Public Policy:

What do governments do?

How do they do it?

Different views of what governments do:

• Protect from outsiders

• enforce laws

• regulate trade

• extract revenues

• do things that others (markets) don’t or won’t do

Considerable variation

• over time– from minimalist to activist state

• among types of political systems– variations among and between

• liberal democracies

• authoritarian

• totalitarian systems

The Changing Role of Government

• Governments initially responsible only for protection and administration of justice

• 19th c: responsibility for education

• After WW II, a wider role:– try to ensure minimal level of subsistence and

wellbeing– overall responsibility for the smooth

functioning of the economy

Changes in structure of government

‘Night watch’ state:• limited role for

government• Initial 5 ministries:

– foreign relations– defense– treasury– interior/home affairs– justice

Welfare state

classic ministries plus– education

– health

– social welfare

– employment

– industry

– housing

– transport

– culture….

Night-watch to welfare state:

• seven good years … seven bad years– problem of cycles in market economies

• Classical liberal economics: – governments must let markets adjust

• Welfare state: development reflected• new tools and understanding• realization that government could intervene• realization that it was politically necessary for

governments to intervene

The Keynsian welfare state

• basic components:– managing the economy to ensure employment

• counter-cyclical policies -- demand management

– guarantees against uncertainties of life in industrial society

• unemployment

• illness

• industrial accident

• old age

Changing contours

• 1950s, 1960s, early 1970s– combination of planning, coordination, demand

management results in • economic growth

• full or near full employment

• expansion and elaboration of universal welfare states via state-financed or state backed insurance systems, pensions, etc

1970s

• growing problems:– impact of energy crises– increased competition, structural employment– fiscal crisis:

• states face growing demands– increased demand for services– increased recourse to entitlements

• growing difficulty in extracting revenues and achieving growth

– inflation

1980s and beyond• neo-liberal attacks:

– right argues that state must limit its activities: – argue inflation rather than unemployment is the problem– solution: monetarism (regulate money supply)

• political successes• Thatcherism in Britain• Reaganomics in the

• fiscal crises, deficits and debt burden lead to contraction but not elimination of welfare states