Political decisions on government spending are influenced by ideology, although they must also take account of economic considerations
A government needs to budget to spend money on the public services, social protection and infrastructure that it provides for the population (3.2.3). It must pay for its spending by raising enough tax (3.2.4), so that the economy is responsibly managed (3.3.8). And it must create the conditions for people to prosper economically. Everyone’s lives are affected by its decisions, which are therefore politically sensitive. Competent management of government spending is a key component of economic acceptability.
Individualists and collectivists have fundamentally different viewpoints on the relationship between people and the society they live in, as described at the start of this book (2.2). They put forward different arguments about economic efficiency, as described earlier (3.5.2), and they have different political approaches towards their economic responsibilities:
· Individualists see hard work as a virtue, and income tax is seen as penalising it, so they want the government to minimise its spend. They believe that people should be as free as possible to buy the services they want, or to buy insurance, or to support each other. They don't want the government to determine what people need. Neoliberals argue that markets reflect people’s wishes, in a form of individualism which has dominated political decisions on government spending, notably in Britain and America, since the 1980s (3.5.9). They must concede, though, that some regulation is necessary and private companies only prioritise their own profits.
· Collectivists believe that the State should protect those who are disadvantaged by guaranteeing some socio-economic rights, using taxation to obtain the necessary funding – and thereby also reducing inequality, as discussed later (6.7.2). They see this as socialising personal risk by taxing those who are more able to pay. They believe that these should be government decisions, taken for the benefit of the population. There are advantages in such decisions being politically mediated – but people’s opportunity to play a part in decision-making depends on the government being responsive in ‘joystick politics’, as described earlier (6.2.6.2).
Minouche Shafik, the Director of London School of Economics and Political Science, argues that it is time for a political reset. In her book, What We Owe Each Other, she describes the role of the State in more nuanced terms:
“When I refer to the welfare state, I mean the mechanisms for pooling risks and investing in social benefits mediated through the political process and subsequent state action. This can be directly through taxation and public services or indirectly by regulations that require the private sector to provide support.”
“The welfare state is three quarters piggy bank (mutual insurance over the life cycle) and only one quarter Robin Hood (transferring resources from the rich to the poor). However, a significant role of the welfare state is to redistribute money over the course of our own lives. Children cannot borrow to pay for their education even if their employment prospects are good. People don’t know what illnesses they will have when they’re old or how long they might live. Most people contribute to the welfare state in the middle of their lives when they are working and receive benefits from it when they are young (through schooling) and when they are old (through pensions and healthcare).”
The most acceptable economic climate in any society requires a compromise between individualist and collectivist approaches, to make the necessary political decisions on government spending and taxation – as listed in the following sub-sections:
Public services. Public funding, for some or all of the population, broadens the availability of services but increases the scope of government responsibility (6.7.1.1). Health, education, and social care, which can be seen as socio-economic rights, are major points of contention.
Service Providers. The choice of providers for public services ought to be based on cost-effectiveness and quality of service to the public, rather than ideology (6.7.1.2).
Social Protection. Benefits, such as pensions and welfare to help the needy, are a major part of government spending (6.7.1.3). Politicians must strike a balance between people’s need for social protection and the tolerance of taxpayers.
Public Investments. Governments can invest in projects which deliver benefits in later years (6.7.1.4). The benefits might be in terms of economic growth, quality of life, or protecting the environment for example.
Tax Policy. Governments ought to apply an economically sustainable level of taxation and public borrowing to pay for their spending (6.7.1.5). Sadly, there have been many examples of political dishonesty on tax.
Each country will reach its own political compromises, as determined by its current economic circumstances, its culture and the prevailing political mood. A government’s continued political legitimacy depends upon it making judgements which are acceptable to the population. Politicians sometimes rely on voters having short memories or not understanding what is on offer, though, in what amounts to political cynicism.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).