This article examines the validity of the assertion that low growth, high unemployment, and increasing inflation were all produced by excessively high levels and large increases in public spending. The article presents a systematic analysis of the relationships among 19 nations between increases in spending and lower rates of economic growth, higher unemployment, increases in deficits, and inflation. The article concludes that, contrary to the conventional macroeconomic wisdom, high levels of spending and large increases in spending have not caused stagflation—the obvious implication therefore being that fiscal conservatism will have little beneficial effect on the economy. And the article concludes that, again contrary to conventional wisdom, a large and expanding welfare state may be compatible with, and beneficial to, a capitalist economy.
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References
1.
1. For a discussion of the unusually large increase in the public economy in the small European nations, see David R. Cameron, “The Expansion of the Public Economy: A Comparative Analysis,”American Political Science Review, 72(4):1243 (Dec. 1978).
2.
2. This article represents an abbreviated version of the paper with the same title delivered by the author at the Annual Meeting of the American Political Science Association, New York, Sept. 1981. All of the statistical analyses reported here, as well as the documentation of the data used in the analyses, are contained in that paper.
3.
and OECD, Economic Outlook, 29 (Paris: OECD, 1981).
4.
4. Anthony Downs, “Why the Government Budget Is Too Small in a Democracy,”World Politics, 12(3):541 (July 1960).
5.
and Milton and Rose Friedman, Free To Choose (New York: Harcourt Brace Jovanovich, 1980).
6.
6. One reason for the absence of an effect, of course, is the fact that some of the increase in spending is often devoted to programs to facilitate employment—for example, job training. Also, a considerable portion of the increase may be used to expand publicsector employment.
7.
and David R. Cameron, “Politics, Public Policy, and Economic Inequality: A Comparative Analysis” (Paper delivered at the Conference on the Role of Government in Shaping Economic Performance, Madison, Wisconsin, March 1981).
8.
8. For an elaboration of this point, see David R. Cameron, “Taxes, Spending, and Deficits: Does Government Cause Inflation?” in The Politics and Sociology of Global Inflation, eds. Leon N. Lindberg and Charles Maier (Washington, DC: Brookings, forthcoming).
9.
9. A. W. Phillips, “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957,”Economica, 25(100):283 (Nov. 1958).
10.
See also idem, “Communication,”American Political Science Review, 73(1):185 (Mar. 1979).
11.
11. This argument is quite compatible with the critique of corporatism and corporatist arrangements as forms of wage restraint. See Leo Panitch, “Recent Theorizations of Corporatism: Reflections on a Growth Industry,”British Journal of Sociology, 31(2):159 (June 1979).
12.
idem, “Trade Unions and the Capitalist State,”New Left Review, 125:21 (Jan./Feb. 1981).
13.
13. Some would argue that the leftist parties have not been able to avoid that fate, and that the alienation of the working-class constituency contributed to the electoral erosion that Social Democracy has suffered in Norway, Sweden, Denmark, and Britain. But others remain skeptical; see, for example, John D. Stephens, “The Changing Swedish Electorate,”Comparative Political Studies, 14(2):163 (July 1981).
14.
14. The difference between the argument presented here and arguments that identify wage restraint as the essential characteristic of corporatist arrangements in contemporary capitalism is that we do not confine the effort to induce wage restraint to those periods when organized labor participates in corporatist arrangements; rather wage restraint is viewed as an essential objective of most, if not all, governments in capitalist societies at all times, whether or not corporatist integration of labor is used in an effort to make wage restraint more palatable to labor. See, in addition to the works by Panitch already cited, Gerhard Lehmbruch, “Liberal Corporatism and Party Government,” in Trends Toward Corporatist Intermediation, eds. Philippe C. Schmitter and Gerhard Lehmbruch (London: Sage Publications, 1979), pp. 147-183.
15.
15. See Peter J. Katzenstein, “Conclusion: Domestic Structures and Strategies of Foreign Economic Policy,” in Between Power and Plenty, ed. Peter J. Katzenstein (Madison: University of Wisconsin Press, 1978), pp. 295-336, for a discussion of the propensity of Britain and the United States to adopt a liberal, internationalist foreign economic policy and to encourage capital exports.
16.
and James E. Alt, The Politics of Economic Decline (Cambridge: At the University Press, 1980).
17.
17. For a telling indication of the evolution and thrust of the plans, consider the title of a recent article by the architect of the Swedish plan: Rudolf Meidner, “Capital Formation Through Employee Investment Funds: A Swedish Proposal,” in Labor Relations in Advanced Industrial Societies: Issues and Problems, eds. Benjamin Martin and Everett M. Kassalow (Washington, DC: Carnegie Endowment for International Peace, 1980), pp. 161-171.
18.
18. See, for example, Gösta Esping-Andersen, “From Welfare State to Democratic Socialism: The Politics of Economic Democracy in Denmark and Sweden,” in Political Power and Social Theory, vol. 2, ed. Maurice Zeitlin (Greenwich, CT: JAI Press, 1981), pp. 111-140.
19.
19. Whether one views it as heretical, paradoxical, or natural that Labour parties should induce wage restraint and advocate programs of capital formation depends, of course, on one's notions about the historical role of Social Democracy. For one interpretation, see Adam Przeworski, “Social Democracy as a Historical Phenomenon,”New Left Review, 122 (July/Aug. 1980).
