Should the state get involved in entrepreneurial risk sharing?

The economic crisis engendered a vibrant discussion about the best model of capitalism. British observers in particular find much at fault at the moment with the Anglo-American model of laissez-faire. Although I doubt that these purist models make much sense in the real world, there may be some milage in distinguishing between different approaches to do business. I have previously argued here that boosting manufacturing output requires a holistic approach that involves reform of the apprenticeship and vocational system, bringing Britain closer to the dual German system of vocational training in company placements. 

Will Hutton has once again contributed to this debate and spelled out some interesting thoughts about how to create a sustainable economy in the wake of the crisis of 2008. While his article makes a whole series of observations, the main point seems to be that in the UK investment risks are not sufficiently shared. Hutton argues that individual companies cannot shoulder the burden of risks anymore given the complexities of international industrial interconnectedness and volatility of financial markets.

There is much to be said for this point of view. Research and development costs have rocketed in some industries. Yet Hutton's suggestion that the state should adopt a critical role in accepting risks in the industrial and development cycle of products strikes me a odd given the latest crisis. Even 4 years after the collapse of the world economy, governments all across the world are still trying to extricate themselves from a string of disastrous involvements in the economy. 


Wasn't the indemnity that the US government provided for sub-prime mortgages peddled through firms such as Fannie Mae and Freddie Mac the cause of the problem? And what about the issue of moral hazard? Taking away from businesses the risks of investing in new solutions and techniques looks a lot like reducing the moral hazard in the banking sector by underwriting their debts. 

It seems to me that we should be skeptical about the long term benefits of sharing risks between business and governments in the economy. The last two decades do not provide us with the best record for governmental involvement in market economies.