Crikey has recently criticised Peter Costello’s proposed Future Fund –
specifically, the idea that public sector superannuation should be
funded by a government-owned pot of money invested in the sharemarket,
rather than letting the beneficiaries invest the money in super
funds of their choice. Today a front page story in The Age throws some light on the Future Fund’s little brother, the Victorian Funds Management Corporation.

VFM, as its website
explains, provides “funds management services to the Victorian public
sector.” It was established in 1994 by that paragon of free enterprise,
Alan Stockdale, but it was already controversial at the time because it
was reminiscent of the Cain government’s failed financial ventures of
the late 1980s, the Victorian Development Fund and the Victorian
Economic Development Corporation. VFM was sometimes referred to within
the government as the “Vertigan Development Fund,” after then-Secretary
of the Treasury Michael Vertigan.

The problem with VFM was the same as that faced by the Future Fund:
either it genuinely operated at arm’s length from government, in which
case it simply duplicated what was already available in the private
sector, or it didn’t, in which case it distorted the market and risked
taxpayers’ money for political objectives.

The Age reports that current treasurer John Brumby, who was
opposition leader when VFM was created, “is acutely mindful of Labor’s
history of economic disasters and has urged caution on Mr Bracks.” But
the Committee for Melbourne, apparently encouraged by Bracks, is urging
the government to divert VFM money into the state’s biotechnology
industry.

The lesson of the 1980s financial scandals is twofold. Firstly,
governments that try to “pick winners” and outguess the market usually
get their fingers burnt. Secondly, if governments absolutely must give
subsidies to private ventures, it should be done openly and on-budget,
not by off-budget funny money deals. Like the Future Fund, the VFM
biotechnology scheme fails on both counts.