NEW DELHI, 28 July 2004 — The policy of the World Bank, IMF (International Monetary Fund) and other multilateral organizations is that poor countries should reduce the size of their governments and give more of the economic playground for the private sector. Private investment is considered to be more efficient than public investment. But the role of government in rich countries’ economy is larger than the poor countries. According to World Development Report 2001 published by the World Bank, government expenditures constituted of 47.7 percent of Netherlands’s national income in 1998. Other rich countries are not far behind: Belgium and France 46.6, Italy 44.6, Sweden 42.8, Portugal 40.8, England 37.8, Spain 36.1, US 21.0 and Japan 15.7 percent.
In comparison most developing countries’ government expenditures are less: India 14.4 percent, Argentina 15.3, Indonesia 17.9, Malaysia 19.7, Chile 21.6, Kenya 29.0 and South Africa 29.6 percent of the national income though there are exceptions like Brazil where the government accounts for 46.8 percent of the national income. It is clear that the role of government in the economy of the rich countries is generally much greater than in the poor countries.
These facts prima facie stand against the case for lean government. On the contrary they lead to the conclusion that less role of the government may be responsible for the weak economies of the poor countries.
The question then is whether the wealth of the rich countries is due to heavy government or due to some other factor? The reason appears to be that the countries having heavy governments have exploited the poor countries over last three centuries. England, France, Portugal and Spain have been major colonial powers. These countries extracted their resources. The poor countries were given independence after the World War II and pushed into the arena of free trade. It was like releasing a bonded labor and asking him to contest a wrestling match with the landlord’s tout. We had become weak and they had become strong during the colonial rule. Free competition favors the strong. Big companies can engage in predatory pricing and kill the infant industries of the poor countries.
The income extracted from the poor countries enabled the rich countries to invest in the creation of new technologies. The US is somewhat an exception though it indulged in a similar exploitation of the black slaves imported from Africa. They created cannon, electricity, airplane and cloning. They are now selling these products to us at high prices.
The WTO (World Trade Organization) has provided monopolistic protection to technologies. It costs Microsoft $9 to produce Windows software which it sells for $100. These huge monopolistic incomes enable the rich countries to sustain heavy governments presently.
Poor countries, on the other hand, compete with each other to sell their produce to the rich countries at ever lowering prices. The rich countries are doubly benefited. They sell their technologies at high prices to us while they get the poor countries resources cheap, courtesy competition among poor countries.
The rich countries are not making government expenditures from their own earned incomes. Rather they are making these expenditures from the incomes extracted from the poor countries. It follows that we can adopt their formula of heavy government only if we similarly exploit other countries.
It is true that the richness of the rich countries owes itself much due to the investment made by their governments in research and development. Government investment appears to be necessary because nowadays research requires multibillion dollars of investment. However, the technological innovations should be passed on to the private sector for commercialization as being done in the US.
