Wednesday, 4 August 2010

Salami slicing

An increasing concern is being expressed, particularly on the right of the Conservative Party, that the Comprehensive Spending Review is taken the form of salami slicing. Quite big slices, yes, but rather than starting from a zero base and asking whether government needs to be undertaking a particular activity, good programmes are being cut as much as bad ones.

In this context the presentation by Andrew Gamble on the 2010 spending review at a British Academy forum last week was of particular interest. Gamble looked at different conceptions of the state such as the mimimal state (Nozick), the frugal state (Bentham) and the active state (Keynes). He set out three models of government spending (each relating to a share of public expenditure in GDP):
1) 44 per cent, the social investment model
2) 38 per cent, the Anglo-Saxon model
3) 25 per cent model, the free market model with the 1920s and 1930s in Britain as the historical precedent.

He argued that after periodic forest fires public spending tends to grow back. The consensus in the discussion was that Britain was likely to revert to a 38 per cent model and indeed there were some indications that that was George Osborne's conscious intention.

Of course, it is possibly to become too preoccupied with the arithmetic (which in any case is substantially influenced by how fast GDP is growing) and the size of the state rather than its shape. What can the state do and how can it do it effectively?


Anonymous said...

What do the percentages mean?

Is it that 44 per cent prefer the social investment model? etc...

Wyn Grant said...

44 per cent is the level of public expenditure as a percentage of GDP associated with the social investment model. I will change the wording to make it clearer.

Anonymous said...

Thank you.

It is there a guide as to what the current expenditure is and how it has changed over say the last 50 years?

It is a shame that governments (particularly the UK) tend to be so short-termist. For instance the oil revenues from the North Sea from the 1970s could arguably be put to a fund for future generations (like in Norway?). Also, more recently, the mobile licenses that were sold under Blair/Brown, which generated something like £20bn. Plus other windfall taxes that have been applied in the 1990s.

A longer-term view is perhaps what is required but difficult to get in politics. It would be a very bold government that would contemplate such a thing (probably in a boom, obviously this is not something that can be done at the moment).

Something like that could fund all higher education via the interst that would accumulate whilst keeping the capital preserved, so that it could sustain itself. That way governments wouldn't have to worry about it ever again for future generations...

Wyn Grant said...

The OECD publishes stats on the share of public expenditure in GDP over long time periods, but does not break this down very much.

Host said...

The choice of bullets on your list of models might be worth amending a tad - it took be a few seconds before I realised that it wasn't a "1.44%" model.

On the Osborne point, he is, of course, conciously trying to reduce the scope and size of the state... the question is, are the government, clearly in fear of losing the next election already, rushing through too much too quickly?

Wyn Grant said...

There is a view that governments should hit the grounbd running and get the unpopular stuff out of the way in their first year or two of office.