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i.
ii.
iii.
None of these measures is entirely unambiguous
though they are often used without being clearly
defined. The purpose of this section is to clarify
these definitions one by one.
2.3.1 Government Expenditure
on Goods and Services as
Proportion of the GDP
Remembering that:
Consequences of Growth in
Government
It is customary to argue that if government is large
in relation to the rest of the economy, then it has
considerable influence over the private sector. This
influence will presumably grow as the ratio of
government expenditure to GDP grows. Therefore,
if the government wishes to control inflation, or
improve employment prospects or improve growth
prospects by increasing the ratio of capital
investment to GDP, then the greater its
relative size, the more likely it will be that such
policy objectives will be achieved. So the argument
goes. This is not the place to begin a survey of
modern macroeconomics; it is sufficient to say that
there is considerable controversy as to whether
altering the size and composition of government
expenditure (taxes and borrowing) can by itself
achieve such objectives in a way which can be
considered satisfactory. Certainly, the simultaneous
achievement of objectives is a complicated task,
particularly in the open economies of Western
industrial nations, where governments have no
direct control over the decisions taken by
overseas suppliers and buyers. Even if it has the
power to use the budget, or to regulate the
economy in some other way, the size of
government will not guarantee the achievement of
macroeconomic objectives.
The outline of the growth of government and its
causes points to a much more important limitation
on government action, which re-emphasizes the
point made in the previous module. As government
grows in power, those affected by its actions do not
stand idly by and let the government do what it
likes, but are given added reason for using the
instruments of political participation
(see Section 1.3.2) in order to protect and advance
their interests. Any expansion of government
activity, therefore, brings with it political
feedback. Much of the examination of political
feedback in countries with strong democratic
institutions concentrates on how politicians are
influenced by interest groups. This is, however, too
narrow a framework in which to look at
the bargaining relationships between government
and industry. While it is certainly true that
industrial interest groups do try to exercise
influence over politicians, the impact of
government at company level is felt much more
directly in negotiation with the administration, i.e.
with government departments which regulate
companies' activities, which tax and subsidize
them, and which purchase their goods. The
consequence of the growth in government which is
of relevance to this analysis is therefore derived
from the increasing extent to which the fortunes of
individual companies will be governed, not by their
success in competing against each other and
against overseas firms, but by the efficiency of
their investment in managerial resources able to
negotiate with government departments
and agencies.