Small government means better governance
Writing in the mid-twentieth century about the risks of collectivism, Friedrich Hayek stated, "The more the state plans, the more difficult planning becomes for the individual."
However, it could be equally said the more the state plans, or attempts to do so, the more difficult planning becomes for the state.
This has much to do with the fact that the increasing size and scale of government has created a mass of internal contradictions, wherein its varied activities conflict, causing a host of often unintended, yet harmful, consequences.
Consider the following examples.
The regulated minimum wage imposed for equity reasons leads to the continuing unemployment of unskilled workers.
But rather than abolishing the minimum wage and thereby eliminating a major cause of unemployment, the government spends on expensive and largely ineffectual labour market training programs and, even worse, shunts the unemployed away to receive passive welfare payments.
Federal Medicare provides taxpayer-financed universal access to health care, yet state governments respond to increasing demand for free public hospital treatments not through direct pricing mechanisms but by rationing the supply of beds and creating treatment waiting lists.
Worse still, governments increasingly react to growing health care costs under a subsidised system by enacting illiberal, paternalistic controls over what individuals choose to eat, drink and smoke.
Fiscally expensive rebates and subsidies are provided with the policy objective of making child care affordable, however, mandated staff-child ratios and staff qualification regulations render child care less affordable for most families.
Governments make housing less affordable for prospective first entrants into the housing market by restricting the supply of land available for development and taxing property transfers, while at the same time offering cash subsidies to first homebuyers that only fuel further demand.
The carbon tax is designed to force us to use less energy, or at least switch to costly solar and wind power, although the government subsidises selected households and industries to discourage them from making behavioural adjustments as required by the tax policy.
When financial institutions or other large corporations earn a profit, government assails them for supposedly 'gouging' their customers; when banks and major corporates earn a loss, government forces the taxpaying public to bail them out.
The list of illogical contradictions of modern government in a muddle goes on and on, as the left hand of state intervention increasingly works against the right hand while the overall size of government grows unabated.
The question that needs to be asked is, why does all this policy tomfoolery persist, with all the wasteful absorption of scarce resources that goes along with it?
Politicians in democracies tirelessly strive to gain sufficient voter support, selling policies to attract constituents whose votes could be captured and recaptured as new issues emerge.
But when the state becomes perceived as a vehicle through which everybody can live at the expense of everyone else, politicians can literally purchase votes through new and additional spending commitments, promising new regulatory privileges, or hand-on-heart guarantees of tax breaks or 'no new taxes'.
In this environment, all and sundry, from working-family members to crony capitalists and everyone in between, are transformed into mere petitioners for their slice of the favouritism pie.
Yet voters, bureaucrats and other political actors also strenuously resist efforts to reduce or eliminate their favoured existing hand-outs, regardless of the economic, financial or social costs of these upon the broader community.
The fevered doling out of new benefits, and the political reluctance to withdraw existing benefits, leads the public sector on a path of continuing expansion, distorting the market process and reducing economic growth.
But even the state has its own economic limits, because at some point its expansion reduces the private sector growth which governments ironically rely upon to fund spending and support its regulatory and tax administrations.
Achieving a substantial reduction in the things that governments do, and how much they do it, will have the significant payoff of removing the many internal policy contradictions at the heart of big government.
If much smaller government is achieved, politicians and government administrators can specialise in a few core issues, such as protecting property rights and keeping the peace, performing these limited tasks well rather than the presently unsatisfying situation of being the jack-of-all-trades but master of none.
Voters will find themselves more financially and economically empowered in a low-taxing, yet fast-growing, economy, discovering that cost of living pressures were largely an artefact of costly government interventions of the past.
Crony capitalism and special interest posturing become unattractive vocations, as governments have no useful favours to dole out and the public becomes more hostile toward efforts to again raise government size to unsustained proportions.
In simple terms, small government becomes coherent government and that means a substantial improvement in the quality of democratic governance as a whole.
This article originally appeared on The Drum on 23/7/12 and can be accessed at http://www.abc.net.au/unleashed/4147992.html