Optimizing Government Size for Economic Development: A Case Study and Analysis

Introduction

The Government's size is defined as the ratio of government expenditure to the total output of an economy, with total output usually measured by Gross Domestic Product (GDP). It is commonly measured by analysis of government expenditure, government revenues, and employment rates. Big Government is defined by its size, gauged by its budget or number of employees, either in absolute terms or relative to the overall natural economy

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The growth of the economy is driven by the size of the government. However, what is seen in the United States of America is the direct opposite. Low economic growth rates and government size are increasing in the United States of America. Keynesian perspective places the vitality on the Government size to catapult for economic growth. The feedback-response fashion takes into consideration both the two. It is also known as the 'bidirectional causality view'.

Size of Government

GDP growth is maximized when government spending consumes 26% of the economy. I believe this would be the appropriate size of Government for America. The Organization for Economic Co-operation and Development (OECD) data state that the current Government's size is 40% of the GDP (Berg et al., 2015). Positive economic growth and social progress would be enhanced when the focus is based on basic needed services rather than generous wages for employees. The reduction in the size would most likely boost the country in outrageous ways, as explained in the case below.

A clear and unique example is Canada's case to shows how a decrease in government size can impact the economy. This proves that scaling back can lead to economic advances. In the 20th century, Canada favored an increase in its government size. The expenditure increased from 36% to 53% between 1970- 1992 (Berg et al., 2015). The rise in government size further led to an increase in government debt, attracting attention internationally, as reported by the Wall Street Journal on January 12, 1995. Soon actions were taken to cut down the expenditure. Appropriate fiscal policy in place led to a decline to 39% from 53% and a clear boost in economic growth; the job market expanded, and poverty rates fell dramatically.

The example is meant to show what will happen with the reduced size of Government. The Government will be operating at its maximum. There will be little or no strain on its finances. This translates to the continued development of the other sectors of the economy. There will be a financial boost available to the public plus the provision of employment opportunities. The per capita income will most likely rise. The stability of the economy will thus be enhanced.

Lane (2018) defines the government as a body belonging to the state for purposes of outcomes and decision-making. It outlines directions to its citizens by collective decision-making means and exercising authority daily. Indirect and direct arms are the two crucial arms that a government has. This helps point out the Government's connection to its budget and businesses. For proper functioning, the two arms must be implemented with great effectiveness. As a result, the government attains optimum decision-making.

The direct arm aids the Government in raising its revenue. Activities under this include tax collection, allocation, and redistribution of resources through subsidies and welfare grant policies plus the production and services and goods consumption (Häge, 2016). The direct arm engages in activities that can be proved to be of ideal benefit due to their monetary value. The indirect arm entails benefits derived from subsidies in the form of tax allowances, indirect taxes, and regulations. Substantial power over national resources is accorded to the government by an indirect arm.

There are five components; investment and consumption, interest rates, social transfers, and subsidies can be used to split government expenditure. The more the expenditure, the larger the government's size. The Government can only spend what it receives from the economy, so it is a bearer of its fate. Resources that the government lends to citizens are rendered limited due to government borrowing from private lenders. This said a hefty government borrowing and spending translated to suppressing private borrowing and spending.

The fiscal policies adopted by the Government have a direct impact on the social and economic life of Americans. The laws and regulations protect citizens from exploitation in various dimensions. It protects them against business exploitations through various laws in place. Their environment is checked to ensure the utmost safety for their health. Loans and interest rates are made considerate to serve them wholly. Fair taxation is also regulated. The Government is also involved in production services to provide its citizens with essential products.

Effects of Government on Business

The Government ensures fair business practices among entrepreneurs. This ensures fair pricing, good quality of products, maintaining a constant supply-demand chain, and bad advertising, among others. It also eliminates bad monopolies in the country. For example, The Sherman and Clayton Antitrust Acts ban unfair monopolies. The American Government protects the workers and consumers. For example, safe working conditions under the National Labor Relations Act and the Food and Drug Administration for safe products.

In the same line, the Government provides economic security. The growth of its Government ensures increased job creation. Initiatives under this include enhanced infrastructure development and industry creation to enhance employment. They are protected under the Social Security Act. The Government also maintains economic stability through its policies, seen clearly by its monetary policy regulation. Protection of the environment helps deter the pollution and degradation of natural resources. The natural resources are protected and thus can be harnessed and utilized appropriately.

Conclusion

Indeed, the Government plays a fundamental role in America as far as economic development is concerned. An appropriate size of the Government will not only support the government's stability but also enhance economic development. This will be a win-win for both the Government and the citizens. The Government's appropriate size ensures the fiscal policies enacted favor economic growth by reducing the overall government expenditure, enhancing revenue, and generating employment for its citizens. This promotes GDP growth and thus improves the standards of living of the citizens.

References

Bergh, A, & and Martin Karlsson. (2015). Government Size and Growth: Accounting for Economic Freedom and Globalization.

Häge, F. M. (2016). Determinants of government size: the capacity for partisan policy under Political constraints. Konstanz, Germany: Department of politics and management, University of Konstanz.

Lane, J. (2018). The public sector: concepts, models and approaches. London, England: Sage.

Light, P. C. (October 3, 2020). The true size of government. www.data.oecd.org