 100% of Scotland's biscuit production were to be in the form of caramel wafers, and a subsidy was paid equal to the price of each biscuit itself, Tunnock's would become a darling of goverment by creating plentiful employment and Uddingston would become a boom town. But it should be clear that such a boom would of course be an illusion, and would simply be due to the transfer of wealth from one sector of the economy to another.

Genuine economic growth on the other hand is not a zero sum game. It is the process through which innovation is used to improve resource efficiency and labour productivity, thus reducing the cost of delivering socially progressive access to goods and services. And if carbon is the issue, a carbon tax is likely to be far more efficient. Rather than government attempting to pick winners, a flat carbon tax takes decisions out of the hands of the few and puts investment decisions into the hands of the many economists, engineers and project planners in the energy sector.

State mandated production targets, and the economic distortions they cause, should be consigned to 1950s China. They should have no place in a dynamic 21st century Scotland.