Thursday, 21 April 2011

Taming leviathan

The Economist magazine as an article noting that how to slim the state will become the great political issue of our times. An issue that governments in New Zealand could do a lot more about.
Attitudes to the big state have swung to and fro, from the liberal attack on patronage in the 19th century to the embrace of the social-democratic consensus after the second world war to Thatcherite privatisation in the 1980s. There are some signs that another rethink is imminent: witness the budget cuts in the euro zone, the battle between Wisconsin’s governor and the public-sector unions and David Cameron’s “Big Society” rhetoric. There is even the probability that the state’s share of GDP may slip back in the short term, as the recovery lifts the overall economy. But many efforts at reform are timid—witness the mendacious budgets produced in Washington by both Barack Obama and the Republicans and their refusal to touch entitlements. If nothing is done other than slimming a few departments, Leviathan will be on the march again.

Why? Because, despite all that rhetoric from the tea-partiers, big government is not just the fault of self-interested bureaucrats and leftist politicians. Conservative voters, even if they don’t like taxes, have kept on demanding that the state does more. Just as the left has built hospitals, announced endless programmes to help the poor and indulged the teachers’ unions, the right has built prisons, announced wars on drugs and terror, and indulged generals, farmers and policemen. And there are also two structural causes of big government. First, productivity in the state sector, especially in fields like education and health, has lagged behind the private sector. And second, there has been a huge increase in “social transfers”, especially benefits for the middle classes and the elderly.

To lose weight, governments have to do two things: learn how to do more with less, which means modernising the state, and cut back on what they offer, which among other things means tackling the social transfers. Both are inevitable, but the first offers the best chance of immediate gains.
The Economist ends the article by arguing,
Ideally, the next round of Western elections—especially the presidential one in America—will focus on that. Slimming the state is not an easy conversation. But consider the alternative: an ever fatter state, ever less freedom and ever higher taxes. In the 1990s much was made of the idea that capitalism had got so footloose that states were bound to get slimmer to compete for corporate favours. In fact companies proved more loyal than expected—and the state went on one last splurge. But talent and capital are getting more mobile; and the demographic pressure of those ageing populations is mounting. The ever larger state cannot go on for ever. It will stop.
One only hopes that the Economist is right.

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