Bureaucrats Grinding The Faces Of The Poor

That’s why the first welfare states, in Germany and Britain, only got going after 1880, once industrialization had raised incomes far enough that the surplus available to be taxed was considerably larger than at the beginning of the century. The large 20th Century state was initially a product of the two World Wars, but it was sustainable only because Western countries had by that stage raised the incomes of the mass of their populations far above subsistence levels. The West’s rise to riches generally happened before the expansion of the state; for example, Calvin Coolidge’s United States still had public spending well under 10% of GDP.

Look at today’s emerging markets, and for countries with similar income ranges to each other, government size correlates almost completely inversely with growth rates. Latin American countries tend to have larger governments than Asian countries – and lower growth rates. Apart from Venezuela, the only Latin American country with a European size of government, 40% of GDP, is Brazil, and it has clearly suffered very badly in the last three decades from its government’s excessive size.

In East Asia, the extraordinary economic rise of Japan, South Korea and much of South East Asia has been based on government sectors that represented less than 25% of GDP. Only in recent years, as growth in those countries has slowed with their increasing wealth, has government’s share of GDP crept up towards Western levels.

In Africa, poverty is deep and governments are generally small, but the causation runs the opposite way from the OECD’s happy bureaucratic assumption: the thugs that run the dictatorships and the kleptocrats who run the democracies of Africa would all dearly love to grow government, but they are unable to extract any more tax revenues from their impoverished people, most of whom are still close to the subsistence line or indeed below it.

This explains why the tax take percentage of GDP is lower in poor countries. In general, that statistic says nothing about the wishes and capabilities of poor country governments; the tax effort that they would need to extract 40% of GDP from an African country would be equivalent to that needed to extract perhaps 70-75% of GDP from a Western country. Presumably, even the statist bureaucrats at the OECD must admit wistfully that any such attempt would be hugely damaging to the nation’s welfare, both economic and social.

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(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put ...

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Gary Anderson 1 year ago Contributor's comment

Interesting but radical article. Perhaps the OECD understands that nations with higher productivity growth can benefit from higher taxes just like nations with low productivity growth should give tax breaks to lower and middle. But Trump really only did a little of that. He mostly gave tax breaks to the wealthy.