The authors seem to think they have a message of hope that demonstrates that this fourth revolution in the composition of the Western nation state is just around the corner. They point to the Nordic model paying close attention to Sweden since the 1990s. In 1993 Sweden was perhaps the country most advanced on the road to ruin by rampant welfarism where the state spent a whopping 67 percent of GDP. By 2013 this had been reduced to 49 percent, which is still a very high figure but nevertheless represents a partial rollback of the welfare state and so somewhat supports the authors’ thesis.
They go on to describe some market based reforms the Nordic countries have carried out in the last twenty years such as free schools with a voucher system and so on which have allowed costs to be cut and standards to rise. All this is not very controversial stuff if the reader is of a free market bent, for we all know that when the private sector engages in an activity the quality improves and the costs are reduced over time; where the state is involved the reverse happens, costs rise and the quality falls. So all well and good, other states in the West can copy the Nordic countries to improve state services and cut state spending which in turn will allow for greater levels of saving and investing, because less capital will be taxed or borrowed by the state, which in turn will revitalise the real economy increasing prosperity for all.
However, what is to say that this is only a temporary period of retrenchment? After all, Sweden spent so much on the state it simply had to be cut because there was no other way out. The usual pattern of state spending is that of a yo-yo dieter, starvation followed by binges. Witness the reduction in state spending and the national debt by the Conservative governments in Britain during the 1980s and the 1990s which brought the country up from its dismal economic performance that characterised the post-war years. This was followed in turn by New Labour which used the stronger economy to fund a huge spending spree wrecking the government finances by 2010.
The authors do recognise this possibility but they do not convincingly rebut it. The fact that state spending has fallen as a proportion of GDP over the last twenty years seems proof enough for them. The problem with comparing the situation in Britain to Sweden is that state spending was so high anyway carrying on as before was not an option for the Swedish public sector. In Britain we may not have reached the tipping point yet, and until we do the bureaucracy, the public sector unions and various producer groups will fight tooth and nail to resist any reforms.
As an example just look at Michael Gove’s rather modest school reforms and the way he was pilloried by the educational establishment. Perhaps the pressures of an aging society in the next decade or so will be the jolt the British state needs. I do not know.
However, if the authors are correct and a semi-permanent (no phenomenon is ever absolutely permanent) rollback of the state or a ‘fourth revolution’ as they call it is indeed immanent, then it will probably be the first time in history that a state has voluntarily scaled back. That is to say wherever in the past a highly active state was followed by a reduced state the previous regime collapsed. For example, Germany was highly interventionist both before and during the Second World War. When the Nazi regime collapsed after defeat in the war it was succeeded, at least in one half of the country, by the relatively liberal state and free economy of West Germany.
Similarly the reduction of state activity in Eastern Europe in the 1990s was only a result of the collapse of the Soviet Union. Thus Albert Jay Nock’s point about the inbuilt tendency of a state to continuously grow might well be true. It would indeed be a travesty if we had to wait for a catastrophe to see a more modest state.
Perhaps though with globalisation and increased mobility it will be increasingly harder for governments to tax and spend so recklessly, allowing competition between states to keep expenditure down to more reasonable levels. Indeed we are seeing this to some extent in France with the disastrous presidency of Francois Hollande whose tax hikes to 70 percent on top incomes resulted in an exodus of France’s top producers and investors. Furthermore business hubs are developing in the Middle East as well as the Far East where professionals from the West are lured by low taxes and cheaper costs of living.
The authors are probably correct therefore that the state is going to have slim down. However, the question is, will they do so sensibly or will it have to be done in the midst of social unrest?
The book doesn’t seem to touch on why state spending has grown wildly out of control. Could a solution be a legal requirement for the government to balance its budget and rely only on taxation to cover spending? Better still, let people opt out of state coverage entirely by tax rebates so that states services matter less and less in people’s lives.
In any case Micklethwait and Woolridge’s ‘The Fourth Revolution’ is food for thought and a welcome start in a debate that is only just beginning. In the next few years governments of the Western world will need to take a serious look at reining in their spending, and the public are not going to put up with severe scaling back of services they rely on. Soaking the rich is not a viable option if you also want a flourishing economy. So the authors’ thesis is correct on the whole. Governments will have to make the state more efficient and that will mean some very radical if not revolutionary changes coming to pass in the not too distant future.