As part of its new ‘Government and Growth’ programme, the Legatum Institute hosted a breakfast with Director of Economics and Prosperity Studies, Graeme Leach, to discuss the impact of government on economic performance, and the global literature pointing towards achieving faster GDP growth by shrinking the state.
In his presentation, Leach set out the simple premise that downsizing the state could supersize the economy. Reducing the size of the state by 10 percentage points of GDP could add 0.5-1 percentage points to the growth rate—a very significant boost over the long-term through the power of compound arithmetic.
Central to the programme is the construction of a positive case for a smaller state based on future GDP growth potential. However, the explosion in public debt over recent years, together with the costs of an ageing population and unfunded public sector liabilities, also reveal the threat from an oversized public sector which must be tackled to prevent the economic outlook deteriorating.
The Government & Growth programme seeks not just to make the empirical and policy case for a smaller state, but the philosophical and moral argument too. Some of the most interesting ideas discussed revolved around the idea of how, when the state steps back, do we ensure civil society steps forward? How do we return to a society based on the moral values that foster altruistic behaviour when state reliance is so entrenched?
What was clear from the discussion was that the economic case alone is not enough. The ultimate success of the argument depends on much deeper reflections upon what motivates human behaviour and how morality is inextricably linked to the success of the small state.
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