BOSTON

INDUSTRIAL POLICY, which is another way of saying government picking winners in the marketplace, invariably begins with rhetoric about opportunity, prosperity and full employment. But history shows that it is inefficient; that it benefits the politically connected few, not the many; and that in the end it is usually corrupted.

Prior to 1800, industrial policy took the form of mercantilism –– a complex system of subsidies, franchises, penalties, tariffs, etc., designed to benefit, individually, the emerging nation states of Europe. It was rebellion from British mercantilism that had Bostonians throwing tea into Boston Harbor (in 1773) during an unpleasant period in Anglo-American relations. It was Adam Smith’s genius in Wealth of Nations (1776) to show that mercantilism was an economic drag on all nations, and that trade based on freely chosen commercial agreements created the greatest possible wealth.

Socialism and communism were more malign forms of industrial policy, and seduced much of the world, as well as many intellectuals throughout the world, from the 1840s to the 1980s. For 40 years, from 1950 to 1990, the most successful “industrial policy” was Japan’s. But eventually the free-wheeling American economy outperformed an increasingly stagnant Japan. Today, Japan is nominally open to competition, but her reluctance in practice to let foreign companies freely do business there still holds her economy back.

The future is always in doubt where demagogues roam. But in the United States, recent presidents of both parties have favored international free trade and an imperfectly open domestic economy. (Ethanol subsidies, for example, are a gross and politically-motivated market distortion.) Where “mercantilism” keeps its hold is at the state level, where governors see themselves as being in direct competition with other governors in attracting investment.

One example is the way Massachusetts and Rhode Island have fallen all over themselves handing out goodies to movie studios so that they will shoot locally. But a recent study showed that the fairly ridiculous tax breaks used to bring Hollywood’s glitz and glamour to the Bay and Ocean States have largely ended up in the bank accounts of the glitzy and glamorous.

In Massachusetts, a centerpiece of Governor Patrick’s industrial policy has been to out-compete California Gov. Arnold Schwarzenegger in attracting biotechnology. On June 25, he signed a 10-year, $1 billion Life Sciences Initiative that includes a new research facility at the University of Massachusetts Medical Center; tax benefits for “qualifying companies showing a . . . job-growth profile;” grants; completely unrelated legislative earmarks; and more.

The plan is to be overseen by the Massachusetts Life Sciences Center, whose board was filled out on July 23. The Boston Herald had predicted it would be packed by Patrick politicos. This didn’t happen. The seven-member board consists of Daniel O’Connell, secretary of Housing and Economic Development, co-chair; Leslie Kirwin, secretary of Administration and Finance, co-chair; Marc Beer, CEO of Via-Cell Inc.; Dr. Josh Boger, CEO of Vertex Pharmaceuticals; Peter Slavin, president of Massachusetts General Hospital; Lydia Villa-Komaroff, CEO of Cytonome, Inc.; and Jack Wilson, president of UMass. At its July 23 meeting, the new board voted to approve $7 million in grants vaguely described as recruiting “top scientific talent at universities in the state” and spurring “new research.”

What’s wrong with this? There’s nothing wrong with the distinguished individuals involved. But, except for the co-chairs, this board has obvious conflicts of interest. Can the president of the University of Massachusetts be expected to favor Northeastern or Tufts? Can the president of Massachusetts General Hospital be expected to favor Beth Israel-Deaconess Hospital? Can the three biotech CEOs be expected to favor their competition?

This is a scandal incubating. The principals are bound to be embarrassed when they act in ways that are seen to favor their own interests. An outright criminal enterprise probably won’t happen under this governor. But Mr. Patrick forgets what a lot of good governors have forgotten: He isn’t going to be governor forever, and the institutions he creates will take on a life of their own. It was the genius of the Founding Fathers to understand that all people are motivated by self-interest.

An imperfect analogy is the Massachusetts Turnpike, whose second chairman, John Driscoll, presided over a scandal-free operation from 1964 to 1986. But since Mr. Driscoll retired, the Turnpike has been on a downward spiral that is going to cost the taxpayer plenty for the next 30 years.

In the case of biotechnology, there is a race to the bottom among states. In Massachusetts, biotechnology currently employs a quarter as many people as information technology. Yet Governor Patrick has picked it as a future winner, which it could be. But the risk was better left to private investors, who, unlike ex-governors, pay a price when they are wrong.

David A. Mittell Jr. is a member of The Journal’s editorial board.