The Growth of Modern State and Decentralisation

7/29/2019 The Growth of Modern State and Decentralisation

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Eur opean Jou r na l of Political R esearch 16:36s-380 (1988)0 luwer Academic Publishers . D ordrech t - Printed in the Ncthcrlands

The growth and decentralisation of the modern democratic state

L.J . SHARPENuffield College, Oxford, U K

Abstract. Th at m odern democrat ic governments have grown is beyond dispute, as is the fact thatthis growth has prom oted intense misgivings amongst a n umb er of writers, no t least among st thefol lowersof Haye k. Bu t an examinat ion of the gro wth in gove rnme ntal activity reveals that it is thesub-n ational level of government which has absorbed a grea ter share of governmental growth thanthe centre. The author continues by exploring a number of reasons for this development andconcludes that the most likely explanations lie in the continued urbanisation of most westerncountries; the associated need for more governmental services; and in the possibility that tax-payers ' resistance t o tax increases is lower at the sub-na tional than it is at national level.

The growth of western governmentO n e of the few indisputable aspects of modern democratic government hasbeen its growth. Such growth has been as universal as i t has been ra pid. N osta te in th e so-called adv anced industrial democracy (AID) grou p has escapedit, an d in som e cases expansion ha s been nothing less than dram atic. In theUn ited S tates, for example, government absorb ed less than 7 per cent of G N Pin 1900. In th e U K and Ge rm any the com parable figures (in 1890) were 7 and12 per cent ( Bren nan and Pincus 1983: 33).

O n e of the problems imm ediately confronting all discussions of governm entgrowth ho w eve r, is definitional; what d o we mean by growth in this conte xt?A nd how d o we m easure it once we have identified its indicators?' Do we meanthe growth of a governm ent's functional scope or its power, or i tsperson nel, i tsexpenditure, or th e outputs and outcomes of government activity? Probably inan ideal world we need to consider all of them. However, some of thesem easu res of government ar e difficult to conceptualize let alone m eas ure , andeve n da ta on p erso nn el, which it is possible to m easu re, can be very amb iguoussimply becau se it is so heterogenous. Mo reover, it is unlikely to be commensu-rable as between different countries. The generally accepted measure ofgove rnm ent growth has theref ore become largely confined to ex pend iture. Itmust at the ou tset, however, be emphasized tha t expend iture as a measure ofgove rnm ent presents problems simply of what is to be m easure d. Most studiesexclude national public corporatio ns and other governmental bodies th at a reselling the ir ou tpu t in th e m ark et, but it is difficult to justify such exclusion if


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on e is seeking th e tru e exte nt of a go vernment's influence or power. Even iftha t hu rdl e is ignored t he re a re technical difficulties in arriving at a satisfactorymoney mea sure. Th ere are also oth er problems (Pe ters and Heisler 1983).For exa mp le, inefficient governments can increase their e xp end iture withoutany real increase in that government's inputs. Alternatively, significant in-creases in government capacity can occur which have no expenditure effects,or effects that are out of all pro po rtion to th e increase in costs entailed . Is anincrease in capacity an increa se in governm ent perse? Clearly in on e sense it is,but g ov ern m en tal grow th of this kind obviously will not be picked u p inexpen diture figures.Provid ed such deficiencies of the expen diture m ethod of measuring govern-ment are born in mind and the difficulty of knowing how far cross-nationaldata is strictly co mp arab le, there exists fairly clear evidence that governmentas a whole in almost all western democracies has been growing during thepost-wa r per iod , even during th e late 1970s following the post-oil shockrecession. Using total governm ent exp end iture as a percentage of nationalincome as the m easure, W arren Nu tter has examined the expenditures of 13western democracies ov er the period 1950 to 1974 and has foun d that , whereasthe median percentage of national income absorbed by government for thesample of coun tries was 34 in 1953, by 1974 it was 49 (N utt er 1978). In sh ort ,gove rnme nt has increased for the samp le from a bo ut a third to half of nationalTable 1 . Changes in general government expenditure as a percentage of G D P , 1970-80 and1975-80.I97(!-80 1975-80SwedenBelgiumJapanItalySpainGer manyU KNorwayAustral iaFranceSwitzerlandAustr iaFinlandCanadaU SAMea n value

+20.09+15.10+11.40+10.85+10.32+ 9.56+ 9.00+ 8.77+ 8.55+ 8.38+ 8.38+ 8.35+ 6.97+ 5.49+ 3.05+ 9.62

SwedenSpainBelgiumJapanFranceNorwayAustr iaAustral iaItalyFinlandU KSwitzerlandCanadaU SAGer manyMean value

+ 12.57+ 7.X6+ 6.98+ 4.54+ 3.87+ 3.28+ 2.89+ 2.76+ 2.74+ 2.10+ 1.16+ 0.91+ 0.87- 0.21- 0.39+ 3.46

Source: Newton and Karran (1985: 4).


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367income. T his is the m edian increase; within the sam ple there is qu ite a largerang e. In 1974 the smallest governm ent absorbed only 27 per cent of nationalinco m e, the largest 62 per ce nt. Bu t the trend is unmistakable and t he range in1953 was, lowest 19 per cent and highest 44 per cent. As Nutter concludes,Wherever governm ents were o nce small they have becom e bigger. Nothing isso rare as a shrinking government (N utter 1978: 1).

It must be noted in relation to Nutters conclusion, before we proceedfu rth er, tha t since the mid-l970s, that is to say the period no t covered by hisanalysis, the re have been concerted a ttem pts in many w estern state s to reducethe ra te of growth of government exp end iture and even to reduce its absolutesize. Alth oug h the first policy seem s to have succeeded t o som e exte nt in m ostcou ntries , in th e two western sta tes where the objective of absolute reductionhas been at least the most vigorously proclaimed - he USA and the U K -government exp end iture has still grown, although at a much slower rate. For aselection of 16 AIDS he mean rate of grow th for th e 1975-80 period was abo uta third of that fo r the preceding de cad e, as Table 1 reveals. Th e reason why thisdecline has not been even gre ater seems to be tha t the post-oil shock recessionincreased unemp loyment pay an d social security generally. S ince, however,transfers co nstitu te a relatively weak m easure of governm ent in any sense, forthey are usually merely cash payments that are largely spent in the marketsec tor , th er e is a case in this instance for excluding them and if this is done for

Table2 . Changes in general governm ent expenditure minus transfer payments, as a percentage ofGDP, 1970-80 and 1975-80.1970-80 1975-80SwedenBelgiumAustraliaGermanyUKFinlandAustriaSpainJapanItalySwitzerlandNorwayFranceCanadaU S AMean value

+ 7 . 4 7+ 4 .88+4.50+ 4 .45+3.84+3.82+3.13+ 2 .79+ 2 .57+2.35+2.35+1.91+1.86+ 0 .33+ 1.07+3.01

SwedenSpainBelgiumAustraliaFinlandFranceItalyAustriaSwitzerlandJapanGermanyNorwayCanadaUKU S AMean value

+ 5 .23+ 2 .07+ 1.77+ 1 . 2 0+ 1 .09+ 0 .89+ 0 . 6 9+0.61+0.21-0.05-0.45-0 .46-0.54-0 .84+ 0 . 7 3

-0 .44

~ ~~ ~

Source : Newton and Karran (1985: 5 ) .


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368the two periods - tha t which includes the pre-recession period 19 7S 80 , andthe wholly post-recession period 1975-80- the n the re is a small reversal of thepost-recession tren d for 5 of the 16 states where total government e xpen ditureactually declines in the post-recession period as Table 2 reveals. Yet the moststriking fea ture of Tabl e 2 is not the m arginal decline of the 5 in the last pe rio d,but the co ntin ued increase in governm ents' exp end itur e despite what bypost-war stan dar ds was a very shar p increase in unemployment, a decline ineconom ic activity generally a nd a consequent decline in tax revenues, to saynothing of the growth in most western countries of increasing governmentaland public scepticism about the wisdom and efficacy of continued publicexpenditure increase at the pre-recession rate. There are, i t seems, verypowerful forces at work m aking for government growth that may be independ-ent of sh ort-term gove rnm ent action an d of public desires.For many A ID S he public sec tor already absorbs the lion's share of G N P. Ifwe project the rate of growth of the public sector, averaged ou t over thepost-war period, say, so as to include the much slower rate since themid-1970s. we still ca nn ot escape t h e conclusion that at some time in th etwenty-first century the re w ill be very little activity left within mo st dem ocra-cies that is not derived to som e extent from the state .

11. The anti-statist reactionThe zero-sum gume versionThis is t h e prospect that has exercised the imaginations and stimulated theintense m isgivings of m an y. Such misgivings may be said to b e at the co re of th eclassical liberal view of the sta te. In m ore m odern term s the conclusions drawnfrom sta te grow th, while perha ps less ena m ou red of unremitting laissez-faire,also tend to see t h e s ta te in predatory term s and are l ikely to be the m ore luridand m om entou s depe nding on how far the relationship between governmentand individual auton om y is seen as a zero-sum g am e. Where i t is so seen everyexpansion of government is an automatic diminution of individual freedomand such an assumption means that we must be heading inexorably to thetotalitarian s tat e. Orw ell's 1984 was n o t wrong. as i t were, merely premature .

Th e view tha t th e stat e is pre dat ory rath er th an beneficial for the individualis deeply etched into the political tradition of western democracy, especiallyper hap s in its Anglo-Saxon manifestations. It is also part of the daily fare ofmost non -socialist weste rn pa rties and politicians. In practice it is rar e for theanti-statist claim to be form ulat ed in the precise term s of a zero-sum gam e, butsome of the a rguments it deploys imply relationships that are very close to azero-sum game since distinctions are very rarely drawn between differenttypes of sta te activity in relation to the individual. Th e fairly obvious fact that


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369so m e state activity directly p ro m ote s individual liberty is also usually ignored.Friedrich von Hayek must stand in for a vast army of protagonists of theanti-state thesis, although as something of a n extremist he includes an extradynamic ele me nt whereby there is an acceleration effect in th e curtailment ofindividual liberty on ce th e sta te reaches a certain scale:

W e can unfortunately not indefinitely extend the sp here of common actionand still leave the individual free in his own sphere. Once the communalsecto r, in which the state controls all the me ans , exceeds a certain pro por -tion of the whole, the effects of its actions dominate the whole system.Although the state controls directly the case of only a large part of theavailable use resources, the effects of its decisions on the rem aining p art ofthe economic system become so great that indirectly it controls almosteverything. Wh ere . . . th e central and local authorities directly co ntro l theuse of m or e than half the national mea ns . . . they c on trol indirectly almostthe w hole econom ic life of the na tion. T he re is, then , scarcely an individualen d which is not d epe nd ent for its achievement o n the action of the st ate ,an d th e social scale of values which guide the states action must e m bra cepractically all individual ends (Hayek 1944: 60-61).

111. T he relative decline of the centreW hen we unpack gov ernment grow th, however, in term s of level of govern-ment it is clear that there may be grounds for arguing purely in powerdistribution term s tha t Orw ell is just as wrong for the twenty-first century as hewas for the twentieth, for since the beginning of the Second World War, orthe rea bo uts , the sub-national level of governmen t in western sta tes has tend edto absorb a g reater share of governmental growth than the c entre . In sh ort , asmeasured by expenditure, the 40 years since 1945 has tend ed to m ark a processof decentralization rathe r than centralization of the m od ern democratic state .It is t o a discussion an d possible explanation of this phenom enon that the bulkof this paper will be devoted.The first aspect of this decentralization process to be noted is how surpris-ingly understudied it is. Not only does it not fit most of the explanatorytheo ries for governm ental gr ow th, but the fact of this decentralist tren d hasbarely been recognized. Table 3 illustrates the increasingly clear decentralinclination of government over the period 1950 to 1973 for th e who le of t heA I D bloc, which comprises 22 coun tries in all. It will be seen tha t in only two(Irelan d and S witzerland) did the cen tral share of total government not consis-tently decline over the period. In on e case - Luxembourg - he centres sharem ore than halved and it cam e close to doing so in Aus tria. Th e median decline


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370of the cen tre's shar e for the period is 16.1 percentage points.

The decentralist expenditure trend so evident for the period 1950-1973appears not to be so marked for the 1970s, at least up until 1982, as Table 4makes clear. This Table do es not cov er, as Table 3 does , the whole of the AIDgroup, but a sample of 14 of them for the period 196CL1982 and comparesexpenditure growth rates of central and sub-national government at 1986prices. It clearly reveals that for the 14 countries the rates of growth ofexp end iture at the two levels have be en m uch closer than for the earlier periodcovered by Table 3. In half of the 14, the central growth rate has actuallyexceeded th e su b-n ation al, an d the m edian (Belgium) is precisely z ero.

However, as Gould and Zarkish (1986: 35) emphasise, even the moremodified growth of the sub-nation al level in t he 1970s is surprising given thatcentral expen ditures through out the West comprised such a high proportion oftransfers - on average in excess of 50per cent -which have certainly be en th efastest growing item of all in public expenditure generally over the period.

Table 3 . Central government share in general government expenditureCountry 1950 1960 1965 1970 1973AustraliaAustriaBelgiumCanadaFinlandFranceWest GermanyGreeceIcelandIrelandIsraelItalyJapanLuxembourgNetherlandsNew ZealandNorwayPortugalSwedenSwitzerlandUKUSA

79.973.066.954.761 7a35.277.867.166.858.056.0'86.2d48.3'87.085.8"79.154.328.172.554.4

-

-

70.848.855.158.054.553.724.261.361.974.382.748.231.747.035.385.569.575.945.142.764.653.3

57.9945.551.150.053.549.226.755.855.065.280.243.729.544.328.882.269.375.042.651.657.450.2

56.643.149.842.248.347.122.959.477.682.0h40.630.239.630.982.875.677.733.246.1'55.142.8

-

55.637.149.041.947.945.620.966.176.439.935.440.0b28.281.574.070.1b32.056.338.3

a 1953 figure; 1972 figure; 1955 figure; This estimate is not strictly comparable with those for1961 on; ' 96 9 figure.Source: Foster et al. (1980: 127-128).


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371Moreover , as we have noted, if exp end iture is a less than perfect m easu re ofgov ernm ent activity, transfers are the least perfect aspect of expen diture forreflecting any aspe ct of go vern me nt, largely involving a s they d o merely cashpaym ents that are m ainly exp ended in the m arket secto r. Fo r most transfersthere is not eve n th e exercise of discretion by g overn men t. For these reason s,Table 5 provides exp enditure growth rates for the sam e group of states for thesam e period but with transfers excluded. It shows that sub-national gov ern-me nt exp end iture for goods and services grew faster than national governmentexpen diture in all 14 countries and the median difference is 2.5 percentagepoints. In oth er words, when transfers are excluded, the sub-national level hasa rate of growth tha t is com para ble with th e rate fo r the earlier period whencentral transfers w ere far less important. W e may conclude that the re h as beenan unm istakable an d mar ked decentralist shift in the pa ttern of public sectorexpen diture in the democratic sta te over the whole period since 1950.Whetherthis reflects a comparable shift in power must remain problematic, if onlybecause of the inadequacy of financial statistics as a measure of governmentdiscussed at the outset. Nevertheless, whereas finance may be an imperfect

Table 4 . Annual percentage growth ratesof total expenditureson goods and services and transfersin current prices, by level of government 1960-82.CountryCountry

Total expenditure growth rates, % per annumCentralgovernment

State/localgovernment

AustraliaBelgiumCanadaFinlandFrancehGermany (FR)IrelandCItalydJapandNetherlandsSwedenSwitzerlandUKU SA

16.712.812.414.712.29 .0

23.527 .417.114.215.18 .9

13.99 .5

14.912.815.216.615.19 .6

23.324.515.113.114.710.113.210.3

Data availability: Only 1962-1982; Only 1961-1982; Only 1970-1981; Only 1970-1982; Only1968-1982.Not e: All growth rates are comp ound .Source: Gould and Zarkish (1986: 34) .


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372measure it do es not follow that i t bears no relationship to power; th e relation-ship is imperfect but not non-existent. So it is also possible to claim tha t ther ehas been some, probably considerable, decentralist shift in government in themodern democratic state . This is a trend tha t has not only been largely unsungbut, as we have noted, under-explored as well, so it is impossible to do anymore than offer the most tentative checklist of possible explanations. Butbefore doing so two aspects of this decentralist trend need to be m ade. First, ano te of caution must be struck in relation to the figures in Table s 3 , 4 and 5.There a re no international standardized procedures for allocating expenditurebetween levels of gov ern m ent. In som e cases, for exa m ple, grants in aid fromthe ce ntra l level to th e sub-national level may be cou nted as central expendi-tu re , in oth ers as sub-national exp enditu re.It is impossible to rectify this possible deficiency h ere ; how ever, given theunmistakable decentralist trend in almost all countries, it is unlikely that itsorigin lies in th e deficiencies of the d ata , although it could affect the deg ree ofdecentralization in particular instances. In any case it is not clear what role agrant in aid plays in relation to the distribution of power between differentlevels of g ove rnm ent. Is the capacity to u nde rtak e tasks that a grant confers,which hithe rto were beyond the m eans of a sub-national level, an examp le of

Table 5. Annu al percentage growth rates of expe nditure s on good s and services in curr ent prices,by level of government , 196&1982.*Count ry Total expenditure grow th rates , % per annumCount ry Central

governmentS ateilocalgovernment

AustraliaBelgiumCanadaFinlandFranceGer many (FR)IrelandItalyJapanNetherlandsSwedenSwitzerlandU KU S A

13.611.59.512.612.37.1

22.220. I12.510.210.86.6

12.67.5

15.212.413.416.313.69.6

23.723.914.311.114.59.1

12.710.1

* Notes as for Table 4.Source: as for Table 4.


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373central or dec entra l power? Do es he who pays the piper automatically call thetune? These are imponderables and would, at the very least , require prioragre em ent on th e definition of au ton om y and co ntrol before any firm conclu-sions can be draw n.

It is the likelihood that the decentralization of ex pen ditur e doe s reflectdecen tralization of go vernm ental capacity that leads us back t o a discussion ofthe zero-sum gam e variant of the anti-statist thesis, that is to say , its ex trem eversion which sees every extension of the public sector as an automaticdiminution of individual liberty, a diminution that according to Hayek alsoaccelerates b eyon d a certain level. If a sizeable part of western sta te grow th hasoccurred a t the sub-national level, can th e zero-sum game thesis be sustainedor, indeed, som e of th e m ore restrained variants of the anti-statist thesis? C ana local council be a s inimical t o individual liberty as the central s ta te ? For someadherents of the thesis it clearly can , for it will be rem em bere d that Ha yek , inthe quotation given earlier, made no distinction between central and localgovernment as being inimical to the individuals interest. However, in somedemocratic tradit ions and ones H ayek usually ad mires, for example the Am er-ica n, individual liberty an d local, or sub-nat ional , autonomy are run togetherand th e territorial division of pow er is see n as being p art an d parcel of liberty(see Sharpe 1970; also Sayed 1966). Corporate and individual liberty are aseamless web so that an extension of decentralized power cannot possibly beinimical to individual liberty.Such a direct association of sub-nation al au ton om y with individual libertymay b e a peculiarity of the American version of democracy, but it must haveechoes in all conceptions of individual liberty in a democratic state if onlybecause t he role of sub-national government in most countries impinges on asmaller fraction of the citizens fun dam enta l rights and is, furth er, much lesslikely to be involved in those coercive instrumentalities of the state that candirectly constrain his auton om y. Ab ov e all, the tr en d, by definition, infringesone of the most important emblems of anti-statism, namely the centralizationof po we r. M oreo ver, in positive terms it can be argued th at because the se at ofpower of sub-national government is likely t o be m ore accessible to th e citizenhe can defend his autonom y better than if all sta te functions were centralized.He can also defend his interests better at the sub-national level since, bydefinition, his vote will cou nt for mor e the sm aller the polity in which he votes.His chances of taking a direct hand in his own government as an electedrepr esen tative is also correspondingly greate r too.

Th ese conclusions o n the relationship between decentralized public powerand individual liberty, albeit brief and necessarily sketchy, are however,sufficient as to rend er the relative lack of interest in the decentralization of themo dern democratic state even m or e mysterious, especially, it must b e sa id, bythe anti-statists, especially those who em brac e the zero-sum thesis. I t is almost


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as if, like many pessimistic th eo rie s, it is more im po rtan t that the object fearedretained its claimed pristine awfulness than if it can be shown to be som ewhatless awful. It is difficult to escape the suspicion that the anti-statist thesis isdirected not so much at alleviating the individuals free do m th at it defines thestate as diminishing, but rath er as providing ar gu m ent s for restricting the st atefor oth er m otives. B e that as it may , the re remains the questio n that decentral-ization poses which was cited earlier namely, why has i t occurred?

Causes of sub-national growthGo uld and Zarkish (1986: 37) offer t h e following seven possible explanation s:(i) Public services have been transferred from central to sub-national govern-me n t .(ii) T he existing functions of sub-national governm ent have been subject to

continuous ex pansion while those of the ce ntre have not or have contract-e d .

(iii) Th er e has been less control of sub-national expenditure grow th as com-pared with national govern m ent.

(iv) T he utility maximizing proclivities of bureaucrats are gr eate r at the sub-national tha n at the central level.(v ) Sub-national government is more susceptible than national government topublic pressure for expansion.

(vi) T he relative price effect is gre ater at the sub-national tha n at the nationallevel because the form er is m ore labour intensive.

(vii)There is less voter-induced constraint on sub-national government thancentral government because the former does not have to raise all of itsown r eve nue s via taxation but has access to central grants.

Gould and Zarkish only examine two of these possible explanations: thesecond o n sub-national service expansion and central decline, and the last onthe differential reven ue constraint effect. Th eir , albeit very brief, conclusionson the form er are straightforward; it seems to be broadly correct at least inrelation to sub-national expansion, for in most of the countries examined thesub-na tional levels have be en allo cated t he lions sh ar e of those public servicesthat have expan ded rapidly over the period such as educa tion, health, socialwelfare, tran spo rt and comm unications. It is possible that if sufficiently accu-rate d ata w ere available on the functional distribution between the centre andsub-national levels this functional explanation would be re-enforced by thenegative effect of central fun ctional decline. F or exam ple, i t is possible th at atthe earliest phase of the post-war period, the centre was still functionallyoverlo aded as a consequence first, of defen ce, and secondly of the very muchgreater pow ers that were given to the central state during th e war that w ere


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375reta ine d for a period during peace time. T hu s the decline in central expendi-ture is to so m e extent an a berratio n. By con trast, at precisely this stage thesub-n ational level w as in many W est E urop ean states equally likely to beimmersed in the massive task of refurbishing the urban infra-structure follow-ing th e dep redatio ns of aerial and o the r bom bardm ent thus inflating its overallexpe nditure . App ealing as this hypothesis may be, i t has to be conceded thatthe data, very broad gauge though they are, do not offer much that wouldconfirm their validity. Those countries that have the highest growth rates ofsub-national exp enditu re for the earlier period (see Table 3) are Luxem bou rg,where its share m ore th an do ubled between 1959 and 1972, and A ustria, whereit almost doub led . Bo th, it is true , were in the thick of the Second World W ar,but the thir d and fou rth highest sub-national growth figures were re cor ded byAustralia and Sweden neither of which suffered physical damage of anyconsequence.

The second hypothesis that Gould and Zarkish were able to throw morelight o n was th e differential reven ue constraint effect arising from the fact thatall sub-national go ver nm ents are in receipt of central grants. For all 14 co un -tries, Gould and Zarkish (1986: 38) regressed the growth of sub-nationalexpenditure on th e growth of locally-raised revenues and central gran ts ov erth e period 1960-1982. T he growth of central grants was revealed to be the mostpowerful explanatory variable for m ost countries.Sub-national gr ow th, it seems, looks as though it may be in part a function ofsub-national governm ent not having to face a tax-paying electo rate for all of itsexpenditure. But the story is not quite so simple as that since sub-nationaltaxation systems in the 14 country sam ple, as Go uld and Zarkish also discov-er ed , were not very buo yant. This meant th at, unlike the progressive incometax - often the main source of revenue for central governments - whichgenerates disproportionately more revenue automatically with economicgrow th, sub-national tax systems ar e require d to raise tax rates in o rde r toincrease re ven ue, w hich is an overtly political act and the refo re m ore likely toincur public ire. Central gran ts, the n, may be regarded as being to som e extenta counterweight to the greater extent of revenue constraint faced by thesub-n ational level when it seeks to increase its own taxes, r ather than anopportunity to spend more freely. In any case central grants are usuallydesigned with a redistributive intention so that they tend to be higher thepo ore r the recipient sub-national unit. As po or area s the ir ability to raise localtaxes will be correspondingly more difficult than in rich sub-national areaseve n when they receive substantially m ore central subventions. In oth er wordsth e net effect of increasing central gr an ts is unlikely to lead to a comm ensuratedecrease in the alleviation of voter resistance to local taxes.

G ou ld an d Zarkishs five remaining possible reasons for the clear decentral-ist expe ndi ture shift in the m od ern dem ocratic state lie outside ou r scope since


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they require extensive comp arative empirical verification. How ever, ano therlikely explanation fo r the m ore rapid grow th of sub-n ational expenditu re is therapid and continuous urbanization of most w estern states over the post-warperiod . The re can be little doubt abou t the ex tent and universality of urban-ization throu gh out the West over the post-war period. During the 1970s alonethe nu m ber of people living in urban ar eas in O E C D countries increased by 17per cent , or 83 million. F or com parative global figures, for the period 1970-80,see Table 5. That such changes in the sociogeographic structure of modernsocieties raises gover nm ental costs is suggested and to some e xten t indicatedby a number of studies (see Fabricant 1952, Brazer 1959, Haider 1976; alsoSharpe 1981, Newton et al. 1981: C h . 8). Precisely why urbanness raisesdecentral e xpen diture is much less appa ren t. Th ree of the m ore importantlikely reasons would seem to be that urban government: provides more ser-vices; incurs higher costs for the same services; and provides better services.

The possibility that urban government provides more services than ruralgovernment seems to have fo ur likely causes. First, the re is what may be calledthe u rban depen dency factor. This is derived from the likelihood tha t urbandwellers need m ore government than their rural counter parts . For example, intheory at least, a farmer can supply his own water, sewage disposal, refusedisposal, recreation and p arking spac e; whereas no urban dweller can evencon tem pla te such self-sufficiency. Secondly, urban dwellers will be providedwith certain public services because only in densely populated areas does aviable catchm ent are a arise to m ake certain public services feasible. T he fireservice seem s to be of this type in the sense that, whereas it is not excludedfrom rural areas, its quality is minimal because to provide a fire service tourb an stan dar ds in an area where population is scattered would be prohib-itively expensive. M ore obv iously, such a com munity could not support colleg-e s of further education, rapid transport systems, reference libraries, sportscentres, museums, specialist hospitals, and municipal theatres. Large citycentres, by contrast, can provide such facilities because they have relatively

Table 6. Growth of urban population in OECD countries, 1970-80.Millions Yo

MediterraneanNorth AmericaJapanNorthern and Western EuropeAustralia and New ZealandAll OECD countries

21 2420 1916 2115 102 15

83 17


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377large pop ulations living in close proximity a nd they also tend t o have a higherper capita tax base than rural areas.

Th e third factor making for mo re government in u rban a rea s, that is to sayareas with high population density, is the need to manage and control theconsequences of peo ple living in close proximity to each o the r. Th e higher thedensity of population the gre ater th e likelihood of negative externalities beinggenerated by each individual, household or firm. In order to minimize theimpact of such externalities government has to step in to m anage a nd regulatethe production and flow of such externalities by m eans of, for exa mp le, landuse planning con trols, building regulations, traffic m ana gem ent, parking a ndgen eral policy.

Th ere remains one furthe r featu re of urban areas that merits o ur at tention asa possible cause of higher decentral collective exp end itures . This is the honeypot effect; tha t is to say, the tendency for urb an are as, and in particular bigcit ies, to at tract and retain that strata of the population which makes dis-proportionate demands on collective consumption services. Such groups in-clud e, in particular, the old a nd single paren t families, the indigent and the o utof work generally.

T he second possible re aso n why urbanization m ay entail higher local expe n-ditur e is that u rban government m ay, service for service, be m ore costly thanrural. Labour costs, for example, are usually higher than average in urbanar ea s, expecially in big cities. Also th ere m ay be diseconomies of scale. Urba nunits of government tend to be comparatively large; the governm ent of NewYo rk City, for exam ple, is second only to the U S Federal gov ernment in scaleand expe nditure. Th e Grea ter L ondo n Council, before i t was abolished, waslarger in po pu lation term s than half the m em ber states of the U N .

The third possible cause of higher expenditure in urban areas - hat sucharea s provide b etter services- lso seems plausible given tha t cities also ten d t oattr ac t higher qualified staff than rural a re as , an d such staff not only cost mo rebut also tend to set higher sta nd ard s, including insistence o n the full pano ply ofall the most modern technical apparatus. Finally, the greater prevalence ofsocialist or labour dominated governments in urban areas may also lead tobe tter services because such go vern m ents, as a conscious act of policy, seek t ospe nd m ore on som e public services.It is likely that so m e of the undo ubted ex tra governmental costs that urban -ization entails is m et directly by th e cen tre, b ut the bulk will almost certainly bespe nt at th e local level. So to conc lude th e discussion of the urbanization effectit would seem that it is as likely a candidate for sub-national growth as thedifferential reven ue constraint an d functional allocation. A gain , however, itmust b e emp hasized th at all explanations at this stage must be highly tentative .T he re mark able post-war de central shift in public sector exp end iture that wehave b een discussing needs much more detailed atten tion than is possible in


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378this article before causes can be specified with any confidence.

With tha t caveat in m ind, th ere is on e furth er possible cause of sub-nationalexpenditure growth that merits attention. This factor has its origins in th eincreasing po pu lar dislike of taxes arising from the fact that th e public s ecto r inmost countries has tended to grow a t a faster rate than the economy. Since1950, the public sec tor has grown five times as much as individual tak e hom epay in Sweden, i n Italy by four and a half times, and in the US, Britain andFranc e by almost thre e t imes (R ose and P eters 1978: 62). Such growth has notbeen wholly assuaged by the fiscal dividend simply because fiscal drag be-co m es progressively less significant as the public se ctor grows as a proportionof G N P . M oreo ver, i ts possible m oderating effect has to be set against the factthat the proportion o f t h e elec torate in the income tax system (still t h e largestsource of revenu e for many coun tries) has increased dramatically during thepost-war perio d. In 1950 a British head of h ou seh old, for exam ple, did not payany income tax until his earnings reached the national average wage. By 1975,however, he began paying taxes at less than half the average national wage(Ro se and Peters 1978: 98).

All things consid ered , we may assert with som e confidence that the cen tre inmost western state s has been und er increasing r eve nue constraint as a result ofsuch an extension of th e tax paying public. Tha t being so, governments had,broadly speaking, three strategies they could adopt in order to ease thepolitical pressure they were under. First they can simply attempt to cutexp end iture . Th is strategy is m or e easily said tha n do ne since the deflationaryeffect of the cu t in th e econom y is likely to lead to a n increasing bur den on th estate s role in th e social welfare a nd income ma intenanc e sectors. A secondopti on is to lower the general level of tax visibility by shifting to in direc t taxesand the growth of VAT throug hout the West dem onstrates that this is certainlya popular m ove among governm ents . Th e third opt ion open to governments isto transfer some of the functional burden. and perhaps some of the fiscalburden , to another level of government. In short, one explanation for thedecentralization of the mo dern dem ocr atic sta te is simply the desire of thecen tre to e scape the political bind i t finds itself in as a result of the publicstendency to favour discrete benefits (say public education, health services),ove r the general disbenefits of higher taxes. I t is unlikely that the consciouslydirected growth of services at th e sub-national level rests on ly on the centresneed to deflect taxpayer dissatisfaction. More general problems of overload,whether they be derived from the executive bottleneck difficulty or a moreideological motivation to decentralize derived from a reassessment of thewelfare state, are likely to have played a part as well. Nevertheless. i t isperh aps o ne of the distinguishing characteristics of m ode rn demo cracy that afundamental change in its character has at least some of its origin in th emundane world of electoral tactics.


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379Conclusion

T o sum up briefly, in ex pend iture terms the mo dern western state has certainlybee n growing ov er the past forty years. Bu t wh ethe r the growth spells a declinein individual liberty to the e xte nt that is often claimed by the liberal an ti-stateschool is problematic. Certainly in most western states the largest elem ent inthat growth has occurred at the sub-national level which by definition cannotform p art of a centralization process. N o r can it be simply equ ate d with centralgrow th, whatever interpretation is put on it in te rm s of dim inishing individualliberty. H ow eve r inte rpr ete d, sub-national growth also poses the question asto why it has o ccu rred . The list of likely causes is certainly lengthy and Go uldand Zarkishs suggestion that two possible candidates are, first, that sub-national services have grown whilst central services have diminished, and,seco nd, that tax payer resistance to governm ental growth is less at th e sub-national level, seem plausible. H ow eve r, their second cause may be less likelythan Gould and Zarkish assume because in some countries grants do notnecessarily diminish sub-national tax effort.A fu rth er likely cause of faster sub -national exp end iture growth is urb an-ization, expecially the strong likelihood that as population density increases,so more government is required. Urbanization may also raise the cost ofservice provision and tend to raise the quality of service as well. The finalpossible cause of faster decen tral ex pe nd itur e growth is what m ay be called theoff-loading of the central tax burden. By allowing the sub-national servicebu rd en to grow, th e cen tre may divert som e of public disenchantment with thegrowth of taxation away from itself. We are back, in short, to the world ofelectoral tactics.

NotesI . See Taylor (1983) for a discussion of growth measurement.2. For a discussion of the technical problems of measuring the public sector, see Bird (1979,

Appendix A ).

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Foundation.Brazer, H . (1959). City Expenditures in the United States. New York: National Bureau of

Economic Resources.Brennan, Geoffrey and Pincus. Jonathan (1983). The growth of government: do the figures tell us

what we want to know?, n: Taylor. C.S. ( ed .) .Why Governments G row . Beverly Hills: Sage.Fabricant, Solomon (1952). The Trend of Govern ment Activity in the United States Since 1900.


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380Washington: National Bureau of Economic Research.

Fos te r . C . D . e t al . (1980). Localgovenimenffinunce in a unitary state. London: Allen & Unwin.Gould, Frank and Zarkish, Froozeh (1986). 'Local government expenditure and revenues inHaider . Donald H. (1976). 'Fiscal Scarcity: A New Ur ba n Perspective', in: Masotti. Louis M. andHaye k, Friedrich A . (1944). The Road to Serfdom. Chicago: Phoenix.Newton , K. et al . (1981). Balancing The Books. London: Sage.Newton . K . and K arran, T.J . (1985). The Politics of Local Expenditure. London: Macmillan.Nutter . G . War ren (1978). Growrhof Government in the Wesr.Washington: American Enterprise

Inst i tute .Pe te rs. B . G uy and Heis ler , Mar t in 0 . 1983). 'Thinking Abou t Public Sector Growth: C oncep-

tual , Opera t ional . Theoret ical , and Policy Considerat ions ' , in: Taylor , C.S. (e d.) , Why Govern-men& Grow. Beverly Hills: Sage.

western democracies'. Local Government Studies JaniFeb.Linber ry , Rober t L . (eds .) , The New Urban Politics. Camhridge: Ballinger.

Rose , R . and Pe te rs , G . (1978). Cun GovernrnenrsGo Bankrupt? London: Macmil lan.Sayed, Anw er (1966). The Political Theory ofAmerican Local Government. New York: RandomSharpe . L. J . (1970). Theories and Values of Local Government ' , Polirical Studies 18.Sharpe . L.J. (1981). 'Is There A Fiscal Crisis in Western European Local Government?' . in:Taylor , C.S. (1983). 'The Public Sector: Som e Conce pts and Indicators' . in: Taylo r, C.S. (ed.),

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Sharpe L . J . (ed . ), The Local Fiscal Crisis in Western Europe. London: Sage.Why Governments Grow, Beverly Hills: Sage .

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The Growth of Modern State and Decentralisation