Politics: investment, efficiency, and cuts

The state finances are in a parlous state in many countries, and there is a tough choice for politicians to make: either the taxes go up, so that there is more money to maintain the spending on the public sector, or the public expenditure is cut, shrinking the size of the state. Politicians usually pursue a mixture of these two policies, though there are those on both extremes, whereby one extreme advocates the abolition of the state, and the other extreme calls for a total nationalization.

In good times, when tax receipt is healthy and there is extra money available, the keyword is investment. It basically means that more money goes into the public sector, so that the services provided by the state will become better, because they are better funded. The overall output increases, but individual productivity does not have to rise. The alternative in such a situation is to reduce the tax burden, thus providing incentives for people to work and earn more, and for businesses to make more money. It is a happy choice for politicians to make, as they can talk positively about their particular choice.

In not so good times, the keyword is efficiency. The flow of money to the public sector stays the same or even decreases, but the government tries to make the public sector more productive for the same or a smaller amount of money, so the level of the services is maintained and hopefully better. But this can be demoralizing for the public sector workers as the working conditions become worse. While it is always possible to find various mechanism to make efficiency gains, and opposition politicians seem particularly adept at finding wastes, they somehow find it extremely difficult to implement better productivity once in government. It is not particularly a happy choice for politicians to make, but the choice can be spun positively.

In dire times, as most developed nations find themselves in at the moment, the keyword is cuts. There is no longer the pretence that the standards of the public services can be maintained. It asks for more productivity from the public sector workers, while cutting services that are deemed non-essential or too expensive. The alternative is to hike up state’s income by taxation, but it is not an easy policy to sell to the electorate and it can have a negative effect on the economy. It is an unhappy choice for politicians to make, and the choice is couched in terms of what is necessary, not what is desirable.

Of course, these three concepts – investment, efficiency, and cuts – will be used at the same time for different areas. Even in really bad times such as we live in now, politicians will speak of investing into projects and certain areas of the state’s economic activities, while looking for efficiency gains and cutting waste. But as the tough finanical times contiue, we’re probably going to hear more about cuts than investment or efficiency.