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Trivia Tidbit Of The Day: Part 474 -- Leaner Government Is Better, Around The World.

Lean Better Than Mean-

These days, it seems like the United States is missing out on a lot of human talent and capital that is flowing to places like Hong Kong, where taxes are much lower. The lesson seems to be that leaner governments tend to perform better than bloated ones.

Fortunately, the United States, in relative global terms, is still somewhat lean. Fortunately for people in other parts of the world, their governments are trying to become leaner, at least on the tax side of the ledger. Will America respond? Do we have the nerve to cut our tax rates to keep pace with the tax-cutting fever that is sweeping the globe? Let's hope we do.

One study on leaner versus larger governments, from Keith Marsden of the Centre for Policy Studies in the UK, takes five prominent industrialized nations from each category, and compares them on a variety of indicators. These two categories (leaner and larger) are verbs rather than constant states of being. In other words, being a "leaner government" nation means that the nation cut taxes from a higher level in the past two decades, not that the nation is necessarily a consistent paragon of leanness. A "larger government" nation means that taxes went up in the past 20 years.

Here's an illustration why Canada, Ireland, New Zealand, Spain, and the United States are "leaner" nations, while France, Germany, Italy, Portugal, and the United Kingdom are "larger" nations:

These changes produced a clear set of results.

For example, long-term unemployment:

It's stunning how pervasive long-term unemployment is in larger government nations.

But that's just one indicator. There are dozens:

*Leaner governments reduced their tax take and other receipts, expressed as a proportion of GDP, by an average of 6.5 percentage points over the last two decades while larger governments grew their tax and other receipts by an average of 4.8%. Spending for the leaner governments averaged 37% of GDP for the leaner governments compared to 49% for larger governments.

* Per capita income was 12% higher in leaner government countries in 2003 than it was in larger government countries.

* Real GDP grew faster in lean government countries than it did in countries with larger governments (between 1997 and 2005, it grew at an average rate of 4.1% in the first group compared to 1.9% in the second).

* Leaner governments expanded their spending on public services at a faster rate than larger governments (the average growth rate in public spending for leaner governments went up from 2.4% a year (1980-1990) to 4.3% (2000-05) while it fell over the same period for larger governments from 2.6% to 2.2%).

* In terms of the UN’s Human Development Index (which is based on
estimates of life expectancy, education and standard of living), countries with leaner governments score higher on average than those with larger governments.

* Life expectancy and mortality rates are very similar for both groups.

* Total health spending is higher in countries with leaner governments than it is in countries with larger governments. In 2002, the first group of countries spent an average of 9.5% of GDP on health compared to 9.2% in the second group.

* Leaner governments spent slightly more on education than larger
governments. In 2002, leaner governments spent an average of 5.5% of
GDP on education compared to 5.4% in the second group.

* Leaner government economies have created more jobs in the last decade than larger government economies (the employment growth rate in the first group averaged 2.5% a year between 1993 and 2005 compared to just 0.8% a year in the second group). Youth unemployment has dropped in larger countries to just 12.9% whereas in larger government economies it has grown to 16.5%.

* Both groups spent similar amounts on income support to people of working age; larger government economies were more generous to pensioners (spending an average of 11.7% of GDP on pensions compared to 7.3% by leaner government economies).

* Reductions in government expenditure by leaner governments have not
widened the gap between rich and poor in those countries.

* Both groups of countries give similar amounts in foreign aid. However, in terms of imports from developing countries, leaner government economies imported far more from developing countries than larger government economies (7.1% of GNI compared to 4.2%), thereby helping to stimulate developing country econmomies.

* There is little difference (just 0.1 kg) in the average CO2 emission levels per dollar of GDP between the two groups.

* Domestic savings grew in leaner government countries between 1990 and 2003 (from 21% of GDP to 25%) but fell in larger government countries (from 21% to 19% over the same period).

* Leaner government economies attracted far more foreign direct
investment than larger government economies. It more than doubled in
the first group (from 2.0% of GDP in 1990 to 4.9% in 2003), while it fell from 1.8% to 1.2% over the same period for the second group.

* Leaner government economies have higher exports and imports. They are more likely therefore to be able to respond to the pressures of
globalisation that the more protection-minded economies of the larger
government group.

* Leaner government economies have less rigid employment practices and
are generally rated to be more friendly to business than larger
government economies.

* Leaner government economies have also seen a growth in private sector productivity. This reached an average of 1.9% over the last decade. This is now nearly twice the rate of that in larger government economies (where it has fallen to an average of 1.1% a year).

Government obesity harms the health of a nation. Leaner is better. Let's learn from this and do the right thing in 2008.

Previous Trivia Tidbit: Misremembering Past Opinions On Iraq.

Posted by Will Franklin · 14 January 2008 02:12 PM

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