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Wednesday, February 04, 2009


Opening of 500th Jobcentre Plus

The parasite in question being the state sector of the British economy which not only mostly produces nothing but, by its regulatory function, reduces productivity by £20 for every pound the regulators "earn".

According to the Centre for Economics & Business Research government now takes up 49% of the economy (or at least it did on Jan 25th).

Experts believe the recession will tighten the state’s grip still further as benefit handouts soar and Labour directs public sector organisations to create jobs to soak up unemployment....

“Labour has failed to encourage private sector investment across the country. Instead of supporting enterprise and small businesses, Gordon Brown has used the public sector to cover up his failures,” said Theresa May, the shadow work and pensions secretary.

The CEBR reached its estimates for 2008-9 by applying the 6.68% state spending increase announced in November’s prebudget report evenly across the country, although in practice some regions will receive more than others.

Across the whole of the UK, 49% of the economy will consist of state spending, while in Wales, the figure will be 71.6% – up from 59% in 2004-5. Nowhere in mainland Britain, however, comes close to Northern Ireland, where the state is responsible for 77.6% of spending, despite the supposed resurgence of the economy after the end of the Troubles.

They don't give the figure for Scotland but since we have been consistently about 10% more than the UK average I assume 59% (58% if we are lucky & the business rates cut is counted).

The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.

Which is not a remotely fair comparison because the state owned a large part of productive industry & was thus a producer. We have got rid of almost all nationalised industries but unfortunately this does not seem to have much slowed the increase in government size merely moved it into totally non-productive areas.

But never mind

Vince Cable, the Liberal Democrat Treasury spokesman, said that the state’s grip on the regions was likely to soften the impact of recession there.

“Newcastle and areas like that have a large public sector which will at least shield traditionally very depressed areas from the battering that southeast England is going to get."

Which will simply make things worse overall. What an economic illiterate.

Recession is supposed to shake out the unproductive enterprises by "gales of creative destruction" & they end whenroom has been made for the productive ones to grow. Here & in the US what we are seeing is that the productive enterprises are being destroyed, or sent abroad, & the massive unproductive one is growing like a tumour. We will never get out of recession this way.

UPDATE On the news last night I saw that the economy is shrinking 2.1% a quater. This makes the economy now just under 98% of what it was back in October & therefore the 49% then equal to over 50% now. I realise that measurement of what GNP actually is isn't really precise enough to be sure to within 1% & you have to be a real nitpicker to say that it passed 50% at the end of January. What matters is the direction of the trend & that is bad.

My fag packet says 10% of GDP for 'core functions'; 10% for basic welfare (as now - but makie it CBI not the crap we've got) and maybe 5% or 10% on top for education or health vouchers.

So 25% or 30% is the absolute upper limit, call it full LVT and 20% flat income tax, that should cover it.
I suspect core functions could be a little lower & the NHS, of which as a principle I strongly approve, a bit higher.

However if such a reduction in government spending leads to an increase in growth, as all theory suggests, then you can have the same services on a declining % of GNP (or better on the same).
The amount of government is a lot higher than 50%. The banking industry is so heavily regulated that the state might as well own the all of the banks. Clearly the state possesses the banks, and as the old saying goes possession is nine tenths of the law. This possession is also true in other industries as well, meaning that the state owns most of the economy, easily well over 70%.

Your figures seem to indicate that England pays for the government and the other pats of Britain are net consumers.
The south of Wngland & in particular the financial centre of the City of London is (oe was) easily the richest part & therefore pays most. Also London has more well paid civil servants & head offices of those large companies whose bosses schmooze with government leaders. This is a common phenomenon worldwide - that capital cities are the better off than the country as a whole because government is such a rewarding industry. There is a reasonable argument that Scotland also contributes disporportionately since North Sea oil is overwhelmingly off our coasts - thoigh this is not an achievement of ours.

The point about regulation controlling the remaining 50% is correct.
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