Businessweek Archives

Bedtime For Big Government


Economic Viewpoint

BEDTIME FOR BIG GOVERNMENT

After the overwhelming Republican victory last November, the pundits said that not much was going to be accomplished, that politicians' talk was a lot cheaper than actions, and that it would be, more or less, politics as usual. But the hardheaded experts were wrong.

The House and Senate have agreed on a plan to cut taxes over the next several years and propose to sharply limit spending on Medicare, Medicaid, welfare, and many other programs. A surprising number of senators and representatives are advocating either a much flatter income tax or, more radical still, the complete replacement of the income tax by a consumption tax. Congress is calling for systematic evaluation of the costs of major federal regulations and apparently will succeed in deregulating the telecommunication and banking industries, and in placing caps on punitive damages in civil cases.

Although the Republicans are taking the lead, many Democrats also sense that voters demand change. Some Democrats in Congress are supporting the Republican initiatives, and President Clinton's proposals to cut federal spending and taxes during the next 10 years are similar to what Congress is doing.

I have been skeptical that even the powerful voter mandate for change could overcome the dedicated opposition of groups with a vested interest in the status quo. After all, the convoluted tax code with its numerous loopholes and government programs that subsidize thousands of interest groups, from the elderly to the merchant marine, resulted from rough infighting during the past several decades. How could an election reverse what had evolved over time out of a complicated political process?

EASY VICTORIES. Some have attributed what is happening in the U.S. to the growing power of the religious right, with its conservative social and economic agenda. Others say Americans gave up on politicians and the big government they created because of repeated scandals. Still others claim the middle class and white males are finally rebelling against the social experimentation that began with Franklin D. Roosevelt's New Deal and culminated in Lyndon B. Johnson's Great Society.

However, explanations based on the religious right and other uniquely American developments cannot explain the successful attacks on big government in many other nations. The Progressive Conservative Party just won a resounding victory in the Canadian province of Ontario, a traditional hotbed of liberal thinking, even though the party was ridiculed by the ruling liberal New Democratic Party as Republican wannabes. The French conservative Jacques R. Chirac easily won the contest for President, a post the Socialists held for 14 years. A former socialist, Fernando Henrique Cardoso, used a largely market-oriented platform to gain a big victory in a contest against a leftist opponent for the Brazilian presidency, while the Peronist Carlos Saul Menem easily was reelected President of Argentina after six years of freeing the economy and maintaining strict control over inflation and the printing of money.

COSTLY LESSON. The most impressive evidence of the reaction against big government may be the sensible policies followed by Nelson R. Mandela in South Africa. Despite being imprisoned for 27 years by an Afrikaner government that discriminated outrageously against blacks, Mandela's program so far is surprisingly pro-business. He apparently appreciates that the discrimination there was not due to capitalism but to government laws designed to protect white workers against competition from South African blacks.

Voters all over the world may have learned through 50 years of social and economic engineering, highlighted by the total collapse of central planning and communism, that extensive government spending and regulation heavily damage the economy and undermine values and morale. It may seem a bit surprising that it took half a century to learn this costly lesson. But the harm from big government only slowly became apparent to the general public partly because voters had to see through a smokescreen of rhetoric by intellectuals, politicians, and the media that ridiculed opponents of big government as either lacking in compassion or as tools of business interests.

I am not yet ready to concede fully that we skeptics were wrong about the likelihood of major reductions in the role of government in modern economies. But the trend of the past half-century toward relying on big government to solve economic and social problems could be ending not only in the U.S. but in many other nations as well. If this reversal continues, I would be delighted to digest an abundant portion of crow.BY GARY S. BECKER MICHAEL L. ABRAMSON


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus