have in dealing with the elderly that we will have yet bigger problems ahead. Bill Gates recent speech at TED on the cost of maintaining the US education system highlights a more general problem we know but would rather avoid. If education has three roles: to prepare youths to become empowered, engaged, citizens; to learn skills to earn a wage; and to provide the bed-rock on which to build life time learning for self- enrichment then we fail on all three by many measures.
A priori, provision of these high touch services, requiring high labour input but relatively low levels of training to provide at least a base level of service as compared to the upper end of skilled knowledge-workers, is probably not best provided by the State. That is an assumption. It needs testing. But what if it is right? We could potentially release labour and effort and do so more efficiently than by tax and spend through State institutions.
And so the second fixable problem for Big Society is that it is not clear
outside the usual sterile ideological debate what the legitimate boundary for State provision should be. By contrast it is clear from economic theory what the bounds of a joint- stock company should be. It should expand until the marginal costs for the marginal contract internally equal those bought-in externally. Ronald Coase provided that simple but effective measure 50 years ago. (He of course an example of the new- found longevity I describe and at 100 years old is still publishing.)
We could look to other models for organising society but I would wager that it is a now a very small minority in UK or elsewhere that would still argue that ʻcapitalismʼ is not the ʻleast badʼ way to achieve economic growth and hence a bigger pie. That was not true when I was born in the mid-50ʼs, and it was not true even up to the late 80ʼs when China looked quite a different beast from across the water where i lived temporarily in ultracapitalist Hong Kong. But I think now the doubters are few: private property and the hope of private after-tax personal wealth accumulation stimulates risk-
Sadly the provision of support for disaffected youth and the provision of care for the elderly are both areas where the State traditionally has performed poorly.
taking which stimulates growth. But paradoxically arguing from the other direction, post-Keynes and the idea of ʻeconomic stabilisersʼ to maintain effective demand in temporary downturns, I doubt there are many who believe that the skewed distributive effect
of unalloyed capitalism is
good for capitalism or even good for those for whom capitalism has been good. Beneficiaries from capitalism, even left-wing cynics would agree, seem keen to support some limited redistribution of wealth, and enough basic education, basic nutrition and basic health to make rioting not worth the effort and to provide a healthy skilled work-force. The more enlightened might add support for enough education to actively engage in the democratic process. And liberals might add sufficient early learning to allow retraining later and to seek personal self-enrichment from additional study. So we need to address then who will provide theses services. As a child of the boom I would add free tertiary education for all, just as I was entitled to, but I know that that cannot be afforded with the shape of tertiary education that we have today.
To attempt to offer a rule for how big should the State be, I would expect a lot of support for the hypothesis that the State should tax us and should direct the spending of our taxes where the State can do so more effectively than the best alternative to achieve the same outcome. Its a bit Utilitarian as a definition, but it is not shackled by a reference only to moneyʼs-worth and so it will I think it will do as a working rule. Prof. Marty Feldstein at Harvard is one of the few i can find to have addressed this question formally in a paper for the NBER in 2007. Informal discussions abound in the press. and of course every election manifesto is a politicised attempt to define the ʻrightʼ size for the State. But what we need is more empirical work on comparative outcomes and comparative costs.
The funding for some of the service 42 entrepreneurcountry
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