The Economic Roles of the State

Abstract

The economy of every country is a kaleidoscope. Some industries expand; others contract. Consumers face changes in income and prices, and alter their pattern of spending. Producers alter their purchases of inputs and their pattern of outputs. In aggregate, there are alternating phases of boom and slump. In the wage hierarchy, we see changes in the positions of different groups; there are also major shifts in the way the nation’s income is split into wages, profits and rent. Inflation quickens and slows; and the relative prices of goods are liable to vary, sometimes violently. For most of the relevant variables, trends and fluctuations are hard to distinguish. Against this mercurial backcloth, no change has been more far-reaching, more conspicuous and more controversial than the great expansion in recent decades of the economic role of the Government. ‘In the last three years public expenditure has grown by nearly 20 per cent in volume, while output has risen by less than 2 per cent. The ratio of public expenditure to gross domestic product has risen from 50 per cent to 60 per cent. Fifteen years ago it was 42 per cent.’ [The quotation comes from the February 1976 Public Expenditure White Paper, Cmnd 6394.] The comparable figure half a century before that — 1910 — was less than 13 per cent. All these percentages (50, 60, 42, 13) are some one-third to two-fifths lower if Government transfers and subsidies to the private sector are subtracted — as they really should be — but the trend is no less marked.