Montréal,  4 mars 2000  /  No 57
<< page précédente 
Les dépenses publiques au Canada, en pourcentage du PIB:
1926           15%  
1948           21%  
1966          30%  
1996         46%  
(Source: Statistique Canada) 
          Libertarians knew it already, but now there is empirical evidence to support it: big government acts as a break on economic growth. The higher the level of public spending in a given country, the lower its growth rate tends to be.  
          Recent studies prove beyond doubt that there is a negative correlation between these two factors. One of the researchers who has done work on this topic, professor Robert Lawson of Capital University in Ohio, was recently in Montreal to promote his findings.  
          What he and his colleagues found is that spending on a few necessary core areas of government functions should not exceed about 15% of GDP (as shown in the margin on this page, the last time that was the case in Canada was in... 1926!). Beyond that, nationalized services, redistributive programs and intervention in the private sector only serve to impede the overal efficiency of the economy and retard growth.  
          In a study first published by the Cato Journal (et maintenant disponible en français sur le site de l'Institut économique de Montréal), Lawson et al. looked at the relationship between government spending and economic growth in a number of countries between 1960 and 1996. They found that in cases where a nation had government expenditures of less than 25 percent of GDP, the average growth rate was 6.6; between 25 and 30%, the rate of growth is down to 4.7; between 30 and 40%, to 3.8; between 40 and 50%, to 2.8; and finally, when spending exceeds 50% of GDP, the average growth rate is 2.0 or lower. 
          All the evidence points in the same direction: larger government means slower growth. This can be seen not only as expenditures increase, as they have in most countries since 1960, but also in the few cases (England, Ireland, New Zealand) where they have gone down. In these countries, the reduction in the size of government was followed by an increase in the growth rate. Ireland went from being the poor man of Europe to being its « Celtic tiger » today because it reduced spending from a peak of 51% of GDP in 1980 to 38% in 1996. 
          Robert Lawson is also the coauthor of The Economic Freedom of the World 2000 Report, published by the Fraser Institute and other think tanks around the world. Le QL talked to him after a conference in February organized by the Montreal Economic Institute.
Martin Masse: Can you tell us in a few sentences what is the gist of your argument about the relationship between the size of the state and growth? 
Robert Lawson: The argument basically is that government can do certain things that help the operation of a market economy, without which market economies don't seem to function well; enforcement of contracts and property rights seem to be pretty important prerequisites for the operation of markets. But what you find is that  in the real world, almost all governments, and indeed all governments, have gone way beyond this sort of minimal involvement in the economy and they've gone into areas that directly compete with market economies. And what has happened there I think is that as governments have expanded into these non essential areas, that's affecting the real economy and certainly people are poorer. So I think the general lesson is that larger-size governments, to the extent that they get beyond their basic functions, do this at a price, and the price comes in the form of lower rates of economic growth. 
MM: Is it the first time that this has been demonstrated statistically or in a more formal way? As libertarians, we've known that, at least we could ascertain that logically, for a long time.  
RL: I wouldn't necessarily call it the first time but in the last five or ten years, a small group of researchers, which I'm part of I guess, have started to look at this and the reason we've been able to look at it is because of the data. Quite literally, until the 1980s, good comprehensive data for a large number of countries on simple things like GDP, taxation level, spending, were unavailable. The quality was so poor that any statistical work on them was impossible. What's happened is that in the last twenty years or so... you're right, the argument has been around for... you go back to Adam Smith, two hundred years, but the ability to really investigate this empirically is something that only came about recently.  
Total Government Outlays as a Percentage of GDP  

MM: Could it be also that there was no real example of countries that had significantly cut the size of the state? 
RL: Yes, somewhat. The other thing is we've had some very interesting sort of experiments now in countries where economic growth and prosperity has rebounded nicely. Now, with emerging countries like Singapore and Hong Kong, there's quite a bit of diversity in terms of government spending, but other things also, in terms of regulation, etc. But on the other hand, among the western industrial democracies, we're seeing less diversity among countries, because we have fewer socialist countries. And by socialist I mean centrally-planned economies.  
How to reverse state growth 
MM: Do you have an explanation of the phenomenon of state growth, of how we got there? Are there specific reasons from a more technical point of view? 
RL: In the early part of the century, it was the maturation of the economy, the better accounting standards that made it easier to tax. That was one sort of technological thing that made the growth of government easier, simply the fact that we had better accounting. Recently, though, say post-World War II, where you've seen governments grow a lot, the explanations, there are a lot out there. Certainly the most important one is the idea that interest groups use the political process to further their own interests. If everybody does this, the size of government grows. That's what makes reducing government now so difficult. It's because we have a situation in which everybody has an interest in having a big government.  
MM: Except the ordinary taxpayers who are not organized into lobby groups. 
RL: Individual taxpayers, of course, are very unorganized, very spread out. But if you look at them as members of interest groups, their stake in cutting taxes is not as great as their stake in whatever their pet project is.  
MM: How do we manage to change that? 
RL: You need a couple of things. You need a leader, a Margaret Thatcher, a Ronald Reagan – although the cuts that Reagan made were more symbolic than real. That's one way to do it. If you look at a lot of the emerging market economies in the world, they're not democracies. Hong Kong never was a democracy and in order to make Hong Kong a market economy, all you had to do was convince one person, the British governor. Same thing of course with the dictatorships like Chili. It's easy to imagine how you change, you just convince one person, Pinochet. In our cases, it's more difficult. I think the examples in democracies show that it usually requires a crisis. You look at New Zealand, when deficits tend to become uncontrollable, when Moody's calls and threatens to lower you credit rating. Unfortunately, it's not out of any ideological conviction.  

MM: Are you confident that this could happen? 
RL: I think it is happening, it is happening worldwide. Look at the United States and Canada, neither of whom has radically cut government. But notice it hasn't grown. In fact, in both countries in the 1990s, government spending as a share of GDP is a little bit lower than it was at the beginning of the decade. 
Competition will force governments to act 
MM: There was a financial crisis in Canada at the beginning of the decade, that's why Paul Martin decided in his 1994 budget to seriously tackle the deficit. But most polls in Canada still show that people want more spending on health care before any cut in taxes. 
RL: Yes, but I think polls notwithstanding, the problem is that Canada has to worry about the United States, and the United States has to worry about... Thailand. And the new global economy is putting increasing pressure on governments, they're forced to ignore their socialist leanings.  
MM: Competition between the economies, between the states, is going to force them to act? 
RL: Yes, the competition, the global capital markets, I think, is the best thing going for more liberal markets. It's forcing governments to worry about these things. I know in the United States, this is happening among the states. The governor of Michigan has to worry about competition with Indiana or Ohio. And now he also has to worry about competition with Hong Kong or Thailand. That competition means that if you're the premier of Quebec, even if the polls tell you to increase spending, and suppose your ideological instinct tells you the same, but your financial advisors tell you: if we increase spending, we're going to lose this many companies who are going to move to Ontario... 
MM: It's a bit of a pessimistic point of view though, that free-market theory cannot win on its own as the best explanation but that people will be forced to move towards it just because of the circumstances. 
RL: Ideology matters, convincing people matters, but the real world probably matters more, and ideology sometimes follows, it doesn't necessarily lead. What I'm thinking probably is happening is that as countries, out of necessity, not out of any desire, but out of necessity, as they cut taxes and liberalize labour markets, what happens is now ideologies are changing, the people in those countries... 

     « We weren't poor in 1900 because governments were small, we were poor because productivity was low, technology, know-how, was low. We've gotten rich despite the growth of government. » 
MM: They adapt to these new circumstances. 
RL: That's right. They no longer are as hostile. In the United States – I don't know about Canada but I assume it is the case – the growth of stock ownership is radically changing the views of people. They're no longer just workers, they're also shareholders. They follow the stock markets with as much zeal as the rich. If the government does something that affects their portfolios, they're going to be uptight, and they are! Their ideologies are changing to reflect the new world economy. I like to think, being an academic, that I can convince people on the merits of a smaller government, but if this doesn't work, I still think we have a pretty good shot here in the next fifty to a hundred years of rolling back government because of the new global economy. 
Back to 1900 
MM: Let me be the devil's advocate here. You say we should go back to how it was a hundred years ago, when governments were spending only 10 to 15% of GDP, but we were poor at that time. Somebody could say you want to return to the same conditions, with exploitation of workers, etc.  
RL: Well, we weren't poor in 1900 because governments were small, we were poor in 1900 because productivity was low, technology, know-how, was low. It was growing fast, but we weren't poor because government was small. My thesis is that we've gotten rich despite the growth of government, that in fact, had the government not grown as fast, we would be richer today. And we can illustrate that, the numbers indicate that when our governments get larger, they are doing relatively poorer. Everybody is still getting richer, the growth of government hasn't stopped the wealth creation process, but it has slowed the wealth creation process. If we make government small today, we're not going to forget how to make cars. If you look back at 1900, we didn't know how to make cars, literally, no one knew how to make cars. The knowledge of how to make a car did not exist. Now it does. If government gets small today, that won't disappear, but the economy will grow faster. 
The English legal tradition 

MM: When we look at your list of countries, we notice that English-speaking countries, Great Britain, the United States, Australia, New Zealand, Ireland, Canada to a lesser extent, are the countries where the size of the state is lowest, whereas if you look at continental Europe especially, you get into the upper 40, 50 or even 60% of GDP spent by governments. Does this mean that if there is no major change, if we look at the next twenty or thirty years, the English-speaking countries will remain the major economic forces in the world and that this trend will become even more pronounced? For a society like Quebec, this is a crucial issue I would say! Should we hitch ourselves to the rest of the continent or look to other models? 
RL: Well, clearly, English legal institutions really matter. Going to the other study, the economic freedom study, of the top eight countries, seven of them have English legal traditions. I include Singapore and Hong Kong because for a long time, as colonies, they were under English administration. So the English common law and so on really do seem to matter. These countries are rich. The average English-speaking nation is richer than the average continental country, richer than France, Spain, even Germany. There are always exceptions, you have India, they've done terrible because they didn't follow the 19th century English model, they followed the mid-twentieth century English model which has repudiated most of these legal traditions.  

So I don't know that speaking English makes you rich, I'm sure it doesn't! But it's not the speaking of English or anything like that that matters, it's these institutional arrangements, the English common law, the protection of property, enforcement of contracts and so on. You and I have a contract, if it cannot be enforced by law it's very difficult to run a business. In many parts of the world, business contracts are de facto unenforceable, so businesses don't follow contracts. It's really not rocket science. In large parts of the world, land titles don't exist, so you can't borrow money. If you don`t have a land title, no banker will lend you money. These are what I call the core functions of government, the provision of a system for recording titles.  
Some of my libertarian friends will tell me about private alternatives to that, and those are great. But the fact is governments historically have provided those basic functions. I guess the point is we can have too little government here too. And in many ways, countries like India have both: they have too little government, too little of the good kind, the good kind being the one that enforces contracts, and too much of the bad kind, the bad kind being the redistributive kind. Too little of the good kind, too much of the bad, so worst of all worlds. 
What's good about the English-speaking countries is that even if governments have grown well beyond what is advisable, they still do the necessary things. In England, the United States, Australia, Canada, the contracts are basically enforced. Despite nationalized health care, and despite all the interventionism, those societies still function.  

Mot pour mot précédents

<< retour au sommaire