Canadian Prime Minister Stephen Harper, by winning an outright majority of seats in his country’s parliament for the first time since assuming office, continues a remarkable series of national election victories, backed by voters demanding at least a pause, and perhaps some reversal, of the growth of the welfare state.
Moreover, Harper’s victory follows the Republican Party’s resounding triumph last year in the US’ mid-term election, a campaign largely fought on the size and scope of government, following the massive expansion of public spending in the wake of the financial crisis and recession. British Prime Minister David Cameron (who leads, as Harper did until recently, a center-right coalition government), likewise won on a platform to roll back the excesses of the welfare state.
Next up is French President Nicolas Sarkozy’s anticipated re-election bid. France has higher taxes and social-welfare benefits than the UK, Canada or the US. Sarkozy, despite initial attempts to roll back some French entitlements, has thus far produced less reform than Cameron or Harper, let alone former US president Ronald Reagan or former British prime minister Margaret Thatcher in the 1980s.
Some might argue that economic problems faced by governments are so severe that simply being in power invites being tossed out of office, regardless of ideology. However, Harper’s re---election suggests otherwise. Harper lowered Canada’s sales and corporate taxes (now well below the US’), and, like Cameron, desires more rapid fiscal consolidation than US President Barack Obama.
The potential significance of these elections must be understood in the context not only of the recession and financial crisis, and the government interventions designed to deal with them, but also in the broader sweep of the historical evolution of these countries’ welfare states.
The following trends stand out:
‧ In all four countries, there has been a sizeable upward trend in government outlays as a share of GDP;
‧ In each country, there has been a sizeable increase in public spending in the last few years, particularly in the US and the UK;
‧ France has the highest government spending as a share of GDP — well over 50 percent, according to the Organisation for Economic Co-operation and Development — and this has increased continually, decade after decade;
‧ The US currently has the smallest share of government spending in GDP, although it has gained substantially on Canada because of the spending explosion since 2000 — former US president George W. Bush’s military spending and Obama’s social spending;
‧ The increase in Canada’s public spending as a share of GDP since 2000 has been the smallest of the four countries;
‧ Canada and the UK have had periods of important reductions in the share of government spending. In the UK, the share fell 4 percentage points between 1980 and 1990 (the Thatcher revolution), and fell further until 2000. In the years prior to the financial crisis, Canada’s share fell from the mid-40s to about 40 percent;
‧ Likewise, the Reagan revolution in the US stopped the upward trend in non-defense spending.
What about economic performance, as measured by real GDP per capita? The four countries rank exactly in inverse order of their government spending shares (according to both 2009 and pre-crisis 2007 data), with the US highest, followed by Canada, the UK and France. The simple correlation coefficient is about minus 0.9.
The voters appear to be onto something important. Of course, correlation does not prove causation; there are myriad other factors that affect economic performance besides the size, composition and nature of welfare-state spending (and clearly related taxes and debt). Moreover, governments provide services, from defense and law enforcement to a humane safety net, that are essential to a successful economy and society. However, the size of the welfare state — and the erosion of incentives to work, save and invest, owing to high taxes and bloated transfer payments — is a major impediment to faster income growth.
This simple analysis should raise a red flag about how we think about the trade-offs between dynamism and security, or growth and redistribution. After all, real per capita income in the US is about 40 percent higher than in France, 22 percent higher than in Canada and 31 percent higher than in Britain.
The relative histories have followed a similar trend (again, other factors are involved, not just taxes and spending). For example, the US advantage over France has expanded from 25 percent to 40 percent since 1980, a period in which the share of government spending in GDP was stabilized in the US (until recently), while it grew substantially in France.
Likewise, French real per capita GDP exceeded the UK level in 1980, but was overtaken in 2000, and by 2007 lagged the UK by about 10 percent. These differences- are the equivalent of an entire generation of economic progress.
Those who want to control, reform and reduce government spending seem to have the big picture right. It is a prerequisite for substantial economic advance. That is the broad lesson of history — from the Reagan and Thatcher revolutions in the US and the UK, to Harper’s more recent experience, to the repeat performance that Cameron and the Republicans in the US Congress are now trying to engineer.
Only time will tell if the recent elections in the UK, the US and Canada signal a retreat from the growth of the welfare state or just a temporary respite, but comparing the US, Canada, the UK and France reveals that the stakes are immense.
Michael Boskin, a professor of economics at Stanford University and a senior fellow at the Hoover Institution, was chairman of former US president George H. W. Bush’s Council of Economic Advisers from 1989 to 1993.
COPYRIGHT: PROJECT SYNDICATE
Saudi Arabian largesse is flooding Egypt’s cultural scene, but the reception is mixed. Some welcome new “cooperation” between two regional powerhouses, while others fear a hostile takeover by Riyadh. In Cairo, historically the cultural capital of the Arab world, Egyptian Minister of Culture Nevine al-Kilany recently hosted Saudi Arabian General Entertainment Authority chairman Turki al-Sheikh. The deep-pocketed al-Sheikh has emerged as a Medici-like patron for Egypt’s cultural elite, courted by Cairo’s top talent to produce a slew of forthcoming films. A new three-way agreement between al-Sheikh, Kilany and United Media Services — a multi-media conglomerate linked to state intelligence that owns much of
The US and other countries should take concrete steps to confront the threats from Beijing to avoid war, US Representative Mario Diaz-Balart said in an interview with Voice of America on March 13. The US should use “every diplomatic economic tool at our disposal to treat China as what it is... to avoid war,” Diaz-Balart said. Giving an example of what the US could do, he said that it has to be more aggressive in its military sales to Taiwan. Actions by cross-party US lawmakers in the past few years such as meeting with Taiwanese officials in Washington and Taipei, and
The Republic of China (ROC) on Taiwan has no official diplomatic allies in the EU. With the exception of the Vatican, it has no official allies in Europe at all. This does not prevent the ROC — Taiwan — from having close relations with EU member states and other European countries. The exact nature of the relationship does bear revisiting, if only to clarify what is a very complicated and sensitive idea, the details of which leave considerable room for misunderstanding, misrepresentation and disagreement. Only this week, President Tsai Ing-wen (蔡英文) received members of the European Parliament’s Delegation for Relations
Denmark’s “one China” policy more and more resembles Beijing’s “one China” principle. At least, this is how things appear. In recent interactions with the Danish state, such as applying for residency permits, a Taiwanese’s nationality would be listed as “China.” That designation occurs for a Taiwanese student coming to Denmark or a Danish citizen arriving in Denmark with, for example, their Taiwanese partner. Details of this were published on Sunday in an article in the Danish daily Berlingske written by Alexander Sjoberg and Tobias Reinwald. The pretext for this new practice is that Denmark does not recognize Taiwan as a state under