The benefits of good governance

“… perhaps the biggest difference between progressives and conservatives is that one believes that government inherently infringes on freedom and the other believes that government creates the conditions for it” -  Big government is good for you -Drew Westen, guardian.co.uk

Many Americans have an aversion to government, and big government especially. It goes to the core of the American value of self-determination, individual liberty and the fact that anything government touches is damned to be inefficient. However, one needs to be careful of the frequent confusion of governance and government. America stands in danger of throwing out the potential of good governance in a reflexive denial of governmental intervention.

This populist circuitous logic argues that the only way to correct the implosion of the economy - which one could reasonably posit was caused by deregulation, wanton profiteering and an absence of industrial policy - is to let the ‘free’ markets take care of it. They say that Government has no reason to step in. This is akin to asking a disease to attack itself so as to affect a cure of the host.

In a denial of any potential benefits in government interference, the US clung to a model of free and unregulated markets chasing profit not structured economic advancement. Such a dereliction of good governance has yielded poor results. It has massive debts funded by economies that outstripped dated and under-funded US production capacities or who have resource advantages. The US watched, vaguely irked, but without a plan for the future, as its industry moved off-shore. It became a consumer, asset value reliant, so that when the bubble of asset value escalation burst, it found itself in debt and unable to reinvent rapidly. In fact, bad governance allowed excess and abuse.

Naturally, the results of poor governance create a populace angry and frustrated at its government; its government did fail it.  It should have proactively managed the economy, not just given instant gratification in vote-winning tax cuts. The US workforce is desperate – left without any meaningful welfare net to break its fall. In an unregulated and ungoverned market predicated on swapping assets for greater prices without value adding in the transaction, its unemployed workers have limited access to health care, have extremely short term fiscal benefits, face foreclosure, social disruption, and poverty.

It has been a failure of governance. At the altar of the false God of unrealistically low taxes and “little” government, the US is unable to fund a meaningful social welfare system. It created a surge in temporary home stewardship, as property values were beyond the repayment capacity of the mortgage consumer. It undertook massive and expensive national security policies, predicated on pre-emptive aggression that are now proving difficult to disengage from.

The no/bad governance malaise spread beyond blunt economic policy errors, it defaulted social policies too. Education is inefficient with poor outcomes in comparison to international benchmarks. The US  didn’t invest for the future, with a health system focused on the minority that could afford expensive interventionist treatments, but with poor performance ratios of success. It failed to update aging infrastructure. It encouraged inbuilt obsolesce in its technological developments, seeing applications and processes outstripping each other to create user convenience, but without a means to monetarist the product or benefit the community. This stripped billions of dollars of capital from the economy for use as speculative venture capitalist funds, but not delivering longer term social gain. Americans controlled by short-term tactical market forces absent of measured judgment.

So is a more centrally planned economy the bogeyman that some would have is believe? Is sound governance a socialist nightmare of inefficiency and tax burden? If we take the extreme example of the Scandinavian social-welfare states, namely Denmark, Finland, Norway, and Sweden, these have much higher rates of government spending than the US. In 2006, the social welfare countries spent around 52% of GNP on government spending as opposed to the US who spent around 38%. This allowed the US to keep taxes low (though consumer saving remained very low and incurred massive debt as compared to other fast growth countries like China ). If one then analyzes the economic outputs, the US has the highest poverty rate at 17.1% versus 5.6% for the social-welfare states. There is naturally greater economic equity in the social welfare states with poorer households having greater share of the national economic pie.

These factors however do not impair wealth creation in the social welfare states regardless of the free market rhetoric. The social welfare states have on average a higher per capita GNP than the free market countries, rank higher in the technology rankings at 6 versus a free market rank of 16 (think Sony, Ericsson, Nokia etc), spend more on international aid as a percentage of GNP, and rank better on entrepreneur risk rankings as there is a social welfare net to fall back on. All in all, the social welfare states generally and on average are outperforming the free market countries. When you support the risk takers, protect the employees, maintain the infrastructure, educate the young, care for the sick, and demonstrate social equity, maybe you create a healthier and more forward thinking society. Perhaps if you move on from the Puritanical to the humanist societal model, advances in development are made, but without sound governance such a directional shift is unlikely

So if the wealth creation, social equity, technological ranking, infrastructure, education, health services are at least comparable, and on occasion superior, in the so called social-welfare countries, where are the advantages of the free market, small government and sensible governance? We are currently experiencing the result, and the correction is proving none too pleasant

Perhaps the answer lies in a mixed economy, somewhere more centrist than the extremities. The unbridled Wild West free markets appear to have left the US high and dry. The US is poorer than before, perhaps in more than one dimension.  Perhaps the answer lies in a more mature and considered blended form of governance combined with capitalism.

To paraphrase the words of Australian Prime Minister, Kevin Rudd, who alluded in the recently  to an intriguing concept, he said, ‘maybe we should give capitalism another try, but this time with feeling…’, and maybe not be so concerned about the size of government, but the quality of it. Perhaps, we should review the present and chart a more mature path for the future.