IS GOVERNMENT THE PROBLEM?
Another reason why people are reluctant to raise more taxes to get more services is that many people in the United States (but also in the UK and in many developing countries) are skeptical of any intervention by the state.
At least since Reagan, we have been fed the mantra that “in this present crisis, government is not the solution to our problem, government IS the problem.”10In 2015, only 23 percent of Americans thought they could trust the government “always” or “most of the time.” Fifty-nine percent had a negative opinion of the government. Twenty percent thought the government had no tools to improve equality of opportunities between the rich and the poor, and 32 percent thought lowering taxes on wealthy people and corporations to encourage investment would be a better way to improve equality of opportunities than increasing taxes to finance more programs for the poor.11
This radical skepticism about government action may be the single biggest constraint on helping those who need it most, paradoxically because many of those people themselves hold precisely these views. Manpreet Singh Badal, a bright young minister in the Indian state of Punjab, saw his political career stumble over just this issue. Farmers in Punjab get free electricity, and groundwater is free, with the result that everyone over-irrigates their land with the consequence that the water table is falling so fast that in a few years there will be no water to pump out. It is in everybody’s interest to reduce water consumption now. Badal’s solution was to give everyone a fixed sum of money to compensate them, and then charge them for the electricity so they would not pump any more water than they needed, because the cost would act as a deterrent against excess pumping. From the point of view of economic logic, this is a no-brainer. But it was political suicide.
The measure, introduced in January 2010, had to be removed ten months later, and Badal lost his job as finance minister and eventually had to leave his political party. Farmers simply did not trust they would get any money, and the powerful farmers’ associations radically opposed the measures. Remarkably, in 2018 Badal, back in government, decided to try again. This time the plan was to first give a direct transfer of Rs 48,000 (equivalent to $2823, accounting for purchasing power parity differences) to all farmers directly into their bank accounts, before charging them for electricity by deducting from this same account. The subsidy has been calculated such that at the going rate, a farmer consuming less than 9,000 units of power would come out ahead (the state estimates the average consumption is between 8,000 and 9,000 units). The idea was to make it absolutely clear that this is not a tax in disguise, a sly way to raise money from the farmers. And this time the government moved slowly. They began with a small pilot program, and are now planning a larger RCT to evaluate the impact of this scheme on water consumption and farmers’ welfare. Still, farmers remain suspicious. The farmers’ union continues to claim that “their real agenda is to discontinue the power subsidy for agriculture.”12Why are people so suspicious of the government? A part of it, no doubt, is historical. In India, people have seen too many instances where the government reneged on a pledge. In the United States, there is clearly an ideology of self-reliance, even though for many years it has been based, to a significant extent, on a fantasy—the states in the US where people take the most pride in their autonomy are also the ones most dependent on federal subsidies (Mississippi, Louisiana, Tennessee, and Montana top the list by federal aid as fraction of revenue).13 In part also, as we suggested earlier, it relates to a distrust of the elite. Government programs are seen as the elite’s way of subsidizing everyone but hard-working white (males?).
But it doesn’t help that there is a background of economist-inspired chatter about waste in government. Mention a government intervention in a roomful of economists and you will hear an unmistakable snicker. Many, perhaps even most, economists believe incentives in government are always messed up, and as a result government interventions, while often necessary, tend to be ham-handed or corrupt.14But bad relative to what? The problem is that there is no substitute for a lot of things the government does (although of course many governments do more things than they should, like running an airline in India or a cement plant in China). When a tornado strikes, when an indigent needs healthcare, or when an industry shuts down, there is usually no “market solution.” The government exists in part to solve problems no other institution can realistically tackle. To demonstrate waste in government, one needs to show there is an alternative way of organizing the same activity that works better.
There is no doubt waste in governments in most countries. A number of studies from countries like India, Indonesia, Mexico, and Uganda have found that changes in the way governments do things can lead to substantial improvements. For example, in Indonesia simply distributing a card indicating someone was eligible for a program increased the amount of subsidies the poor got by 26 percent. Once they found out what they were eligible for, people were able to better advocate for themselves.15 On the other hand, as we noted in chapter 5, there is also enormous waste inside private firms, so perhaps good management of resources is harder than we think.
Consistent with this, figuring out how to reduce waste in government turns out to be more difficult than it seems. Simple formulae do not work; privatization, for example, is not a panacea. The limited evidence comparing private and public provision of the same service turns out to be very mixed. Private schools in India are cheaper, but children randomly assigned to a private school have the same low test scores as those who stayed in public schools.16 Private placement services for the long-term unemployed in France work less well than their public equivalents.17
In 2016, the Liberian government transferred the responsibility of running ninety-three government schools to eight different organizations (some NGOs and some for-profit operators) and, remarkably, ran an RCT to evaluate the impact.
The results were mixed. Students’ results in those schools were somewhat better on average, but the private schools also spent a lot more money per pupil (double what the normal students got), so the playing field wasn’t quite level. Moreover, four of the eight organizations did little better than public schools. Bridge Academy, the star provider, had good scores, but only after receiving considerable outside money and dropping all students in excess of their class size cap.18 Another provider, the US charity More Than Me, got itself embroiled in an egregious sexual abuse scandal.19 There was no miracle cure.