The size of the public sector

One of the most radical changes which has occurred in the Western economies during the past century has been the rapid growth of the public sector.

Centralisation of power by the government took place through the introduction of statutory control of various aspects of private-sector activities: labour contracts, social security, safety, competition, the environment and town and county planning. Many aspects of decisions taken by private firms regarding production and prices are subject to such legal requirements.

Centralisation of power also took place through the growth of public ownership. In various countries industries like electricity, gas, water, railways, aircraft and air transport (bulk), steel, broadcasting, postal and telecommunication services are wholly or partly in the public sector. Furthermore, considerable parts of the housing stock are publicly owned.

However, the most radical centralisation of economic power did not come about by either statutory measures or public ownership, but by the relative increase in public sector receipts and outlays.

Table 1.1 gives some recent data on ten separate OECD-countries and the total OECD average. In 1989 current expenditure on goods and services of the general governments amounted to 15 to 20 per cent of gross domestic product (GDP), whereas social security transfer payments were mostly between 10 and 20 per cent of GDP. Total government expenditure, which in most countries in 1890 had totalled less than 10 per cent of gross national product, had risen to 35 to 50 per cent of GNP a century later; the total incidence of taxation and social security contributions has grown equally.