tag:theconversation.com,2011:/africa/topics/big-government-7006/articlesBig government – The Conversation2016-12-14T19:07:49Ztag:theconversation.com,2011:article/702142016-12-14T19:07:49Z2016-12-14T19:07:49Z‘Big government’ hurts growth? It’s not as simple as that<figure><img src="https://images.theconversation.com/files/150011/original/image-20161213-18879-xb6uxj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How harmful are big governments?</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>Since the late 1970s it has largely been <a href="http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth">the consensus</a> that “big government” is detrimental to growth. This manifested after the financial crisis when countries, including previously fiscally-comfortable countries like <a href="http://www.spiegel.de/international/germany/radical-cutbacks-german-government-agrees-on-historic-austerity-program-a-699229.html">Germany</a> and the <a href="https://www.theguardian.com/uk/2010/jun/22/budget-2010-vat-austerity-plan">UK</a>, adopted austerity programs, ostensibly to spur growth by cutting government expenditure.</p>
<p>But our research shows the story is not so simple. We found that studies tend to reflect selection bias. Findings that indicate a negative association between government size and growth are more likely to be published than those that show either a positive or no association. </p>
<p>Our research also found that the affect of the size of government is different between developed and developing countries and that there is a lot we don’t know about the optimal size of government, and whether some parts of government should be smaller than others. </p>
<h2>The existing research is inconclusive</h2>
<p>The existing research on the effect of the size of government on economic growth is actually contradictory, with <a href="https://www.jstor.org/stable/1804136?seq=1#page_scan_tab_contents">some researchers</a> asserting that a bigger government enhances growth, and <a href="https://www.jstor.org/stable/1058716?seq=1#page_scan_tab_contents">others</a> arguing that it hurts growth. </p>
<p>The arguments for a positive impact of a big government rely on examples like the potential of infrastructure development to <a href="http://www.abc.net.au/news/2016-12-12/treasurer-to-spend-state-budget-windfall-on-jobs/8113764">create jobs</a>, or intervening when there is a market failure (e.g. <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3532604/RBS-now-58pc-owned-by-UK-government.html">taking over banks</a> during the GFC). Some of the <a href="http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth">negative affects</a> of a large government are thought to be felt through the excess burden of distortionary taxes, and government inefficiency.</p>
<p>But the research is ambiguous and inconclusive. A <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6419.2011.00697.x/abstract">survey</a> of the academic literature suggests the conflicting results could be a result of the decisions researchers make. About what measurement of government size is used, for instance, or the type of countries studied – developed or less-developed, rich or poor.</p>
<h2>Our research</h2>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12307/full">Our research</a> considered these distinctions, and so we sought to account for these variations when examining the relationship between government size and growth. </p>
<p>We did this through <a href="https://himmelfarb.gwu.edu/tutorials/studydesign101/metaanalyses.html">meta-analysis</a> - statistically analysing 799 estimates reported in 87 existing studies, looking at the relationship between government size and economic growth. We looked at the different measures of government size (e.g. total government expenditures and government consumption) and different levels of development (developed and less developed countries). </p>
<p>We found only partial support for the idea that the size of government has an effect on economic growth. Specifically, our research suggests that the effect of government size on economic growth is negative in developed countries but insignificant in less developed countries (LDCs). </p>
<p>Put differently, while we find evidence of a negative effect of government size on economic growth in developed countries, we find no effect in the case of LDCs. This is the case irrespective of whether government size is measured as the share of total expenditure or consumption expenditure in GDP. It also suggests that big government is usually bad for growth in developed countries but not in LDCs. </p>
<h2>What this means</h2>
<p>There are a couple of things to take away from our research.</p>
<p>For starters, as <a href="http://link.springer.com/article/10.1007/s11127-009-9527-7">has been hypothesised previously</a>, a small government can enhance economic growth by providing the minimum for investment and growth - the rule of law and protection of property rights etc. But when an economy becomes richer, the size of the government tends to grow beyond its efficient level, so a further rise in government size would reduce economic growth. </p>
<p>This is explained by <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0475.2010.00517.x/abstract">Wagner’s Law</a>, which suggests that when a country becomes industrialised and richer, it will be accompanied by an increased share of public expenditure. But while there are certain forms of government spending which are necessary to sustain a functioning economy, spending beyond a specific level can bring more costs than benefits. </p>
<p>But the existing literature does not explain much about the optimum government size. Theoretically, there is a point beyond which increases in government size lead to a decline in economic performance. But empirical work is limited and inconclusive in this area, and thus it is not clear what this point is. </p>
<p>The distinction between developed and LDCs is also very important. Caution needs to be taken when generalising the effects of government size on growth. </p>
<p>There’s a lot that we don’t know in this space. Further research is needed on the relationship between the size of particular parts of the government, and economic growth. Such studies are more likely to produce policy-relevant findings compared to studies that focus on total measures of government size. </p>
<p>This would help policymakers determine how big governments should be and which components of government to cut in the context of tight government budget constraints and excessive government expenditures.</p><img src="https://counter.theconversation.com/content/70214/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sefa Awaworyi Churchill is affiliated with Monash University. </span></em></p><p class="fine-print"><em><span>Mehmet Ugur, University of Greenwich, receives funding from ESRC and DfID</span></em></p><p class="fine-print"><em><span>Siew Ling Yew does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>That “big government” hurts growth has become received wisdom, leading many countries to austerity policies. New research shows it is a lot more complicated than that.Sefa Awaworyi Churchill, Casual Academic, RMIT UniversityMehmet Ugur, Professor of Economics and Institutions, University of GreenwichSiew Ling Yew, Lecturer, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/549252016-02-18T13:51:31Z2016-02-18T13:51:31ZWhy Apple is making a stand against the FBI<p>Apple <a href="https://assets.documentcloud.org/documents/2714005/SB-Shooter-Order-Compelling-Apple-Asst-iPhone.pdf">has been ordered</a> to help FBI investigators access data on the phone belonging to San Bernardino gunman Syed Rizwan Farook. The technical solution proposed by the FBI appears to undermine Apple’s earlier claim that they would be unable to help. However, in a <a href="https://www.apple.com/customer-letter/">strongly worded reply</a>, Apple CEO Tim Cook has indicated that Apple is unwilling to comply with this order, as it would do irreparable damage to all iPhone owners’ security and privacy.</p>
<p>On newer Apple phones like Farook’s (an iPhone 5c, running iOS 9 <a href="http://www.wired.com/wp-content/uploads/2016/02/SB-shooter-MOTION-seeking-asst-iPhone.pdf">according to the court motion</a>), data stored on the phone is protected by encryption, using the passcode (which is also used for unlocking the phone) as part of the key. (This is a different issue from “end-to-end encryption”, which concerns iMessages when they are in transit between phones.) </p>
<p>Apple <a href="http://www.reuters.com/article/us-apple-court-encryption-idUSKCN0SE2NF20151021">recently claimed</a> that they were unable to decrypt such information at all, as they do not have the passcode. This is also the line it takes in its policy <a href="https://www.apple.com/privacy/government-information-requests/">statement on providing information to governments</a>, first posted in May 2014.</p>
<h2>Blocking brute force</h2>
<p>In <a href="https://assets.documentcloud.org/documents/2714005/SB-Shooter-Order-Compelling-Apple-Asst-iPhone.pdf">the court order</a>, the FBI is undermining this claim. The FBI claims that Apple can write and run software that can help discover the passcode and access Farook’s data. The software should switch off security features that currently prevent a “brute force attack” – trying all possible passcodes – which should take little time if the passcode is “numerical” as claimed by the FBI. </p>
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<span class="caption">Hard to break by brute force.</span>
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<p>One of these security features is an enforced increasing delay between repeated passcode attempts, which would make brute force attempts take too excessive a time. The other defence against brute force is auto-erasure: if this is switched on (as appears likely), after ten failed attempts, the data on the phone is effectively erased. </p>
<p>Finally, to enable automation of the brute force attack, the FBI are asking for a method to enter passcodes electronically. With all of this, the FBI has been careful to point out that it would not be attempting to break encryption – but merely asking Apple to remove security measures that get in the way of the FBI discovering the key.</p>
<h2>A message to its customers</h2>
<p>In its response, Apple has not gone down the road of claiming that the suggested approach will not work. This may be an indication that it could actually work, but also a deliberate choice to focus the argument elsewhere. Crucially, Cook’s response appears targeted at the public: it’s headed “A Message to Our Customers”. This is in line with their general marketing which emphasises privacy as a selling point.</p>
<p>Cook stresses how dangerous the proposed software would be for personal security. iPhone encryption now protects all sorts of important personal data, and once software like this exists, it could end up in the wrong hands or be used for much wider purposes by governments. Essentially, it would weaken encryption permanently for Apple’s customers. </p>
<p>Cook also makes it clear that Apple has no sympathy with terrorists – but points out they will always be able to find more secure methods if Apple’s security is weakened. The FBI’s argument that the software would be less risky by only being built for the specific phone is also quickly dismissed.</p>
<h2>Making a stand</h2>
<p>Cook makes a strong stand against this and other so-called <a href="https://dspace.mit.edu/handle/1721.1/97690">backdoor</a> methods of accessing a phone’s data. He argues that companies should not be asked to systematically undermine the security they build into their products. </p>
<p>This echoes Apple’s recently submitted <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/draft-investigatory-powers-bill-committee/draft-investigatory-powers-bill/written/26341.pdf">evidence on the UK draft Investigatory Powers bill</a>. There, Apple strongly resisted being asked to assist in “bulk equipment interference” and “<a href="https://theconversation.com/investigatory-powers-bill-will-remove-isps-right-to-protect-your-privacy-50178">removal of electronic protection</a>”, either of which could allow UK intelligence and law enforcement to make requests very similar to the FBI’s. IT lawyer Neil Brown even suggested that <a href="https://twitter.com/neil_neilzone/status/699983639870894080">the UK has a similar law</a> to the <a href="https://www.law.cornell.edu/uscode/text/28/1651">1789 All Writs Act</a> invoked to justify this US case.</p>
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<p>The nominal audience may have been Apple’s customers, but really Cook chose to make a stand against governments. The argument that encryption is a necessary component of security and privacy in a modern society appeared to be won already. However, companies cannot meaningfully offer security and privacy measures to their customers if they are simultaneously forced to subvert them for governments, with all the risks involved. </p>
<p>Apple are demanding the right to operate in the market they are carving out for themselves. We may feel they have common sense on their side, but it is clear that the battle over the legal position is far from over.</p><img src="https://counter.theconversation.com/content/54925/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eerke Boiten receives funding from the UK government for the Kent Academic Centre of Excellence in Cyber Security Research, as well as from the EU for an Innovative Training Network in Cyber Security.</span></em></p>Apple is pushing back against the FBI’s order to decrypt the iPhone of San Bernardino gunman Syed Rizwan Farook for the sake of privacy and security.Eerke Boiten, Senior Lecturer, School of Computing and Director of Academic Centre of Excellence in Cyber Security Research, University of KentLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/172662013-09-04T20:39:12Z2013-09-04T20:39:12ZElection 2013 Essays: What is government for?<figure><img src="https://images.theconversation.com/files/30646/original/667kdkzw-1378257439.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What would the role of government be if, as expected, Tony Abbott wins Saturday's election? What do Australians expect of government in 2013?</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p><em><strong>Election 2013 Essays:</strong> As the federal election campaign draws to a close, The Conversation asked eminent thinkers to reflect on the state of the nation and the challenges Australia – and whichever party wins government – faces in the future. Today, John Daley considers whether government actually does what it says on the tin.</em></p>
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<p>Despite the election’s sound and fury, our major parties enthusiastically agree about much. They agree that budgets should balance – but don’t want too much virtue in the short term. They agree we should keep spending on health and education, spend more on infrastructure soon, and more on defence – eventually. No-one is attacking Australia’s welfare programs with a big knife.</p>
<p>Lurking beneath the consensus, however, are expectations of government that cannot be met, and budgets that in the long run will not balance. The deepest contradiction is the size and role of government. Voters want governments that are small, but do a lot.</p>
<p>Some <a href="http://ipa.org.au/publications/2175/australia's-big-government-reaches-record-highs">say</a> Australia already has “big government”, meaning government activity is a large proportion of the economy. The Centre for Independent Studies, for example, has <a href="http://www.cis.org.au/target30/what-is-target30">launched a campaign</a> to reduce government spending beneath 30% of gross domestic product. </p>
<p>The reality is that for a developed country, Australia has small government. This is so even if one notionally includes compulsory superannuation payments as part of Australian government, on the basis that they are analogous to compulsory social insurance and pension payments in other countries.</p>
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<p>Of course, government in Australia is much larger than in Somalia. This is not surprising. As countries get richer, they almost always spend more of their money on welfare and health. Indeed, welfare, health and education are more than half of government expenditure. Add defence and infrastructure and you have two-thirds of Australian government spending.</p>
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<p>Not only is spending on services high, but it is also popular. Both major parties recently agreed to increase income tax to pay for a new national disability insurance scheme, and there was barely a mutter of public protest. Public support for welfare is not surprising: many benefit from the safety net of social security. A <a href="http://melbourneinstitute.com/downloads/hilda/Stat_Report/statreport-v7-2012.pdf">survey shows</a> that 23% of households under the age of 57 relied on some kind of welfare at some stage over nine years, although only 10% relied on welfare for more than four years.</p>
<p>Spending on seniors in Australia is more of a universal benefit than a safety net. Despite 20 years of compulsory superannuation, most retired households still receive a substantial age pension. Unpublished Grattan Institute work shows that 70% of retired households receive at least a part pension – generally more than A$200 a week. </p>
<p>Again, however, there is little sign that age pensions will be constrained. Age pension expenditure has increased by over $13 billion in real terms since 2003. Much of the increase was the result of explicit government decisions to increase the rate and eligibility for pensions rather than the ageing of the population.</p>
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<p>Given all this spending, how does Australia manage to keep its government relatively small? In short, we have the world’s most tightly targeted welfare system. Although benefits are relatively generous for those in the bottom 20%, governments provide relatively little in welfare payments to those in the top 80%. </p>
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<p>Middle class welfare in Australia is all but extinct, at least for those under 60. With the baby bonus and Family Tax Benefit A confined to low income families, and the opposition promising to abolish the schoolkids bonus, all that remains is some Family Tax Benefit B - and it is <a href="http://www.news.com.au/national-affairs/treasury/family-tax-ripe-for-budget-axe-natsem-modelling-finds/story-fn59nsif-1226587257174">estimated</a> that only $2 billion of this goes to households not in the bottom quintile.</p>
<p>Government size is further constrained in Australia by two distinctive policy innovations: the <a href="http://studyassist.gov.au/sites/studyassist/helppayingmyfees/fee-help/">FEE-HELP scheme</a> that funds higher education through income-contingent loans, and superannuation. These facilitate private funding for higher education and for retirement that governments fund directly in many other countries.</p>
<p>Although change won’t necessarily reduce the size of government, there are questions about the role of government in delivering social services. Government pays for many social services that companies and non-government organisations provide. These include drug and alcohol rehabilitation, homeless services, and childcare. The highest profile example is perhaps the private firms and non-government organisations that took over the role of the Commonwealth Employment Service in job services.</p>
<p>Such outsourcing forces governments to articulate more carefully the outcomes they want. However, as the job services industry illustrates, the transition can be difficult. Many believe this outsourcing was poorly designed so that private firms were rewarded for outcomes that would have happened anyway. And subsequent reform is made harder as private providers become vested interests.</p>
<p>But even if the role of government in welfare, health, education and social services changes, public spending is unlikely to shrink much in these areas. Government will still foot much of the bill.</p>
<p>Government size – and economic efficiency – is also driven by government spending on services such as electricity, water, telecommunications and transport. In more developed economies these services are often privatised, and implicit cross-subsidies give way to “user-pay” pricing. The Commonwealth government has largely sold out of airlines, telecommunications and banking. Its major remaining commercial asset is perhaps the postal service. Australia has relatively few services left to privatise, although there remains some way to go in privatising utilities in Queensland and New South Wales.</p>
<p>There is perhaps more opportunity to reduce government size by re-examining the multitude of government programs that emerge in response to political pressure for government to “do something” to fix social problems. Financial Review journalist Laura Tingle <a href="http://www.quarterlyessay.com/issue/great-expectations">identified</a> the “great expectations” that Australian governments must solve every social ill. Many programs for regional development, innovation promotion, and manufacturing support fall into this category.</p>
<p>Yet taking the axe to such programs is unlikely to radically change the size of government – they are a small portion of total government spending. Nor is cutting this spending ever easy: every program has a group with a vested interest in its preservation.</p>
<p>So despite the rhetoric, the size of government in Australia is unlikely to change radically. Should we be worried?</p>
<p>Some claim that countries with bigger governments tend to have less economic growth. All taxes discourage economic activity; if government is bigger and more tax is levied to pay for it, there may be more disincentives to investment and working. However, correlations between size of government and economic growth don’t imply causation.</p>
<p>The economic drag of government depends more on the efficiency of its tax system than its size. Consumption taxes such as the GST don’t distort economic activity much, and in particular they don’t discourage investment or workforce participation. Some other taxes, such as stamp duty, are inherently much more distorting, and can be substantial obstacles to using resources productively.</p>
<p>Tax reform is one of three major reforms that could make a big difference to Australian economic growth over the next decade, as Grattan Institute discussed in its <a href="https://theconversation.com/how-can-australian-governments-change-the-game-for-economic-growth-7548">Game-changers report</a>. Our corporate taxes are relatively high, our consumption tax is relatively low, and we have a host of small taxes that drag on the economy.</p>
<p>Therefore, for a developed economy, Australia has relatively small government and few opportunities to reduce its size. Our tax system could improve. Does the absence of big economic reforms in the election campaign reflect an absence of big challenges?</p>
<p>Australia’s big challenge is that government is likely to spend more than its income for a long time. This has little to do with the size of government. Around the world there are small governments with deficits, and big governments with surpluses. It has everything to do with discipline: being prepared to cut lower value activities, and otherwise to increase taxes, so that government income matches the services people want. In the process we need to avoid taxes that severely distort economic activity – even though such taxes tend to be more politically palatable.</p>
<p>The alternative is that Australian governments continue to run deficits, increasing the interest bill – and therefore taxes – for future generations.</p>
<p>What might happen after the election? Recent history suggests little desire for substantial cuts to government services. There may be opportunities to cut some lower value activities. But few have been prepared to offend any voting minority in an election campaign. The appetite of the successful party to take on vested interests after the election remains to be seen.</p>
<p>Even so, the media and the voters seem ahead of our political parties in understanding that government budgets face long-term challenges that will require much more painful decisions than those foreshadowed during the campaign. </p>
<p>As Grattan Institute research <a href="http://theconversation.com/australian-governments-face-a-decade-of-budget-deficits-13616">has shown</a>, in the next 10 years Australian government budgets are looking at deficits of around 4% of GDP – $60 billion in today’s terms. Improving the budget balance by just $10 billion would require lifting the GST from 10% to 12%, almost doubling municipal rates, or reducing the health budget by 10%. These unappealing measures illustrate the size of the task.</p>
<p>Australia is blessed with a high standard of living, governments that deliver much that people value, and relatively efficient administration. Unfortunately, however, the size of government that voters want is not currently matched by the taxes we are prepared to pay. The task of Australia’s next government will be to deliver the bad news that something has to give.</p>
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<p><em><strong>This is the fourth article in our Election 2013 Essays series. Stay tuned for the other instalments in the lead-up to Saturday’s election.</strong></em></p>
<p><strong>Part one:</strong> <a href="https://theconversation.com/election-2013-essays-australia-and-the-world-17314">Australia and the world</a></p>
<p><strong>Part two:</strong> <a href="https://theconversation.com/election-2013-essays-the-state-of-australian-democracy-17530">The state of Australian democracy</a></p>
<p><strong>Part three:</strong> <a href="https://theconversation.com/election-2013-essays-its-the-economy-stupid-17470">It’s the economy, stupid</a></p>
<p><strong>Part five:</strong> <a href="https://theconversation.com/election-2013-essays-the-philosophy-of-voting-17231">The philosophy of voting</a></p>
<p><strong>Part six:</strong> <a href="https://theconversation.com/election-2013-essays-australia-for-the-long-term-17268">Australia for the long term</a></p><img src="https://counter.theconversation.com/content/17266/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with a $15 million one-off endowment from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income, along with the income from a number of affiliates disclosed on its website, to pursue its activities.</span></em></p>Election 2013 Essays: As the federal election campaign draws to a close, The Conversation asked eminent thinkers to reflect on the state of the nation and the challenges Australia – and whichever party…John Daley, Chief Executive Officer , Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.