Kaletsky on America’s public sector

Anatole Kaletsky in The Times:

While America has been run by one of the most doltishly ineffectual governments in history, it has forged ever further ahead of Europe in terms of wealth, science, technology, artistic creativity and cultural dominance.

Why does America’s prosperity and self-confidence seem to bear so little relationship to the competence of its government? The obvious answer is that America, founded on a libertarian theory of minimal government, has always had low expectations of politicians.

This much is true. But he completely fails to provide evidence to support his main conclusion:

American politicians may be incompetent and venal, even by European standards, but this is not true of the public realm as a whole. America has a host of public institutions, ranging from government bodies such as the Federal Reserve and the National Institutes of Health to charities such as the great universities, museums and hospitals, that are driven by a sense of public service that puts British and European bureaucracies to shame.

The American system recognises that a capitalist economy has areas of market failure where incentives alone will not produce socially desirable results. But American public institutions try to maximise private activity and incentives, rather than rein them in, within their realms — whether it is universities encouraging professors to start businesses, or health administrators creating incentives for drugs companies to do medical research.

So is Kaletsky right that America has a quasi-public sector run on private sector principles and which produces better results than European nations?

Let’s look at his example of the National Institutes of Health.  This is a public sector body in America, not a private sector body (unlike, say, the Wellcome Trust in the UK).  Furthermore, the people who I know who work there say that it is like any other public sector bureaucracy. It is true that the US has more success in medical R&D than Europe, but then the US spend more than twice as much on R&D as Europeans (much more, in the case of medical R&D).  Furthermore, it isn’t just the private sector that spends more: the US taxpayer spends twice as much on R&D as the OECD average for government spending, even as a share of GDP.  The reason the NIH gets good results is that they have a budget of $29 billion a year – all of it taxpayer dollars.

So what does the NIH example prove? Not Kaletsky’s proposition that the US has successful, semi-private bodies providing public services.  All this shows is that some public sector bodies can produce good results if you give them enough money.

More commonly, the trend in the US that Kaletsky describes of America’s reluctance to build effective public institutions has led to significant failures, which were brutally exposed by Hurrican Katrina.  From health care to broadcasting, America’s distrust of institutions that are socially funded and managed by public servants who are accountable to government has left gaping holes in its social fabric.  Not, as Kaletsky would have us believe, a system of genius.

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