Rediscovering Public Wealth Creation
In today’s debates about the policies and organizational structures that can best deliver sustained economic growth, we seem to have forgotten the wealth-creating role of the state. The most important innovations of the twenty-first century were not immaculately conceived by free markets; they were first developed in government research labs.
LONDON – At the cusp of the new year, a decades-old debate among economists is heating up again: Does austerity help or hurt economic growth? Broadly speaking, the debaters fall into two camps: conservatives who call for limited public spending, and thus a smaller state; and progressives who argue for greater investment in public goods and services such as infrastructure, education, and health care.
Of course, reality is more complex than this simple demarcation implies, and even orthodox institutions such as the International Monetary Fund have come around to the view that austerity can be self-defeating. As John Maynard Keynes argued back in the 1930s, if governments cut spending during a downturn, a short-lived recession can become a full-fledged depression. That is exactly what happened during Europe’s period of austerity after the 2008 financial crisis.
And yet the progressive agenda cannot be just about public spending. Keynes also called on policymakers to think big. “The important thing for Government is not to do things which individuals are doing already,” he wrote in his 1926 book The End of Laissez Faire, “but to do those things which at present are not done at all.” In other words, governments should be thinking strategically about how investments can help shape citizens’ long-term prospects.