THE STATE AND THE CITIZENRY; WHO SERVES WHOM?

Economics is like gravity in that nothing in the universe can escape it. Not even the mighty nation-state, with its all-powerful military and bureaucrats and alphabet soup of agencies, can escape the need to effectively utilise the resources at its disposal. A nation-state is simply a corporation—albeit the most extreme form of corporation imaginable due to its monopoly over violence and money. Therefore, like a corporation, the nation-state must also have a business model.

The business model of the state is rent extraction from citizens in exchange for various goods and services. In the western world, this rent extraction is conferred legitimacy through the process of democracy. Goods and services are then administered by bureaucrats in accordance with the expressed needs of the population. The problem is that these provisions are not subject to a market test. You are not the customer of the health service or the education system; the bureaucrat deciding their funding is. This absence of a true market test means a critical line of feedback between service provider and receiver is broken and is why private sector alternatives outperform state-run ones.

The paradox of government is that its departments are disincentivised to solve the problems they were originally tasked with, lest they render themselves obsolete. The welfare department perpetuates poverty; the defence department looks for offence. For example, the concern of the Department for Labour is not so much improving employment outcomes for the worst-off, but protecting the trillion-dollar budget that sustains their organisation. Would they advocate lowering or abolishing the minimum wage if it reduced the need to administer unemployment benefits? There are in fact strong arguments for such a move—consider Sweden, which does not have a minimum wage. The reality is that government departments do not shrink voluntarily; once created or expanded, they are driven to justify their continued existence.

“If all you have is a hammer, everything is a nail.” It is natural to attempt to fix the problems you see with the tools at your disposal, even if those tools aren’t fit for purpose. Lawmakers will only ever pass more laws, that is their function. Yet this means the state continues to grow and the regulatory regime becomes more labyrinthine. In an era of record state spending, the problems toward which that spending is channelled are only getting worse. What exactly has any of the prior spend achieved, beyond swelling the state apparatus? Considering past performance, it’s more than reasonable to ask whether more spending will make any difference at all.

The government is not an effective allocator of capital, yet it seeks to control an ever-increasing share of its deployment across the West. It does so by extracting what it can and creating the rest, consequences be damned.

Part II to follow

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