Was Hamish McRae formerly with the Economist? -----Original Message----- From: Keith Hudson [mailto:[EMAIL PROTECTED]] Sent: Thursday, February 06, 2003 3:18 AM To: [EMAIL PROTECTED] Subject: [Futurework] Inevitable decline in public spending
This week our Chancellor, Gordon Brown, made a strong speech extolling public services-- attempting to justify the fact that the present government is falling into its old Labour Party habits of increasing public expenditure again after being good boys for the past six years. In an interesting article in yesterday's Independent, its economic editor, Hamish McRae, as politically even-handed a commentator as any, advanced three reasons why high levels of public expenditure in developed countries are bound to fail. I'll abstract from his article and the following might interest some of those who like to consider real social trends rather than hypothetical ones. 1. If public services improve, they do so only slowly because they are not customer driven, and compare badly with the general quality of private sector services which, like the provision of private goods, is improving constantly. Indeed, the more diverse our needs and aspirations, the more complicated are the tasks of meeting those needs, and the more that public services will fail; 2. Demographic changes towards older populations in all developed countries means that the proportion of people of working age who have to pay the bulk of the taxation needed to support public services is declining. Urging people to retire later will help to alleviate the growing shortfall, but this only slows down the developing problem and doesn't solve it; 3. As societies get richer, they tend to spend more money on four main activities and all these are growing steadily: leisure, financial services, health care and education. The last two are largely in the hands of the state (in England and the EU, if not in America) but where is the extra taxation to come from? The people who want more of the latter two services cannot afford to be taxed any more, and those who might be able to pay more taxes are disinclined to subsidise increasingly inefficient public services because they want to spend more on the first two private sectors. As McRae writes at the end of his article: " . . . politicians in every developed country will have to rethink the whole role of the state over the next few years. And the question they should seek to answer is not the theoretical one of the optimal boundary between state and market. Rather it is the practical one: what works?" Hamish McRae is quite right: we can't possibly decide here and now what might be the optimum balance between public and private spending in due course. Most importantly, we don't know what the demographic structure of tomorrow's society will be and, in particular, the fertility rate. Nor do we know how or whether developed countries will resist powerful waves of migration from the undeveloped world and what effect these will have on the skills and taxation potential of their host populations. However, I think it's possible to discern two-way trends which indicate the sort of figure for public services (as % of GDP) that will be more usual in developed countries during the next 50 years or so. In the Scandinavian countries, where public expenditure is at about 45-50%, they are trying hard to reduce it -- transfer costs are too high and are holding back economic growth. In the EU (Germany and France in particular), politicians would like to reduce present levels of 40-45% to more like 35-40% because enterprise and new start-ups are being inhibited. So far, they are being prevented from doing so by strong unions -- mainly industrial workers in Germany and civil service unions in France. England is dithering at about 40%, and Japan and America are also dithering, but at a lower figure -- about 30%. The public expenditures of most tiger economies in Asia, including China, are at about 15-20% of GDP but are encouraging private development of education and health rather than state services, though they know they will have to start state pensions sometime soon. Their public expenditures will probably rise to, say, about 25-30%. So it looks to me as though the public expenditures of most developed countries will finally end up at about 30% in about 50 years' time. This is, of course, assuming that another energy technology will come along which will be as cheap as our present one. Economies expand or contract in lockstep with the cost of energy, so if our grandchildren don't have as cheap a technology as oil or gas is now, then all the above forecasts can be thrown out of the window. Keith Hudson ---------------------------------------------------------------------------- ------------ Keith Hudson, General Editor, Handlo Music, http://www.handlo.com 6 Upper Camden Place, Bath BA1 5HX, England Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] ________________________________________________________________________ _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://scribe.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://scribe.uwaterloo.ca/mailman/listinfo/futurework
