ONS figures released today reveal that public service productivity has flatlined from 1997 to 2010, with an annual average growth rate of zero per cent (release). This confirms the fears of many who oppose the growth of the state, that the public sector is failing. It is not as open to experimentation or as exposed to profit incentives as markets, and is unable to innovate or operate efficiently.
Meanwhile macroeconomists often fail to draw a distinction between state and market activity, crudely equating the two. Allister Heath believes that this is a mistake:
Too many are uninterested in the composition of demand – private or public – assuming it is all the same. It isn’t: private spending is more efficient than public spending, and governments with high levels of state spending as a share of GDP grow less fast, according to many studies.
The costs of a growing state include foregone returns on resources. Had capital been in the hands of the private sector, it would likely have been used more efficiently, and made us all richer. Rather, as state spending and control over the economy's resources grows, we choke off the economy's potential.