Friday, September 7, 2012

How big of a government can a country afford?

Size matters! The larger the government the better, right? Of course, the larger the government the more expensive it is to maintain. Is it any surprise then that the largest government bureaucracies relative to their private sector tax base are in the most trouble? It might be since many politicians argue constantly for more money, more regulators, more military resources, more Park Rangers, more police, more wind turbines, etc. Certainly, politicians elected by their citizenry would not plead for "more' if it would endanger their country or would they? They might if their constituent base was primarily government workers. The more government employees are beholden to them for a job, the more secure their reelection would be. This is why dictatorships and totalitarian regimes throughout the world have the largest bureaucracies. These massive bureaucracies sustain corrupt regimes. Mubarak in Egypt had 30% of the populace beholden to him through government service in a poor country.

This chart shows the burden for the private sector. Paying for all these government employees must come from the private sector. China's figures can be thrown out since many of their industries are publicly owned and so their figure is not comparable to the others. You can see why Portugal, Greece, Italy and even France are in trouble. Especially when you consider some of these countries have nearly 20% acknowledged unemployment. The unemployment compensation they receive also comes from the government. To make this chart more informative the 20% unemployment should be added to the public sector employment or roughly half the people in many cases are supported by taxes. You can see it would take an extremely lucrative private sector to support half the population.

Imagine what the solution is to such a dilemma. It can only occur through massive private sector expansion, but these countries are notoriously anti-business. Many of them in their excessive desire to preserve their own salaries are sacrificing the future of their own country through surprisingly personal "greed."

The other choice is to massively reduce the size of government. N Theory makes the case that government should be reduced to maximize the growth possibilities of the private sector. Diverting funds now supporting government agencies to supporting growth of private business is unlikely. The bureaucracies of most western countries are too entrenched and powerful to embrace the sacrifices necessary to encourage private sector expansion. A large displacement of government funds would be necessary to encourage private business expansion. Maintaining the status quo is the simpler path.

Is there a solution? Yes. Government services and agencies must be privatized. This will preserve or actually convert many government jobs to private sector positions. This is a radical idea. Will it work? Let’s look at probably the most difficult case and see if it is even reasonable. What happens if the military is privatized? This simply converts a national military into a private mercenary force. The military becomes an entirely defensive provider. Now, the question is how much does the citizenry want to pay for security and not one of financing misdirected national pride. The military converts to a functional requirement of society like food and energy. This means the military budget is sized to need, not ego. These are the kinds of ideas that need to be explored if western governments are to survive.