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Honey, I shrunk the government: a paean to the virtues of the small state

The authors argue that the west has no choice but to unfurl the banner of revolution again. The fiscal crisis and demographic changes have left treasuries creaking under the weight of debt. 

Bill Clinton at a rally in 1996, the year he declared that “The era of big government is over”. Photo: Getty
Bill Clinton at a rally in 1996, the year he declared that “The era of big government is over”. Photo: Getty

The Fourth Revolution: the Global Race to Reinvent the State 
John Micklethwait and Adrian Wooldridge
Allen Lane, 320pp, £20

Big government is the enemy. It saps enterprise, stifles liberty and undermines democracy. That is the battle cry of The Fourth Revolution, a paean to the virtues of the small state and the free market. Its authors, John Micklethwait and Adrian Wooldridge, write with a mixture of horror and fascination about the growth of what they refer to throughout as “Leviathan” (after the sea monster that provided the title of Thomas Hobbes’s masterwork).

When Bill Clinton declared in his 1996 State of the Union address, “The era of big government is over,” few dissented from his judgement. But the state turned out to have “merely paused for breath”. In the US, government spending rose from 34 per cent of GDP in 2000 to 41 per cent in 2011. In Britain, it increased from 34.5 per cent to 48 per cent. Across 13 of the richest countries, it has reached an average of 47 per cent. Without a “fourth revolution”, Micklethwait and Wooldridge warn, the west is destined for inexorable decline.

The three preceding revolutions, charted in the opening 100 pages of the book, were the birth of the nation state, following the publication of Hobbes’s Leviathan in 1651; the emergence of a constitutionally limited liberal state in the 19th century; and the growth of a more expansive welfare state in the 20th. The latter was followed by a “half” revolution in the 1980s when Margaret Thatcher and Ronald Reagan declared war on the Keynesian consensus with their chosen arsenal of privatisation, deregulation and tax cuts. But this Hayekian crusade “failed in the end to do anything to reverse the size of the state”.

Because of a constellation of forces, the authors argue, the west has no choice but to unfurl the banner of revolution again. The fiscal crisis and demographic changes have left treasuries creaking under the weight of debt. The rise of Asia threatens the west’s intellectual and economic hegemony, while the wellspring of technology has created the opportunity to “do government” better.

The authors hymn the example of Sin­gapore, whose founding father Lee Kuan Yew compares the western welfare model to an all-you-can-eat buffet, urging Europe and the US to emulate its sink-or-swim philosophy. It is an echo of the message beloved of the Conservative Party (whose “global race” slogan is borrowed for the subtitle) and the Orange Book wing of the Liberal Democrats.

Micklethwait and Wooldridge are, respectively, the editor-in-chief and the management editor of the Economist. The Fourth Revolution boasts the crystal-clear prose, intellectual curiosity and forensic data that are the hallmarks of that publication. We learn that half of the richest 1 per cent in the US are medical specialists; that the Australian equivalent of the cabinet secretary earns £500,000 a year (twice as much as his British equivalent); and that Italy’s GDP per head fell by 4 per cent between 2001 and 2011 (the worst growth record in the world apart from those of Haiti and Zimbabwe).

Yet if the book reflects the virtues of the Economist, it also exemplifies its vices – notably, an unbending and ideological commitment to the small state beyond any reasonable justification. The crude focus on the overall level of public spending as the defining metric of a country’s well-being is one telling example. Far more important is the composition of that spending: are a state’s resources being invested in education and infrastructure, or are they being squandered on out-of-work benefits and inefficient agricultural subsidies? To argue otherwise is to imply that there is nothing to choose between France and Sweden.

The authors do cite Sweden as an example of a state that has curbed its ruinous ways by reducing public spending from 67 per cent in 1993 to 49 per cent today. But this belies how the country maintains a level of expenditure and of taxation that, according to their logic, should be incompatible with its social and economic achievements. Nor is Sweden the exception that proves the rule. As data from the International Monetary Fund and the Organisation for Economic Co-operation and Development has repeatedly shown, there is no evidence that countries with high levels of public spending perform any worse than those with lower levels.

The recent surge in spending as a share of GDP in the US and Britain (from 39 per cent to 48 per cent in four years) was the result not of a government binge but of the financial crisis and the associated collapse of the private sector (along with higher benefit payments to reduce the economic harm from unemployment). To pretend otherwise is disingenuous.

This small omission serves as evidence of a bigger one: the failure to acknowledge, let alone confront, the failings of the market. Were a coma patient who had slept through the past decade to wake up and read The Fourth Revolution, he or she could be forgiven for believing that the 2008 crisis was caused by bloated governments, rather than bloated banks. The public alienation charted throughout the book has less to do with the growth of the state than with the collapse in living standards. It is reversing this trend, not shrinking government, that is the defining challenge of this era.

To do so will require not a smaller state, but a smarter one. A smarter state would invest more in pro-growth areas that support lasting prosperity, such as infrastructure, skills, job creation and childcare. It would focus on prevention rather than cure, by switching spending from housing benefit to housebuilding and by incentivising the use of the living wage, rather than subsidising poverty wages. It would tax the rich more and the poor less on the grounds that this is both good economics and good ethics.

Such a state should then be judged on several key measures: how dynamic and sustainable is its economy? How healthy and educated are its citizens? How open and fair is its political system? What it should not be judged on is its size. 

George Eaton is the political editor of the New Statesman

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