Big government - Stop!
Jon Berkeley
The Economist, January 21st 2010
The size and power of the state is growing, and discontent is on the rise
IN THE aftermath of the Senate election in Massachusetts, the focus of attention is inevitably on what it means for Barack Obama. The impact on the Democratic president of the loss of the late Ted Kennedy’s seat to the Republicans will, no doubt, be significant (see article). Yet the result could be remembered as a message more profound than the disparate mutterings of a grumpy electorate that has lost faith in its leader—as a growl of hostility to the rising power of the state.
America’s most vibrant political force at the moment is the anti-tax tea-party movement. Even in leftish Massachusetts people are worried that Mr Obama’s spending splurge, notably his still-unpassed health-care bill, will send the deficit soaring. In Britain, where elections are usually spending competitions, the contest this year will be fought about where to cut. Even in regions as historically statist as Scandinavia and southern Europe debates are beginning to emerge about the size and effectiveness of government.
There are good reasons, as well as bad ones, why the state is growing; but the trend must be reversed. Doing so will prove exceedingly hard—not least because the bigger and more powerful the state gets, the more it tends to grow. But electorates, as in Massachusetts, eventually revolt; and such expressions of voters’ fury are likely to shape politics in the years to come.
How it grew and grew
The immediate reason for the rise of the state is the financial crisis. Governments have spent trillions propping up banks and staving off depression. In some countries they now play a large role in the financial sector; and thanks to bail-outs, stimulus and recession, the proportion of GDP made up by state spending and public deficits has rocketed.
But the rise of Leviathan is a much longer and broader story (see article). Long before AIG and Northern Rock ended up in state custody, government had been growing rapidly. That was especially true in Britain and America, the two countries in which “the end of big government” had been declared in the 1990s. George Bush pushed up spending more than any president since Lyndon Johnson. Britain’s initially frugal Labour government went on a splurge: the state’s share of GDP has risen from 37% in 2000 to 48% in 2008 to 52% now. In swathes of northern Britain the state now accounts for a bigger share of the economy than it did in communist countries in the old eastern bloc. The change has been less dramatic in continental Europe, but in most of those countries the state already made up around half of the economy.
Demography is set to push state spending up further. Ageing populations will consume ever more public health care and ever bigger pensions. Unless somebody takes an axe to them, entitlements will consume a fifth of America’s GDP in 15 years, compared with 9% now.
Rising government spending is not the only manifestation of growing state power. The spread of regulation is another. Conservatives tend to blame the growing thicket of rules on unwanted supranational bodies, such as the European Union, and on the ever growing industry of public-sector busybodies who supervise matters like diversity and health and safety. They have a point. But voters, including right-wing ones, often demand more state intrusion: witness the “wars” on terror and drugs, or the spread of CCTV cameras. Mr Bush added an average of 1,000 pages of federal regulations each year he was in office. America now has a quarter of a million people devising and implementing federal rules.
Globalisation, far from whittling away the state, has often ended up boosting it. Greater job insecurity among the voting middle classes has increased demand for safety nets. Confronted by global market failures, such as climate change, voters have demanded a public response. And the emergence of new economic powers, especially China, has given fresh respectability to the old notion of state capitalism: more and more of the world’s biggest companies are state-owned, and more and more of its biggest investors are now sovereign-wealth funds.
What should be done?
Many difficulties present themselves to those who would reform the state. One is the danger posed by the fragility of the world economy. Government stimulus may still be needed to ward off a new slump. But even in the most vulnerable countries, governments need to be planning for withdrawal.
A further danger consists in equating “smaller” with “better”. As the horrors in Haiti demonstrate, countries need a state of a certain size to work at all; and more government can be good. The Economist, for instance, is relieved that politicians stepped in to bail out the banks, since the risks of tumbling into a depression were large. This newspaper also supported Mr Obama in 2008 in part because he wanted to extend health-care coverage.
How much a state spends often matters less than how it spends. Systems in which the state pays and the private sector provides often work well. Scandinavia’s schools are expensive, but they are by and large more efficient than their Anglo-Saxon peers. Much of France’s health care is paid for by the state but supplied by private hospitals.
Even where big change is clearly needed, the history of “reinventing government” shows it is not easy. The quick fixes, such as privatising national telecoms firms, have been done. Fortunes have been spent on management consultants in the public sector, without much to show for it (see article). In 1978 another American state shocked the world by rejecting big government: California’s tax-cutting Proposition 13 paved the way for Reaganism, but direct democracy has ended up making the Golden State’s government worse.
In these circumstances, hard rules make little sense. But prejudices are still useful—and this newspaper’s prejudice is to look for ways to make the state smaller. That is partly for philosophical reasons: we prefer to give power to individuals, rather than to governments. But pragmatism also comes into it: there is so much pressure on the state to grow (bureaucrats building empires, politicians buying votes, public-sector workers voting for governments that promise bigger budgets for the public sector) that merely limiting the state to its current size means finding cuts.
And cuts can be found. In the corporate world, slimming a workforce by a tenth is standard fare. There’s no reason why governments should not do that too, when it’s needed. Sweden and Canada managed it, and remained pleasant countries with effective public services. Public-sector pay can be cut, given how secure jobs are: in both America and Britain public-sector workers are on average now paid more than private-sector ones. Public-sector pensions are far too generous, in comparison with shrunken private-sector ones. Entitlements can be cut back, most obviously by raising pensionable ages. And the world might well be a greener, more prosperous place if the West’s various agricultural departments disappeared.
The Economist will return to these areas in coming months. All raise different issues; and different countries may need to deal with them in different ways. But one large general point links them: a great battle about the state is brewing. And, as in another influential revolution, the first shot may have been heard in Massachusetts.
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