Big government – a good or bad phenomenon?

In last week’s issue of the Economist, the leading article was on big government. The examples used were America, Britain, and Scandinavia, but I would like to point out some further points relevant to the discussion.

One of the main arguments in the article is that because of the financial crisis, there has been an increase in government involvement in the economy. One fact is that 52% of GDP in Britain comes from the state, and a comparison is made with the old communist countries of Eastern Europe. It seems the state has grown substantially on the island and that is alarming. Yet, there are states on continental Europe, where state involvement is welcomed as social security. Belgium is a country with very big government because of its Federal construction. This does not seem to bother most Belgians, who are used to the political quarrels and slow decision-making process, probably because of the high level of social security provided for by the state. With one of the highest personal income tax rates in Europe (max 50%), the people receive high-quality services for the money they give to the government. For example, if a person is laid off from their job, the government social fund provides them with compensation for a certain amount of time (calculated based on their age). Also, the state provides workers with an annual holiday premium (based on their income), so that they can take leave from work. This kind of state intervention in society is typical for Western Europe and goes to show that big government is not necessarily bad for the people.

Nevertheless, there are also states where the citizens prefer to take matters into their own hands and not have the government control that many aspects of their lives. Bulgaria (one of those ex-Communist states) has in the past six months slashed government spending and closed many public sector jobs. Reducing state intervention in society is a key aspect of public policy since the new government was formed in July 2009. The maximum personal income tax is 10% and this immediately reduces public expectations for services. One of the major debates is on healthcare because government healthcare benefits are mandatory for everyone and yet the public health system does not provide good quality care. Most people (who can afford it), prefer to use private hospitals and clinics for that reason. If the state withdrew from this policy and allowed individuals to choose their health insurance company, people would be much happier.

Another debate is on pensions. The article in the Economist mentions that public-sector pensions are generally far too generous. In Bulgaria, most people would prefer to have a private pension fund because they do not trust the government pension system. If that becomes a reality, individuals will have more control over their savings and would not have to worry about their lives after they stop working. Yet, the state is against these reforms because it would mean less money coming into the budget. The question becomes whether the public is willing to take matters into their own hands and if the government is ready to allow more freedom to the people.

It is not objective to compare states like Britain, the USA and small countries like Belgium and Bulgaria, but there is a point to be made. Huge government can be good if society receives high quality services in return for the existence of a large public sector. Yet, some societies simply prefer to have less government involvement in its affairs on ideological grounds. In the end, it should be left to the preference of the citizens – they are the ones who should decide how much state engagement there should be in their lives. For a good state-society relationship, there has to be equilibrium and synchronization between the two.

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