Bryan Caplan  

Highlights from "Does Technology Drive the Growth of Government?"

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Thanks to the half dozen people who sent me copies of Cowen's "Does Technology Drive the Growth of Government?"  The paper's even better than I remember.  Highlights:

The puzzle, courtesy of the great Tullock:
I start with what Gordon Tullock (1994) has called the paradox of government growth. Before the late nineteenth century, government was a very small percentage of gross domestic product in most Western countries, typically no more than five percent. In most cases this state of affairs had persisted for well over a century, often for many centuries. The twentieth century, however, saw the growth of governments, across the Western world, to forty or fifty percent of gross domestic product... I'd like to address the key  question of why limited government and free markets have so fallen out of favor.
Inadequacies of public choice theories of government growth:
Public choice analysis has generated many theories of why government grows and why that growth is inevitable. Special interest groups, voter ignorance, and the pressures of war all are cited in this context. Those theories, however, at best explain the twentieth century, rather than the historical pattern more generally. Until the late nineteenth century, governments were not growing very rapidly. The standard public choice accounts do not contain enough institutional differentiation to account for no government growth in one period and rapid government growth in another period.
Inadequacies of ideological theories of government growth:
According to this claim, the philosophy of classical liberalism declined in the mid- to late nineteenth century. This may be attributed to the rise of socialist doctrine, internal contradictions in the classical liberal position, the rise of democracy, or perhaps the rise of a professional intellectual class. While the ideology hypothesis has merit, it is unlikely to provide a final answer to the Tullock paradox. To some extent ideology stems from broader social conditions. Ideologies changed, in part, because intellectuals perceived a benefit to promoting ideas of larger government, rather than promoting classical liberalism.
I'd add, "Is it really true that in 1890, the typical voter staunchly supported free trade and free migration and staunchly opposed redistributive regulation and taxation?"

Inadequacies of ratchet theories of government growth:
The ratchet effect becomes much stronger in the twentieth century than before. Furthermore most forms of governmental growth probably would have occurred in the absence of war. The example of Sweden is instructive. Sweden avoided both World Wars, and had a relatively mild depression in the 1930s, but has one of the largest governments, relative to the size of its economy, in the developed world. The war hypothesis also does not explain all of the chronology of observed growth. Many Western countries were well on a path towards larger government before the First World War. And the 1970s were a significant period for government growth in many nations, despite the prosperity and relative calm of the 1960s.
Inadequacies of franchise extension theories of government growth:
The hypothesis of franchise extension, however, again leaves much unexplained. First, non-democratic regimes, such as Franco's Spain, illustrate similar patterns of government growth as do the democracies. Second, much of the Western world was fully democratized by the 1920s. Most governmental growth comes well after that date, and some of it, such as Bismarck's Germany, comes well before that time. Third, and most fundamentally, white male property owners today do not favor extremely small government, though they do tend to be more economically conservative than female voters.
The last sentence is so obvious yet so ignored.

Tyler then promisingly begins by acknowledging the ultimate power of public opinion:
No matter how incomplete it may be, there clearly must be something to the voter hypothesis. That is, there must be some demand for big government. If all or most voters, circa 2009, wanted their government to be five percent of gross domestic product, some candidate would run on that platform and win. Change might prove difficult to accomplish, but we would at least observe politicians staking out that position as a rhetorical high  ground. In today's world we do not observe this. Voter preferences for intervention are therefore a necessary condition for sustained large government. Democratic government cannot grow large, and stay large, against the express wishes of a substantial majority of the population.
Next he turns to the many technological changes that pumped up demand for big government.  You can quarrel with the specifics, but his summation is excellent:
[N]o one of these technological advances serves as the cause of governmental growth. Taken as a group, however, these factors made very large government possible for the first time.

To see this, perform a very simple thought experiment. Assume that we had no cars, no trucks, no planes, no telephones, no TV or radio, and no rail network. Of course we would all be much poorer. But how large could government be? Government might take on more characteristics of a petty tyrant, but we would not expect to find the modern administrative state, commanding forty to fifty percent of gross domestic product in the developed nations, and reaching into the lives of every individual daily.
He adds:
Think also about the timing of these innovations. The lag between technology and governmental growth is not a very long one. The technologies discussed above all had slightly different rates of arrival and dissemination, but came clustered in the same general period. With the exception of the railroads and the telegraph (both coming into widespread use in the mid-nineteenth century), none predated the late nineteenth century, exactly the time when governmental growth gets underway in most parts of the West. The widespread dissemination of these technologies often comes in the 1920s and 1930s, exactly when  many Western governments grew most rapidly, leading sometimes to totalitarian extremes. The relatively short time lag suggests that strong pressures for government growth already were in place. Once significant governmental growth became technologically possible, that growth came quickly.
At first glance, Tyler has an extremely functionalist model of government growth: People always had a latent demand for big government; then technology finally made it possible to satisfy them.  But Tyler's model hardly implies that the public's latent demand for big government was wise or prudent.  If improved transportation leads to a large increase in consumption of cyanide, it hardly implies that cyanide is part of every nutritious breakfast.

I value papers that make noticeable progress on important questions.  If you share my preference, this could easily be Tyler's best paper ever.  At least so far; I still hope to see many more like it.  Read the whole thing.



TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/6341
The author at Villainous Company in a related article titled The Fascinating World of Alternative Explanations writes:
    The graph embedded in this post from Mark J. Perry reminded me of some research I did a while back on the changing demographics of the American electorate. Perry's animated graph tracks the changing population distribution by age from 1950-2025.... [Tracked on May 3, 2012 10:33 AM]
COMMENTS (30 to date)
Saturos writes:

It almost seems obvious, when you think about it. I'm surprised the theory wasn't popular before.

zur writes:

I thought Howard Bloom answers this question well. he says only vigor of minds brings prosperity.

Joe Cushing writes:

Isn't this why you have this blog?...to educate the pubic because you acknowledged that we have a public opinion problem based on false beliefs and not a political problem of politicians not giving the public what they ask for?

I know someone who thinks the republicans want to cut WAY too much...who thinks that they shouldn't be cutting medicare and social security when the other spending is the problem. This is a person who reads daily.

Becky Hargrove writes:

I kept thinking of George Selgin's productivity norm paper as I read this. It would be nice to know just the degree to which the non-norm has been divvied up. That is quite a bit of hidden wealth.

Becky Hargrove writes:

Part of what is so frustrating about this: decisions being made as to how efficient technology was ultimately apportioned, between governments and citizens. There are countless ways in which technology has decreased the need for human labor, and yet the main place we could have truly benefited from techology was never granted to us, in that local governments needed non-efficient expensive(and fixed)housing components to increase their own coffers. When it came to housing, we had to go along pretending efficient technology had never even happened.

John writes:

Not having read the source paper these might have been addressed but based on the recap, and a quick scan of the paper, a couple of questions come to mind.

1) The assumption of a demand for large government is problematic to me. That implies that a majority of people want these results -- I don't think that's supportable. I do think that collective action demand often turns to government rather then market as the institutional framework for support.

One might as easily ask why technology is offering this, apparent, differential advantage to government over market in providing the supply side of collective actions?

2) I don't think the "technology" will be sufficient -- which and what technologies?

“'Government by ox-cart,' so to speak, simply cannot be very large or very powerful." That may be the case but clearly it should allow a significantly larger, more powerful government than "Government by foot."

So we should see this growth historically and not just in the past 100+ years.

There's also a rather difficult measurement problem when attempting to compare size of government between a modern western country with something like the Roman Republic and Empire, the Egyptian Pharaoh era or Alexander's government. What is the appropriate measure of the size of those economies and governments?

None of this is to say I don't agree that one can make a good case that technology has not been one of the driving forces of government growth. I do see that observation as rather obvious. When on considers some of the other explanations technology's impact seems implied as part of the explanation. Separating is out might be a difficult task -- if so simply calling this out may leave us little growth in our understanding of the process driving government growth.

Greg G writes:

As usual, Tyler sheds much light on his topic. It always surprises me how much libertarians are in denial about the fact that a very solid majority of voters really have favored the growth of government.

Sure voters complain about the growth of government and taxes. But they consistently prefer the present situation to a much smaller government offering many fewer services. Is this really such a mystery?

When people become wealthier they use their wealth to demand more services of all kinds and that includes government services. What a shock. Government grew the fastest in the last 100 years because that is when wealth grew the fastest. The times when the economy is not growing are always the times we see the most concern about the growth of government from voters.

Public choice theory starts by assuming that voters can't really want this increase of government......and concludes that voters don't really want this increase in government.

J Storrs Hall writes:

There's a strong case to be made that technology gave people the luxury of being able to afford extra government. One can also make the case that it changed what they wanted to some extent. I make a case for that here and here.

But it seems that there is an additional case to be made for a memetic argument. As technology moved people up the Maslow hierarchy, it changed the criteria with which they tested arguments. Beforehand: is it true, does it work? After: does it feel good? So people became more susceptible to the socialist meme, which took off from say 1880-1920, just as living standards were doing. A contributing factor was surely technology itself, which not only promised but delivered prosperity from vast designed mechanism. The analogy to political mechanism was explicit in writings like H. G. Wells.

So I think that the full account is a bit more complicated than a "latent demand" for government.

James writes:

Greg G,

You write that "Public choice theory starts by assuming that voters can't really want this increase of government......and concludes that voters don't really want this increase in government."

Can you cite a source for this? Which paper or author makes the assumption that voters prefer a specific amount of government?

From my limited reading, I've always associated public choice theory with the assumption that people both in and out of government act according to whatever preferences they happen to have.

Greg G writes:

James

I was not suggesting that voters literally think in terms of "specific amount(s) of government." They don't think in terms of units or blocs of "government.". They think in terms of the government services they expect and whether or not the size of government increases or decreases flows from that.

I trust that your reading on Public Choice has made you aware that most Public Choice theorists think government is too big and that this is a perverse result of the democratic process rather than a relatively accurate reflection of what voters want.

And yes, public choice theory (and every other theory I know of) does assume that people act according to their preferences.

jc writes:

Is the relationship linear? If so, thank God for The Great Stagnation, eh? ;)

jnye writes:

Bryan,

I've actually been making this exact argument to my classes for years and talk about tech driving equilibrium government growth in my paper for the Drobak and Nye, 1997 volume Frontiers in the NIE ("Thinking About the State").

In it, I used an expanded view of North and Olson to argue that state equilibria are a function of the technologies of control and production and how the tradeoffs therein lead to long term changes in state size.

I use the exact argument about post war state growth to argue it's technology in my lectures.

As I say in class, if you ignore differences in ideology (in the mid 1800s) all states were "small" in the fiscal sense. By 1960 almost all states are "large" regardless of history, ideology, or degree of democracy. Only technology can explain this secular change. All other explanations touch on the variance among states not the global trend.

Adam writes:

The role of technology in the growth and power of the state (e.g., government) is a central theme is Douglas North's "Structure and Change in Economic History". It's a great book and well worth his Nobel prize.

MPS writes:

We could also ask why the fraction of business revenue spent on administration (or, better yet, spent on anything other than actual manufacturing of products) has grown so much. For example, what fraction of Nike revenue and Apple revenue actually goes toward building shoes and computers? Compared to industries of the past?

I would think these have grown just like government has grown. The reason is that the ultimate root of economic growth is increased specialization and coordination between people and, while this affords much greater productivity, it comes at a cost of demanding much more administrative overhead. A lot of that overhead is in corporate organization, and a lot of it is in government.

This concerns domestic regulatory obligations. Most government "spending" is redistribution, but I don't think this is properly viewed as "bigger government," since it's really just transferring wealth. Consider, for example, patent law. This is government intrusion into the market that results in huge consequences for the distribution of wealth -- I'd say it's the dominant factor in modern industrial economies -- and yet we don't consider this "big government." I presume because it's "just" redistribution. And I would say the growing demand for government redistribution follows from the growing redistributional consequences of intellectual property protections and limited liability corporations and other government intrusions that enhance wealth concentration.

David P writes:

I wonder how much of it really is that people express demand for more government. I recently finished reading The Brothers Bulger: How They Terrorized and Corrupted Boston for a Quarter Century (which is an interesting book, but it's very Boston insider. I would have had a hard time following it if I hadn't grown up in Plymouth). It was shocking to read how Billy Bulger manipulated the system to basically stay in power. I find it hard to believe that people like Billy Bulger effectively represent their constituencies.

Foobarista writes:

I'd think some discussion would go to the rise of the bureaucratic corporation and "scientific management", which was the root of modern Progressivism (as well as much of Communism).

The idea was that the government itself would be the biggest corporation of them all, using the power of scientific management and other corporate methods to solve all social ills. In the "socialist" phase of Communism, it would be the only "business" entity in society as well.

Communications tech definitely enabled bigger businesses by allowing instant communication, and improved transport tech allowed managers far greater physical spans of control than you could have when the fastest way to move was speed of horse. A corporate-organized government would benefit in the same way.

Mike Huben writes:

The problem with Tyler's ideas (and those of the people he quotes) is that he doesn't look at the particular services provided with that vast increase in government spending. Krugman says:

Your federal government is basically an insurance company with an army. The vast bulk of its spending goes to the big five: Social Security, Medicare, Medicaid, defense, and interest on the debt.
In short, people want social insurance. The wealthier we become, the more excess money we have for social insurance, and so the larger government grows. As more people wave more dollars at a company, the company grows and produces more product. So does responsive government: it does not ignore demand.

The desire for big social insurance is what drives big government. And indeed, social insurance is one of the best uses for government: it beats engaging in wars and repression. Libertarians who decry social insurance from government are doomed to failure because there is no alternative that can satisfy the desires of the populace.

Mark Brady writes:

Bryan, are you familiar with Vito Tanzi's Government versus Markets: The Changing Economic Role of the State (Cambridge University Press, 2011) and, if so, what do you think of it?

Seth writes:

Gov't has probably always been there. We've just called it different things. Tribe elders, kings, noblemen, church, landowner associations all were forms of government.

So, perhaps technology enabled the transformation of these more local forms of government into the states that encompass more people and geography -- and for many of the same reasons McDonald's serves up the same hamburger across the country.

Saturos writes:

@Mike Huben, "Social insurance" as opposed to private insurance; code for redistribution, eh? (The only thing that can't be done privately.)

Mike Huben writes:

"code for redistribution, eh?"

Redistribution: dog whistle for libertarians to turn off their brains. Every corporation is an autocratic socialist institution, redistributing income among its employees and owners. When I see libertarians bemoaning this as wrong, then I might think they have some sense.

"The only thing that can't be done privately."

If you even pretended to know any economics, you'd state instead "one of many things that would be greatly underproduced because of market failures."

Libertarians really ought to learn to unpack their own propaganda.

Richard Ebeling writes:

Sorry, but I just do not see why the development of modern technology, per se, "causes" or has to be seen as correlating with the growth in big government.

The second half of the 19th century saw the emergence of what was called the "social question." That is, the fact that industrial development and technological innovation was rapidly advancing standards of living and opportunities for many in society -- but unevenly.

There arose the belief and concern about a growing gap between "the rich" and "the poor"; the sense that many in the "lower classes" were not participating in the improvements in life at any "reasonable" rate of improvement compared to others; the feared "concentration" of wealth in the hands of "plutocrats" able to influence the direction and "benefits" from political policies; and the idea that "labor" and "capital" were in an "irreconcilable conflict" over the rewards (the distribution) of expanded production.

These and similar issues were behind, in my view, the thinking that bigger, more paternalistic and benevolent government could serve as "arbiter" and "corrector" of these social tensions and conflicts.

Technology's influence was the belief that industrialization was not "lifting all boats" evenly and "fairly" enough.

But why "government" as the answer or "solution" to this presumed "social problem"? This does not follow, in itself, from technological potentials or capabilities for government intervention.

Indeed, one can read Herbert Spencer's "The Man vs. the State" (1884) today and find in it some of the most insightful and clear explanations why government cannot solve these presumed problems -- those in government have neither the wisdom nor the ability. Or government is, itself, the "cause" -- the longer-run effects of short-run government policies are not paid enough attention to. Or that government merely transfers power to itself and imposes regimentation and controls on people -- while we, the people, forget that the "spontaneous" interactions of self-motivated and innovative private citizens are the source of all improvement and solutions to these problems of concern.

The issue, in my view, is why and how did the notion that government could do it better (or at all) come to trump the idea and confidence in the potentials of free and decentralized actions by multitudes of individuals interacting for mutual self-improvement for themselves and others? Why did "collectivist" policy ideas triumph over "individualist" ideas such as Herbert Spencer's?

And this should be combined with a search for an understanding of how the changing political environment of expanded voter participation influenced the nature of the political process in terms of politicians' incentives and special interest lobbying. This is, of course, the "public choice" aspect of understanding the historical evolution. (This latter aspect, by the way, Spencer explained, as well, in his 1884 book.)

Richard Ebeling

Curt Doolittle writes:

Increases in government start with what we desire, and then become things we do not. As we evolve, we cannot get rid of what is entrenched as bureaucracy. So politicians compete over hypothetical adds to the state rather than material cuts in the state. It's easier to add than remove.

Expansion of government desired by white males tends to bet 'stuff that can go away' (The military). Expansion of government by women tends to be 'stuff you can't get rid of' (dependency programs - or gender-redistribution programs)

Unless I am terribly mistaken, the growth of government is simply the increased participation and finally dominance of women in the voting pool. That is the correlation that's missing from the list of causes above: women expand government along with their workforce participation.

I"m sure I'm going to get into trouble for this one too.... sigh.

Curt Doolittle writes:

Yes, technology (accounting and record-keeping in particular, but communication in general) allows government to expand. (England conquered the world with accounting just as much as it did with guns, germs and steel.) However, that is only one side of the coin. The other is the need for 'rules, weights and measures':

1) All economic expansion creates new and more complicated types of property, and with that new property, new and more complicated types of ownership.

2) All new types of property need means of registration (title), and rules so that contracts can be made, and disputes can be managed. (And unfortunately, new systems of taxation.)

3) All economic expansion requires increase in technologies for calculation (numbers, accounting, laws, processes of inter-temporal redistribution, shareholder systems, banking regulations) because calculation is necessary for coordination and planning. (And contrary to libertarian arguments, the market cannot solve the problem of coordination for all types of abstract property sufficiently to prevent involuntary transfers -- fraud. That is why libertarians limit themselves to simple several property: because it's easy. But complex property is competitively advantageous.)

Therefore the government must expand to fulfill the problem of managing titles and 'calculative technologies' (In the Weberian sense.) In effect, the problem of weights and measures expands infinitely. And government with it.

That's a 'good'. It may be the only 'good' we can unequivocally attribute to government.

Floccina writes:

IMO it had to be the ability to tax and borrow that lead to bigger Government. I even think today that as long as Government can tax more and borrow more it will continue to grow. On the bright side I believe that technology will still insure that standard of living will continue to grow despite the growth of Government. Technology even increases the efficiency of Government though more slowly than in private enterprise.

Floccina writes:

I agree with Mike Huben to a large extent and so I like to push for more efficient social insurance. We should focus on getting rid of the huge marginal taxes at the low wage end and limit subsidy to the rich and middle class. I do not see a need for myself of social insurance nor do I want it but people want the insurance, so I do not see us convincing people to vote against it.

A couple of examples from my blog of ideas to limit the spending and yet give people the Social insurance that they want:

http://un-thought.blogspot.com/2009/09/healthcare-compromise.html

http://un-thought.blogspot.com/2011/09/why-eliminating-deficit-is-easy-but.html

Curt Doolittle writes:

@Richard Ebling

RE: "but I just do not see why the development of modern technology, per se, "causes" or has to be seen as correlating with the growth in big government."

That's right. But It certainly enables it. If it were not for the profitability of taxation for politicians and the bureaucracy, governments would have nothing to do. However, if it were not for means of recording property and its transfer, then increasingly complex transactions could not be taxed. Taxation technology expands with the complexity of the economy.

Bryan Willman writes:

CONJECTURE:

The KEY technology to the growth of government (and other things) is MONEY, and the growth of a money economy. [That is, an economy where a very large part of real output is traded for money, rather than consumed directly or bartered or traded for local only debt.]

Without money, it's pretty easy to see where anything some government promises must come from, and hard to see how general promises for the future would mean anything.

With money, there can be a kind of psychological "free lunch", and it's easier to believe in vague promises of the future. (Would anybody put stock in a promise of "social security" based on bread and chickens? I speculate not. But "when you are 65 you will receive $2,347 per month, in tender legal for payment of all debts private and public" seems more credible.)

It is only money that allows promises of distribution that strain or exceed real output to be credible. (It also seem to be only money that enables lots and lots of good things too, including the useful parts of social programs.)

For money to be useful, lots of other technologies have to work - storage, transport, etc. So the general theme of "technology" has merit - but I suggest that Money Itself is the key technology for large orgs in general and government in particular.

Alex writes:

This idea of technological growth spurring growth of government is very interesting - and with Cowen's logic makes sense.

To me, there is still a deeper "why" in play. Why does more technology mean more government? I don't know, but I'm tempted to think that has a little something in common with the concept of insurance. As more and more people are able to pool money into an insurance policy, premiums become smaller and it becomes more appealing to join.

Is it reasonable that as technology decreased the cost to be closely connected to more people, more people were able to take advantage of the services that pooling money into a government could provide?

I believe this definitely could be a large factor. Before widespread availability or automobiles, television, etc., it would be much more difficult to take advantage of government services.

brian writes:

The Byzantine empire 'had no cars, no trucks, no planes, no telephones, no TV or radio, and no rail network'...

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