Public Policy: What do governments do? How do they do it?

Different views of what governments do: Protect from outsiders enforce laws regulate trade extract revenues do things that others (markets) don’t or won’t do

Considerable variation over time –from minimalist to activist state among types of political systems –variations among and between liberal democracies authoritarian totalitarian systems

The Changing Role of Government Governments initially responsible only for protection and administration of justice 19th c: responsibility for education After WW II, a wider role: –try to ensure minimal level of subsistence and wellbeing –overall responsibility for the smooth functioning of the economy

Changes in structure of government ‘Night watch’ state: limited role for government Initial 5 ministries: –foreign relations –defense –treasury –interior/home affairs –justice Welfare state classic ministries plus –education –health –social welfare –employment –industry –housing –transport –culture….

Night-watch to welfare state: seven good years … seven bad years –problem of cycles in market economies Classical liberal economics: –governments must let markets adjust Welfare state: development reflected new tools and understanding realization that government could intervene realization that it was politically necessary for governments to intervene

The Keynsian welfare state basic components: –managing the economy to ensure employment counter-cyclical policies -- demand management –guarantees against uncertainties of life in industrial society unemployment illness industrial accident old age

Changing contours 1950s, 1960s, early 1970s –combination of planning, coordination, demand management results in economic growth full or near full employment expansion and elaboration of universal welfare states via state-financed or state backed insurance systems, pensions, etc

1970s growing problems: –impact of energy crises –increased competition, structural employment –fiscal crisis: states face growing demands –increased demand for services –increased recourse to entitlements growing difficulty in extracting revenues and achieving growth –inflation

1980s and beyond neo-liberal attacks: –right argues that state must limit its activities: –argue inflation rather than unemployment is the problem –solution: monetarism (regulate money supply) political successes Thatcherism in Britain Reaganomics in the fiscal crises, deficits and debt burden lead to contraction but not elimination of welfare states