Which governments “succeed”? Poor or Rich?

Background – The Miracle of Poverty Government Success? Background – The Miracle of Poverty Widely published article Prosperity is automatic Poverty is miraculous Greatest accomplishment of modern government.

How do you measure government success?

Assumptions People want consequences they get repeatedly Government is people Government people are self-serving Government is coercive Government isn’t inevitable “Success” is Darwinian – triumph over alternatives.

Indicators of (government) success Same as other organisations - Companies Churches Clubs NGOs, etc “Success” from perspective of those who constitute “government”.

Indicators of (government) success Endurance Popularity Power Size - Wealth (budget / income / assets) Employees Beneficiaries (“shareholders”) Omnipresence.

Non-indicators of success Economic growth People’s welfare Peace / stability Safety / security Liberty / justice Equality / fairness Permanence in office.

Government succeeds for them

Distinguish from permanence of institution Permanence in office Distinguish from permanence of institution Threatened by - Liberty Democratic checks and balances Prosperity (O’Dowd thesis / perestroika) Poverty (coups / insurrection) Optimal balance = maximal success

Government Success vs Liberty Endurance Popularity Power Size Omnipresence - ? /  X  Policing, justice ? - Ambig. X - Bad - Good 

Government size and Growth Govt consumption - % of GDP (OECD) SA Budget 2003/4-2006/7 4% growth Growth There is much dispute in the growth literature about why economic growth takes place and we look at a few slides to test the empirical facts. Firstly, there is a theory that says rich countries will grow faster than poor countries. That is, if growth is a function of capital then the more capital you have to start with, the higher the growth rate attainable. There is some evidence to suggest this is partially true, but what is more likely (and as can be seen from the graph) is that poor countries have a wider variance of growth rates than do rich countries (from –5.5% to +8.2% for the bottom half of the world, and from –0.9% to +6.1% for the top half), yet the absolute rates are higher. As incomes go up, these rates tend to converge around the 2% mark. From the slide we can see some kind of funnel effect at work, though it would be impossible to say if this would be maintained if all the countries were equally wealthy. Perhaps the scatter we see at the left-hand side of the scale would be maintained as relative incomes rose. @ 0% growth Govt consumption - % of GDP

Equality and Freedom Unfree Free We now ask the question whether liberalising an economy would increase or decrease the disparities in income levels across society. This slide uses a quintile representation of economic freedom across the world (ie. Splitting the countries into 5 x 20% groups of ever increasing freedom) correlated against the 2001 World Bank GINI coefficient. The results show that there is not a great deal of difference across freedom levels, indicating that other factors may determine income disparities. However, if a conclusion must be drawn, those economies with higher levels of economic freedom are the ones exhibiting higher levels of equality. Unfree Free

Equality and Freedom Unfree Free We now ask the question whether liberalising an economy would increase or decrease the disparities in income levels across society. This slide uses a quintile representation of economic freedom across the world (ie. Splitting the countries into 5 x 20% groups of ever increasing freedom) correlated against the 2001 World Bank GINI coefficient. The results show that there is not a great deal of difference across freedom levels, indicating that other factors may determine income disparities. However, if a conclusion must be drawn, those economies with higher levels of economic freedom are the ones exhibiting higher levels of equality. Unfree Free

Conclusions Governments are- one of the most efficent organisations ever conceived spectacularly efficient at serving the ends of those who constitute “government” out-perform corporations etc in all indicators of success

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