This Course is an elective in the Heriot-Watt Distance Learning MBA Series. It is, at the same time, an independent contribution to the study of government and industry, and can therefore be used as a text for other courses covering similar ground. To obtain the most out of its contents, the reader should take note of the following points.
The Modules aim to inform the reader about how to analyse the economic relationships between government and industry in order that the impact of policies which require government to influence company decisions is clearly understood. (Many texts on industry and government adopt a different approach. They outline what are considered to be ‘good’ industrial policies and how governments should act in order to promote such policies. This text lectures neither governments nor companies about how they ought to act: it studies systematically how they actually behave.)
The method used is to identify the particular model which helps us to analyse the ‘interface’ between government and industry in a variety of different situations. Governments tax, subsidise and regulate the activities of companies. Governments produce goods and services themselves. The common characteristics of all the models are: (a) governments strike agreements with companies with a view to persuading or compelling them to follow courses of action approved by government. In legal terminology, the government is the ‘principal’ who specifies the actions that it wishes the ‘agent’ (the company) to perform. Hence the use of the term ‘principal-agent analysis’ which will be explained in detail in Module 1; and (b) obtaining agreement between government and companies, even in cases where governments can use compulsion, means discussion over its terms; in other words bargaining takes place.
Readers will need an appropriate tool-kit. It is assumed that they are familiar with the simpler tools of economic analysis. This should not be an onerous requirement but it does entail finding a text which embodies similar teaching methods to those used in this Course with its emphasis on problem-solving. For example, it is not difficult to learn the basic principles of supply and demand and to understand the elements of bargaining theory. However, to become a practised hand in identifying which analysis is appropriate to use in practical business situations requires working through problems until the theory is firmly embedded in the reader's mind.
The ‘model-identification’ method (see 2. above) points the way towards the division of the various modules of this Course. Each Module consists of a text, leading to a set of review questions, the answers to which are found in Appendix 1. The text is interspersed with examples of the particular ‘principal-agent’ relationship under discussion, and with statistical data. Wherever possible, the examples are contemporary and the statistics are the latest available. This does not always mean that data referring to events just before publication are available. This is particularly true of data requiring international comparisons where compilation can be slow and laborious.
The questions are straightforward but, unlike those found in statistical and accounting courses, there may not always be only one correct answer. To take an example at random from this text – Question 2.4. The reader has to try to devise a hypothesis about the growth in government expenditure per head of population by identifying various factors which are likely to influence that growth. The reader has a good deal of discretion in identifying which factors are likely to be important and in deciding whether any particular factor exercises a positive or negative influence on the growth in government expenditure.
Readers should soon be able to ‘catch on’ to the methods of analysis employed in the Course, but may feel frustrated by the discovery that a fair proportion of the situations analysed are beyond their immediate experience. After all, most of us have to perform simple statistical manipulations and fill in tax returns, so elementary statistical and accounting concepts seem immediately relevant. In contrast, while readers may sense that it is important to know something of the influence of government on industry, it is difficult for them to visualise the kind of situation where this Course's analysis will be of immediate practical use. Neither of the authors would go further than argue that the analytical methods and practical examples presented do anything more than make the reader aware that company management is often having to take a position on their economic relations with government. It is not possible to predict when, where and in what form that will happen. When it does, however, readers will have a mould in which to cast their thoughts.
There are two ways in which one can narrow the gap between learning and experience, other than indulging in prodigious feats of imagination. The first is to spend time widening and deepening knowledge of the subject by further reading. A guide to such reading is given at the end of each Module. However, it is recognised that many readers are attracted to distance learning courses precisely because they reduce the necessity for wide reading. They may prefer an alternative way of closing the gap. There is a presumption that readers already familiarise themselves with economic events through weekly or even daily reading of the financial press. Such papers as the Financial Times, the Wall Street Journal, The Economist, and their non-English language counterparts, could not function without full reports on government industrial policies and business reactions to them. The reader can use this Course as a basis for a filing system of case studies culled from the financial press.
Finally, a word about examinations. The purpose of the examination is to test the examinees on their skill at identifying and applying the analysis relevant for the problem presented in each question. Although it is useful for the examinee to accumulate a knowledge of case studies, a good memory for facts is not sufficient to pass. In questions where data are analysed, then the data are provided. In illustrating a particular mode of analysis, examinees can construct examples of their own as an alternative to producing actual examples from memory.
‘He that increaseth knowledge increaseth sorrow’ said the profound pessimist who wrote the Book of Ecclesiastes. The authors of this Course hope that it does not confirm the truth of this maxim to the reader, even if it is bound to contain more sobering thoughts than entertaining stories.
