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Public prodigals: the worst case scenario

February 1, 2011

I’ve written previously about the most constant battle in government: that to contain the growth in public spending.

When the Conservatives were defeated in Britain in 1997 the share of the public sector was the same it had been when Margaret Thatcher had been elected Prime Minister in 1979. The Iron Lady did not reduce the size of the state.

I’ve written about the groaning inefficiencies in the state governments of New Jersey, California and New York, states being dragged into bankruptcy.

But for public prodigality, Greece takes the prize. It’s the shocker.

Here are some facts produced by journalist Michael Lewis for Vanity Fair (October 1, 2010). I think they’re worth outlining because we have loud advocates of public sector largesse in Australia. They include some – but not all – of the public sector union leadership, some of the journalists who pass themselves off as commentators on political economy and some welfare advocates. Generally all those who think governments can run year-in-year-out budget deficits. That deficits – even in boom years – are a virtue.

I remember the welfare lobby asking me and State Treasurer Michael Egan in our first term – and this was their budget submission- to borrow one billion more in the next financial year for extra ( recurrent ) spending, that is, on welfare. “And in another 12 months ?” we asked. Just borrow another billion, adjusted for inflation – and go on, year after year, spending beyond your means, running up the debt.

Well Greece provides us with an extreme example of how this ends up.

Lewis rattles off the facts: in 10 years the wages of the Greek public sector have doubled (excluding their income from bribes) making a government paid job, on average, three-times better paying than one in the private sector. Taking the national railroad as a case study, annual revenues are a quarter of wage expenses. In the 1990s the then-minister of finance Stefanos Manos pointed out that it would be cheaper to put all rail commuters into taxis. It’s still true 20 years later.

Greek schools are some of the lowest performing in Europe, but the education system employs four times the number of the highest performing – Finland’s, by the way. And my favourite factoid? The first thing a Greek government does in an election year is pull tax collectors off the streets. Now that really is “revenue forgone”.

Greece is a caricature – a caricature of unthinking, lazy, left-leaning polices that pile up for a future generation the cost of a good life for the current. When I recall footage of the demonstrations last year, directed at the inevitable austerity measures of the Papandreou government introduced in February 2010, I’m reminded of the technique of the Trotskyist Left – try to push your demands on a company or a government to the point where they are wrecked financially and then – howling at the system and throwing homemade bombs – try to trigger world revolution in response, giving effect to the old Comm Credo: the worst things are, the better they are.

Making government deliver more within its resources remains the fundamental challenge, but, given free rein, the public sector prodigals can turn all polities into something resembling the madhouse of Greece.

2 Comments
  1. lindsay allen permalink
    February 5, 2011 6:08 pm

    Yes reduce public spending on inflated contracts, bailouts, subsidies to friends and other forms of corporate welfare. With the new private power companies, any NSW government will not let their infrastructure fail. Their executives know this. So future problems will be the NSW Government’s problem.’The belief by politicians that anything a Government does is bad. And it should be left to the experts in private enterprise opens many politicians doors.

    • Bob Carr permalink
      February 5, 2011 8:53 pm

      Sorry but corporate bailouts and the rest did not bankrupt Greece or those American states although they are obviously factors in the US federal government’s unsustainably high deficit made worse by stimulus spending and industry support in the GFC. In New Jersey it is overstaffing, California the failure to tax property and the addition of spending through votes in plebiscites and in New York gross public sector overspending and overstaffing. As for Greece it is all the factors I described. The old big spending orthodoxies have got to be revisited. Oh, and the biggest factor in the bankruptcy of US states is unfunded public sector pensions blowing out liabilities.

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