The proper role of government is perhaps the most central and hotly debated issue in democratic politics. Even during the immediate post-war era, which we can now see in retrospect was the heyday of confidence in government and its power and legitimacy, contrary voices warned against the threats to personal freedom and economic efficiency that too large a role for government would, they thought, inevitably pose.
Writers such as Friedrich Hayek in The Road to Serfdom and Robert Nozick in Anarchy, State and Utopia argued that the power exercised by government was both illegitimate and positively harmful. Hayek maintained that any intervention by government in the working of the free market was by definition a threat to liberty; for Nozick, the state’s function was simply to defend the realm, to maintain public order and to establish a framework within which individuals could pursue their self-interest with the minimum of restriction.
Ideas such as these, which had hitherto been regarded as the preserve of a small and extreme minority, suddenly gained much greater currency and influence with the advent of governments headed by Ronald Reagan and Margaret Thatcher. They were able to exploit growing disenchantment, at least in some quarters, with Keynesian economics and interventionist governments, and the new power gained as a consequence of globalisation by international capital, to embrace the theory, if not fully the reality, of minimalist government and “free-market” economics.
Margaret Thatcher maintained that “there is no alternative” to what was in effect the attempt to “roll back” the state, while Ronald Reagan famously asserted that “the government is not the solution to our problems – government is the problem”. These attitudes, sometimes described as neo-liberalism, have dominated the debate about the true purpose of government for the past three decades.
There is, however, growing evidence that those inclined to dissent from the prevailing neo-liberal orthodoxy are growing in confidence and are ready to re-enter the debate. One recent example is US Senator Elizabeth Warren who recounts in her recent book, A Fighting Chance, a riposte she made to a voter who claimed that he had created wealth by building a factory, an enterprise in which the government had hindered him rather than helped.
“There is nobody in this country who got rich on his own,” Senator Warren told him. “You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. It was all part,” she said “of the underlying social contract.”
I attempted to make a similar point in my recent book Myths, Politicians and Money. “No single individual,” I wrote, “however clever, strong, rich, privileged or lucky, could hope, unaided, even to make the shirt on his back… even an apparently small-scale achievement like that is unavoidably a social enterprise, relying on the contributions, technical, physical, intellectual, economic, entrepreneurial of literally the whole of society over the whole of human history.”
This, then, is the first major area of debate about the role of government – whether and to what extent government can or should do the things that the individual cannot do. As we have seen, the extreme minimalist position cannot really be sustained, since it rests on a denial of the obvious – that every individual is hugely dependent on efforts made by countless others, and that there are many contributions to society that can only be made through social organisation and collective effort, of which government is the prime example.
Most thoughtful proponents of smaller government would concede that there are some undertakings, such as major infrastructure projects, that require resources on such a scale that only government can realistically contemplate them. But there are other tasks that are likely to fall to government, not because of their scale, but because the individual or market incentive to produce them is simply not there.
There are outcomes that are clearly beneficial, in other words, to the way that society – or more narrowly, the economy – operate but which do not provide a market return so as to make them attractive to the individual or corporate investor. These social goals will require the organising power of government – and if the government, enjoying the legitimacy of democratic support, does not take on this responsibility, these beneficial outcomes will be lost.
Another way of making the same point is to express it in terms of the limitations of the market. The market is hugely beneficial in its ability to allocate scarce resources efficiently and to stimulate innovation, but it is seriously deficient in identifying and delivering social outcomes – especially those that require a longer time span and a wider horizon than market forces take into account.
The dichotomy between government and the market lies, in other words, at the heart of the debate about the purpose of government. The whole point of democracy, after all, was to offer voters the power, through the government they elected, to use their political power to offset what would otherwise be the overwhelming economic power of those who dominated the market place – and that domination has become even more overwhelming with the development of the single global economy.
The power to move capital across the globe has meant that international investors are now able to defy, and hold to ransom, elected governments by threatening to withhold or withdraw investment if their demands are not met. This has hugely reinforced the natural tendency of a market economy to concentrate wealth in fewer and fewer hands – a tendency powerfully confirmed by Thomas Piketty’s recent book Capital in the Twenty-First Century in which he shows beyond doubt that the post-war period, when democratic government briefly held the whip hand, was an aberration.
The market has, in other words, found ways to re-assert its long-term dominance over government; the result is that a major purpose of government in a democracy has been lost. The result has been not only the failure of the democratic attempt to rein back the power of capital, but – as a consequence – a substantial loss of confidence in the idea of government itself.
The electorates in most western democracies are dimly aware that it is no longer their elected governments that are calling the shots. They see governments of all political persuasions, including those specifically elected to counter the power of the economically dominant, accepting or resigning themselves with varying degrees of enthusiasm to the pressure of market forces.
The result is that many of those who are unhappy with the dominant influence of international capital no longer see government as coming to their rescue; rather, they see government, in thrall as it is to the economically powerful, as part of the power structure that exists to advance the interests of the major corporations worldwide.
It is perhaps the final irony – that democratic government whose purpose was to protect the interests of ordinary citizens against the economic power structure is now seen increasingly as itself an agent of that structure. A renewed and real debate about the purpose of government is long overdue and comes not a moment too soon.