3.2.3 The Economic Role of Government Spend
The economic role of government spend is to meet some of people’s needs and to support economic growth; it is tax-funded.
A government’s primary objective in spending money should be to serve the people:
● Almost everyone agrees that a government is responsible for ensuring people’s physical security. The cost of maintaining law and order is directly related to its legal powers, as described in chapter 5, and defence spending is also discussed later (7.4.6).
● Other categories of government spend, so-called discretionary spending, are more contested. They include benefits, services and facilities which some people argue could be privately provided.
All categories of government spend compete for a share of national wealth, which is funded through taxation – as described below (3.2.4).
When the government funds public services and benefits, it is redistributing wealth from the taxpayer towards people who are less able to pay for them. This increases economic growth because poor people spend their money more quickly than those who are wealthy – which is an argument that is explored in more depth later (3.5.6).
A government is responsible for maintaining the quality of services and infrastructure that it provides. Maintenance should be managed responsibly, to maximise value for money through the life cycle of these investments. The British Conservative government neglected these responsibilities from 2010 onwards, with a mistaken emphasis on ‘austerity’, resulting for example in an Economist headline in August 2022: Almost nothing seems to be working in Britain. This was undeniable: “As Michael Gove, until recently a cabinet minister, admitted last month, parts of the state are barely functioning.”
Levels of spending are decided by politicians, as described later (6.7.1), but the following sub-sections examine the economic role of government spend:
● Apart from defence and law and order, a government can choose to fund discretionary public services (3.2.3.1). These can include some socio-economic rights such as health and education. Other amenities, such as libraries and support for the arts, might be supplied to improve the quality of people’s lives but are not regarded as rights.
● Governments can make investments in infrastructure and in research, to help all sectors of the economy to function better (3.2.3.2). Such expenditure can fuel future economic growth – and it benefits a country to stay ahead of the competition in new technologies if possible.
● Benefit payments can be made to people in the form of welfare or pensions, to protect them from economic hardship (3.2.3.3). These are categorised as socio-economic rights,
● Some government spend can be seen as displacing private enterprise and reducing its competitiveness (3.2.3.4).
● The scope of government spend is contentious, as compared to letting people making their own choices about how to spend their money (3.2.3.5). There is continual tension between the economic interests of taxpayers and the people who are in need of support.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/323c.htm