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  • Spend More, Waste More

    Since 1999, the Labour Government in Britain has been on a spending spree of historic proportions. Actually, it’s been on two of them. From 1999 to 2005/6, expenditure grew at 4.8% annually in real terms. As a proportion of GDP, it rose from 36.3% to 41.3%. Then, for a while, spending stabilized.

    But only for a while. In 2008/9, spending surged again, to over 43% of GDP. The 2009 Budget, as the British think-tank Policy Exchange points out, envisages spending rising to 48.1% of GDP in 2010/11. If growth is lower than the government’s highly optimistic forecasts, 2010/11 spending would be 49.2% of GDP.

    At that point, the British government would control one out of every two pounds earned in the entire nation, and British spending as a share of GDP will have gone from 12% less than the Euro Area average to 1% more than it. Even now, there is no justification for describing Britain, as The Economist did recently, as representing the “Anglo-Saxon Model” of limited government.

    But it’s one thing to say that Labour’s spent a lot. It’s another to figure out whether it’s gotten value for money. Fortunately, Britain’s Office of National Statistics has released the largest, most thorough study of government productivity. Its answer (pdf) is stark: from 1997 through 2007, the government lost about one-third of a percentage point of efficiency every year.

    Furthermore, the more the government spent, the less efficient it got: when spending growth was at its highest in 2002 and 2003, productivity plunged by about 1.5% annually. Only when spending stabilized in 2006 and 2007 did productivity growth nudge back into positive territory. That’s even true when you break the numbers down further: Britain’s National Health Service got outsized budget boosts, and turned in a correspondingly dismal performance.

    Even the ONS’s claim that Britain’s public sector productivity has declined by only about 3% under Labour rests on shaky foundations. Productivity includes not just how much you produce, but the quality of what you’re producing. That’s not easy to measure, especially in government. If you discount ONS’s claim that rising test scores mean better students – instead of easier tests – the result is that productivity has fallen by 9% under Labour.

    In any event, the take-away from Britain is clear: spend more, waste more. That’s a lesson that Americans – almost nine in ten of whom say they are “very” or “somewhat” concerned about the size of the federal deficit – are right to take to heart.

    Posted in International [slideshow_deploy]

    One Response to Spend More, Waste More

    1. Pingback: » Financial News Update - 06/23/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater

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