Economic Theory

What should the government do, and what not?

This is a fundamental question for any politician. Few answer it. They give particular answers to particular such questions, of course. They say what they think the government should do about the provision of healthcare, about education, about housing and so on and on. But they rarely give a general answer. They state no principles by which we could judge whether the government should or should not be involved in something.

Theresa May is a welcome exception. In a speech at the Conservative Party conference last autumn, she said that “the state exists to provide what individual people, communities and markets cannot”.

This principle will strike few people as contentious. But that is only because, like Mrs May, many forget something important about “the state”: namely, that it is not a special kind of agent. The state can act only through the people who make it up. When the state provides you with healthcare, it is really doctors, nurses, cleaners and other “individual people” who provide it.

If people cannot provide something, the state cannot provide it. There is nothing beyond the people to do the providing. So Mrs May’s principle seems to leave the state with nothing to do.

But there is a difference between state people and non-state people, which means “the state” can indeed do what would otherwise be undoable. State people are allowed to use coercion.

Consider foreign aid. You can donate your own money to a foreign charity but you cannot donate someone else’s money. You might lament your wealthy neighbour’s reluctance to donate to a charity caring for poor children in Congo. But if you do anything to coerce her into donating – such as pilfering her wallet or making her transfer funds at gunpoint – you will be committing a crime.

Politicians are not similarly constrained. They can take your neighbour’s money through taxation and then direct it to the charities they think she ought to donate to.

The state does not exist to provide what people cannot provide. The idea is ridiculous, since anything the state provides will in fact be provided by people. No, the state exists to make people provide what they will not provide voluntarily.

That may sometimes be OK. Perhaps people should be forced to contribute to the cost of national defense, for example. If we weren’t forced to, each of us might try to free-ride on the voluntary contributions of others and, in the end, less would be spent on national defense than even we free-riders would want.

The fact that state provision is simply compelled provision by individual people does not alone show it always to be wrong. But recognizing the fact is an important precursor to deciding what the state should do. The idea that the state can help us by doing what mere people are incapable of is a dangerous absurdity.

Further IEA reading: Classical Liberalism – A Primer; The Paragon Initiative Opening Paper; Foundations of a Free Society

Former Director of Research

Jamie Whyte is the former Research Director at the Institute of Economic Affairs. Prior to joining the IEA, Jamie was the leader of ACT New Zealand as well as the Head of Research and Publishing at Oliver Wyman Financial Services. He has previously worked as a management consultant for the Boston Consulting Group, as a philosophy lecturer at Cambridge University and as a foreign currency trader.

2 thoughts on “What should the government do, and what not?”

  1. Posted 21/04/2017 at 11:49 | Permalink

    Actually, there are two types of people – those in the pay of the State and those who are not in the pay of the State.

    Being in the pay of the State means that these people can use their official position to perform the functions of the State (such as fixing market failures or using the tool of regulation to curtail anti-competitive behaviour), by authorising the expenditure of public funds and committing other people also in the pay of the State underneath them, to make things happen.

    More often than not, this involves buying goods and services, worth some £200 billion or so, from people who are not in the pay of the State – namely, the Private Sector or sometimes, the Third Sector.

    But the problem with people in the pay of the State is that they are not well-informed about how the Private Sector works. Indeed, they haven’t got a clue about what it is that drives the behaviour of for-profit organisations in the free market – not least, because they have not spent a single day of their lives in the Private Sector – and yet they have been put in charge of spending taxpayers’ money to buy goods and services from non-public sector organisations, for the benefit of the public. Their standing is further undermined by the fact that their ability to solve problems and innovate, which is a distinctive characteristic of the Private Sector, has been erased in the Public Sector due to incessant conditioning of the mind from an early age.

    Which would probably explain why some parts of the Private Sector such as the Defence Industry, for instance, has failed so miserably to deliver military equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life, for as long as anyone can remember.

    Instead of doing the decent thing and educating people in the pay of the State about the ways of the Private Sector, Defence Contractors are busy exploiting their ignorance, for only one purpose – relieving them of taxpayers’ money!
    @JagPatel3 on twitter

  2. Posted 22/04/2017 at 12:59 | Permalink

    The primary role of the State is to uphold and defend the property rights of its citizens.

    As only the creation of a good or service and its provenance confers a moral property right, this has profound implications of what type of taxes the State can levy and at what level. It also changes the how the State manages our shared environment.

    The fact most people do not question our current consensus regarding property rights is the root cause of excessive inequalities, economic dysfunction and large, overweening State apparatus.

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