Monday, October 3, 2011

Small Government – what is the price?

Small government is all the rage and there are times when that seems like a good idea. Many government regulations seem not only unnecessarily onerous, but somehow misconceived. In plain English they impose regulation where the government has no business regulating.

But looked at more carefully, all the talk about smaller government is not well thought out. One needs to begin by asking what does the government do; the list of functions of the US government is very large indeed. Here are some items on that list:

The government builds schools, roads, airports. It provides for essential avenues of traffic and communication without which our economy could not function.

The government provides the system of justice, it organizes periodic elections. The government provides police, prosecutors, and prisons.

The government takes care of relations to other nations. That involves, on the one hand, the military. It involves on the other hand customs and immigration. It keeps track of citizens, provides passports for foreign travel and for the naturalization of immigrants.

The government assures us that food is safe because it inspects butcher shops, restaurants, dairies and food processing plants.

The government regulates banking, investments and stock markets.

The government conducts space exploration. It supports the arts and sciences through the National Endowment for the Arts and the National Science Foundation.

The government is intimately involved in caring for public health through monitoring, through vaccinations, and support of research.

This is a partial list but it is quite impressive. Yes we pay a lot in taxes but we do receive a generous return.

There are two ways of making the government smaller. The first is simply to end certain activities or services. The other is to privatize them, that is to have them performed by for-profit organizations. 
Consider the first one. Ever since the days of Ronald Reagan the mantra has been that government is the problem and we should shrink government. Along those lines Congress abolished a number of limitations on financial dealings and weakened government supervision of investment. Banks could now also make speculative investments. The result was an enormous financial collapse caused by institutional investors taking crazy risks in order to make more money. A significant number of banks still have an uncertain future. The economy is in terrible shape. Unemployment is still about 9%. Government regulation of the financial sector is essential. 
Consider what would happen if we abolished government meat inspection, government control of alcohol products. How many people would die of food-borne illnesses? Shall we close schools or close our police departments? Shall we stop building and maintaining roads and bridges?

There are, we are finding out, a significant number of government services that we cannot do without. To that extent small government is not a possibility.

But – say the advocates of shrinking the government – the services could better be performed by private, for-profit companies.

One example of privatization should make us think twice about this proposal. Many states have privatized their prison systems. These companies make more money if there are more prisoners with longer sentences. In several states private prison companies have lobbied the Legislatures to extend their sentences for various criminal offenses. The privatization of prisons has led to the interference by private companies in the legislative process. It has produced a draconian system of punishments that devastates lives.

Government services performed by private companies for-profit are not always a blessing. Add to that that many services performed by the government can only yield a profit for private companies if they do an inferior job. There are companies that try to make money by running schools. But so far they have rarely succeeded and for-profit schools are often understaffed. 
There are no indications that private for-profit health care is better than health-care run by nonprofit organizations. The US has the most expensive health care in the world but at least 15 countries do better than we on basic health indicators such as life expectancy or infant mortality rates.

Once we look more closely at the project of shrinking government, we see, on the one hand, that the government performs essential services. Disaster ensues when we try to do without them. On the other hand, privatization is often not a good prescription. In some cases it is impossible because the service cannot make money. In other cases, private companies can earn money by performing the service but their doing so damages public interest.

We will have to put up with the complicated government we have because we live in a very complicated society.