David R. Henderson  

Jean Tirole on Scaling Back Government

Henderson on Tirole... Happy Global Hand-Washing Day!...
Around the same time, Canada cut government expenditure by 18.9% without social turmoil - and without greatly reducing health, justice, or housing programmes. They did this while maintaining tax levies, so the result was a reduced public deficit and falling public debt. Spending that could not be clearly justified in terms of the resulting service to the public was pruned. Subsidies for entrepreneurial projects and privatisation facilitated the elimination of one in six positions in the civil service. Indeed the sort of government reorganisation undertaken in Canada could only be dreamed of in France with its often nightmarish collection of laws and fiscal regulations. The Canadians have a single service for the calculation and collection of taxes and a one-stop-shop for government-business relations.
This is from Jean Tirole, "Four Principles For an Effective State," which was originally published in 2007. HT to Alex Tabarrok of Marginal Revolution.

For more on Canada's budget cuts, see my "Canada's Budget Triumph," 2010.

And this:

Hours after he won the economics Nobel Prize, Tirole said he felt "sad" the French economy was experiencing difficulties despite having "a lot of assets".

"We haven't succeeded in France to undertake the labour market reforms that are similar to those in Germany, Scandinavia and so on," he said in telephone interview from the French city of Toulouse, where he teaches.

France is plagued by record unemployment and Tirole described the French job market as "catastrophic" earlier on Monday, arguing that the excessive protection for employees had frozen the country's job market.

"We haven't succeeded also in downsizing the state, which is an issue because we have a social model that I approve of - I'm very much in favour of this social model - but it won't be sustainable if the state is too big," he added.

Tirole remarked that northern European countries, as well as Canada and Australia, had proven you could keep a welfare social model with smaller government. In contrast, he said France's "big state" threatened its social policies because there will not be "enough money to pay for it in the long run".

From "Economics Nobel laureate tells France to 'Downsize the state'."

HT to Patrick R. Sullivan.

Comments and Sharing

CATEGORIES: Fiscal Policy , Labor Market

COMMENTS (6 to date)
Greg Heslop writes:

Healthy advice. Thanks for sharing! Annoying that he would use a word like "justice", though (on the second line on the first quote). I reckon this must be in reference to redistributive measures (not courts or the police, right?), but one can be against them without being against justice.

ThomasH writes:

I hope this puts to bed for good the trope that Liberals always push for bigger government. [And I double dog dare you to claim Tirole is not a Liberal.]

Andrew_FL writes:

@ThomasH- Whether or not he's a "liberal" it's clear he's not what most left wing people in America would call a "progressive."

There are people in the US who also view our welfare state as unsustainable but a good thing that should be preserved. Unfortunately they call themselves Republicans.*

The left in the US is largely in denial about the sustainability of the welfare state.

*Of course, there are also people like me who call themselves Republicans who hate the welfare state and would as soon seen it dismantled. That's why it's unfortunate.

Tom West writes:

it's clear he's not what most left wing people in America would call a "progressive."

I'm not so certain. Redistribution, labor protections, social programs all cost money and somewhat lower growth. However, that doesn't mean they shouldn't be purchased. The question is how much can we afford to purchase and what ratio of the three.

My guess is that he'd feels that France is buying more of these programs than it can afford, and that the ratio is skewed too far towards labor protection.

And sadly, I suspect he's right. However, that's for the French to decide.

However, he may well feel that America is nowhere near that point, which would make him an American progressive.

Nathan W writes:

claim 1: reduced public spending
fact 1: 2006 program spending was 188 billion, 2013 program spending was 252.9 billion

claim 2: reduced deficits
fact 2: 2006 deficit was an $18 billion dollar surplus, but after major deficits in recent years, the budget might be balanced for the first time in a long time next year

claim 3: falling public debt

fact 3: tradingeconomics.com shows that public debt was at 66.5% of GDP in 2008 and stood at nearly 90% of GDP in 2014 (accumulating all levels of government. Meanwhile, federal debt stood at 31% of GDP in 2008 and 38% of GDP in 2012 (I'm skeptical of the 2013 numbers I came across, which suggest that debt/GDP fell by 5% in 2013, while federal figures are most easily accessible for pre-2008.

Canada has had a different government since the time that was written (2007), and has also faced a very different economic environment.

Currently, the government has a stubbornly dedicated plan to build the future on non-renewables.

We used to have a government that thought it makes sense to run surpluses in boom times and deficits in down times. Now we have a government that thinks it's a good idea to run a balanced budget in the boom times and dismantle the state in the down times.

In 2007, the concern was that it would be impossible to find enough talented people, and so we discussed national child care provisions so that more women could enter the workforce. Now, the concern is that people are underutilized, and that we are losing skills building opportunities, and inequality concerns due to segmentation of jobs into flex- and McJobs and high paying professional jobs.

The thought of being worried that lack of child care options was seriously considered as one of the top constraints to growth seems kind of quaint now, but perhaps it's still not a bad idea.

ThomasH writes:

@ Andrew_FL

Tirole may not be what "left wing" people call "progressive" but he certainly is not what anyone would call a "conservative" or a "libertarian."

That sort of leaves "liberal" as a label for people who look at issues one by one and on some might be prepared to trade off a bit of growth for some redistribution or a bit of market interference for more income in the long run and sometimes would not.

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