6.7.1 Political Decisions on Government Spending

Political decisions on government spending are largely ideological, although they must take some account of economic considerations

A government spends money on administration and on the services and benefits that it delivers to the population (3.2.3).  One of its most important decisions is its budget for revenue and expenditure (3.3.8), upon which individualists and collectivists have fundamentally different approaches:

●  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.

●  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.

The individualist view, in the form of neoliberalism (3.5.9.1), has dominated political decisions on government spending, most notably in Britain and America, since the 1980s.  There has been a backlash, though, particularly since the Great Recession in 2007/8.  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 contest between individualists and collectivists, about political decisions on government spending, can be seen as a disagreement about how these decisions should be taken.  They both have arguments about economic efficiency to support their positions, as described earlier (3.5.2), but their disagreement is mainly ideological.  Individualists are worried about having a welfare state, seeing it as having the potential to become over-dominant and control people’s lives.  They argue that markets always reflect people’s wishes, but they must also acknowledge that private companies only prioritise their own profits.  The collectivist viewpoint, that this should be a government decision, has the advantage of being politically mediated – but that is only true if the government bows to the wishes of the population, in ‘joystick politics’ as described earlier (6.2.6.2).

Governments must negotiate the answers to the five key political questions that are addressed in the following sub-sections:

●  Which services should be publicly funded for some or all of the population (6.7.1.1)?  Health and education are both contentious issues.

●  Who should provide the chosen public services (6.7.1.2)?

●  What should be the level of benefits, such as pensions and welfare, to help the needy (6.7.1.3)?

●  Are there investment projects, such as infrastructure, that the government should provide funding for (6.7.1.4)?

●  What levels of taxation and government borrowing are needed, to pay for its spending (6.7.1.5)?

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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/edition04/671a.htm.