(page 216, Mairi Maclean “Privatisation, dirigisme and the global economy: An end to French exceptionalism?” in Modern & Contemporary France).
Christina Romer argues that we don’t. This is because the three arguments in favour of manufacturing – market failures, the need for jobs and more income distribution – may not be supported by the evidence, at least as far as the US is concerned.
“The first postwar privatisation programme in France, which became law on 6 August 1986 (no. 86-912),3 ushered in something of a ‘golden age’ of privatisation. The programme was ambitious and far-reaching: it sought to privatise, in the short space of five years, 66 firms, embracing 27 independent groups, with a total workforce of 900,000 and an estimated value of 300 billion francs overall (amounting to one quarter of the then total capitalisation of the Paris Bourse).”
“The world bank recommended liquidation or divestiture of state assets in twenty five of the thirty eight structural adjustment loans it made to developing countries between 1980 and 1986….and increased market orientation of state firms in thirty six of the thirty eight loans”
(Feigenbaum and Henig, 1994, page 199: The political underpinnings of privatization: a typology)
“Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all. On condition that such euro bonds will be “Stability Bonds”: bonds that are designed in a way that rewards those who play by the rules, and deters those who don’t. As I already announced to this house, the Commission will present options for such “Stability Bonds” in the coming weeks.
Some of these options can be implemented within the current Treaty, whereas fully fledged ‘euro bonds’ would require Treaty change. We can do a lot within the existing Treaty of Lisbon. And there is no excuse for not doing it, and for not doing it now. But it may be necessary to consider further changes to the Treaty.”
The case seems pretty overwhelming:
“When the U.S. government can borrow at a real interest rate of -0.65%/year for five years, the case for larger deficits now–for pulling spending forward from the future into the present and pushing taxes back from the present into the future–is unanswerable: of course the government should borrow more on such terms: households value the taxes they will pay in the future if taxes are pushed back as much less painful than the taxes they would otherwise pay today, and a huge number of government spending programs offer at least a zero percent real rate of return via their effect on the productive capacity of the economy. Even if expansionary fiscal policy had no effect on capacity utilization and unemployment bigger deficits now while the government can borrow on such terms would be a no-brainer. And since expansionary fiscal policy does have such effects, it is something that you should advocate even if you have less than no brain at all–even if you have a negative brain.”
Worth looking at Meltzer’s arguments against more expansion and Delong’s response
In a recent article in Le Monde one learns that Cuba is about to eliminate 500,000 posts in the public sector which currently employs 85% of active labour force. In a rhetoric that has now become mainstream, the move was justified by stressing the sub-optimal support given by the state to unproductive activities, allocation problems in the labour force, and so on. Fidel’s brother went as far as saying: “we must eradicate for ever the idea that Cuba is the only country in the world where one can live without working”.
As it is always good to go back to the basics, I wondered what was the empirical link between the number of public sector workers and a nation’s income per head. Let’s consider public sector employment as a share of total empoloyment relying on ILO data (the data is a bit old – mid to end 1990s – but the main point remains. A casual look at a selection of 15 OECD countries reveal some striking things.
The first four contenders are, not surprisingly, located in Scandinavia (Sweden, Norway, Finland, Denmark), they are also located in the first fifteen richest nations as measured by GDP per capita at nominal exchange rates. The ‘liberal’ anglo saxons nations, save for the US are around 20%; Australia and Canada have more public sector employees (relative to total employment) than Germany while Japan has less than 10% public sector employees.
But one may be forgiven for raising the following point: sure, some rich developed countries can afford big public sectors, but surely to get to that point one ought to minimise the inefficient public sector, right?
To answer that question, let’s focus, for the sake of parsimony, at emerging BRICs (Brasil, Russia, India and China). For starters, China had in 1996 about 36% of its employment in the public sector and the figure for India (formal employment; only public sector and private enterprises with more than 10 employees, excluding agriculture) was so large that my first reaction was to think that I was misreading the table: 70%! Brasil did have a fairly low share of employment in the public sector of about 10% while Russia was close to 37% (including public employment in government and the enterprises and organisations owned by the state).
Clearly, this a very crude analysis: it is neither exhaustive in its selection of countries and ignores the time dynamics, nor does it control for other relevant factors; but even at such a simplistic level one seriously questiosn the validity of an assertion regarding the size of the public sector that is often taken as an established fact.