Encourage students to go public

Economics of the Public Sector. First Edition - Local Government Economics
May 26, 2000

Given the impressive rise in the significance of the public sector in developed economies, touching almost every corner of our lives, it might be expected that courses in public-sector economics would be increasingly popular. The reverse is true. Students, more familiar with the processes of finance and industry than of government, will often choose what are thought to be more exciting options in subjects such as financial markets or international trade and development economics. What is mistakenly seen as the grey and dusty world of public administration, supposedly peopled by desiccated calculating machines, seems far less attractive. Lack of space to teach the subject adequately in A-level economics syllabuses is partly the cause but, more significantly, at undergraduate level in the United Kingdom there is, despite some good texts, a limited choice of accessible books introducing students to unfamiliar and difficult territory.

These two texts - one on the public sector as a whole by Sara Connolly and Alistair Munro and the other by Stephen Bailey concentrating on local government economics - will do much to help remedy this deficiency. They are both written in a reader-friendly style, making full use, with appropriate caveats, of international data and cross-country comparisons. Importantly, in a subject whose ramifications sprawl over so many aspects of life, the contents of both books are sensibly arranged so that within the analytical framework for each text, the reader can select topics of particular interest.

The tendency over the past century for government expenditure to rise faster than gross domestic product is a well-established fact but, as Connolly and Munro show, since the early 1980s the expansion has slowed, with some countries showing no change or a slight downward trend. It is clearly absurd, as the figures indicate, to assert the inevitability of the increasing scale of the public sector. Nevertheless, it is sobering to recall that, for the UK, government expenditure was just 10 per cent of GDP in 1890, rising to 20.6 per cent by the 1920s and averaging slightly more than 40 per cent by the 1990s.

Although the view of the state as a gorging leviathan was never widely held, there was growing concern from the early 1960s about the effectiveness of public expenditure, culminating in a sea change not only in public opinion and public policy, but also in the direction of academic research into the public sector. Alongside market failure, public-choice theory and government failure became major areas of research. In public administration, from the Gladstonian model, which stressed the legitimacy of expenditures and accounting for inputs, emphasis shifted to outputs, value for money and performance measurement. These changes are well charted by Connolly and Munro, whose admirably clear chapters on market and government failure provide a good foundation for the subsequent analysis of particular issues such as health care and privatisation.

Local government occupies an awkward corner in economic theory. It poses some very difficult but important practical questions concerning the role and optimal size of local authorities. Although correctly anchored in fiscal federalism, Bailey's text rightly extends to the full range of impacts arising from local expenditure and taxation. Starting with a thorough review of the trade-off between technical efficiency and economies of scale and the exit-voice framework, he successfully navigates the reader through the economics of charging, grants, expenditure and taxation to issues of local-government reform, competition and quality. The concluding section should be required reading for all local-government researchers and practitioners.

David Burningham is research associate in public policy, Brunel University.

Economics of the Public Sector. First Edition

Author - Sara Connolly and Alistair Munro
ISBN - 0 13 096641 X
Publisher - Prentice Hall
Price - £.99
Pages - 515

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