[Good Government, Bad Government] The Pendulum Between Big and Small Government

From the mid-19th century to the early 20th century, governments in advanced countries generally pursued laissez-faire policies. Taxes were low, and regulations were kept to a minimum. Trade barriers between countries were also very low, and despite the inconvenience of transportation and communication, a considerable degree of globalization took hold.

Thanks to this, global economic development was achieved, but economic development also gave birth to another seed that would negate itself. Marxism-Leninism emerged on the basis of the working class. Russia underwent a communist revolution and established a communist government, and by around the end of World War II, one-third of the world’s population had come under communist rule.

The Great Depression of 1930 became an opportunity for governments in country after country to grow substantially in size. Beginning with the New Deal of the Roosevelt administration in the United States, countries expanded fiscal spending and strengthened regulations in an effort to overcome the downturn. Keynes’s interventionist policy prescriptions further reinforced that trend.

In Britain as well, after World War II the Labour government took power and pursued welfare policies aimed at providing care “from cradle to grave.” This was also the period when many large corporations met the fate of nationalization. That trend continued for more than 30 years thereafter.

However, big government inevitably generates various costs. High taxes weaken people’s incentive to work, and inflation caused by fiscal expansion is also unavoidable. By the late 1970s, the contradictions of big government had reached their peak, causing serious problems in country after country. Prices soared and unemployment rose.

In that situation, Thatcher in Britain and Reagan in the United States came to power and pushed ahead with reforms toward smaller government. These changes, referred to as neoliberal reforms, spread to numerous other countries. They moved through Canada, several countries in South America, the nations of Europe, and China, reaching their climax in the fall of the Berlin Wall and the collapse of the Soviet Union.

Now, nearly 30 years later, the pendulum is once again trying to change direction. The subprime crisis that began in the United States plunged the entire world into a financial crisis, and governments everywhere are adopting monetary and fiscal expansion policies. Regulations are also likely to increase, beginning with the financial sector. In the long run, however, the larger the government, the less freedom there is and the lower people’s income becomes. How much can we resist the temptation of big government? It is a task assigned to people in every country around the world.

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Original title: [좋은 정부, 나쁜 정부] 큰 정부와 작은 정부를 오가는 시계추

Author: Center for Free Enterprise (CFE)

Date: 2008-12-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=17&idx=10728