Limits to Public Intervention in the Economy
Limits of Public Intervention in the Economy
Economic Limits
Despite the success of programs that provide content to the economy, public sector intervention does not follow a process of unlimited expansion due to economic limitations. The maintenance of public sector intervention is linked to the justification of its role in the economy, which is subject to criticism. Just as market failures have supported the case for greater public presence in economic life, the failures of the state or public sector can undermine the legitimacy of its presence in the lives of citizens.
These failures stem from the fact that the collective decision-making process can be economically inefficient due to factors such as voting systems and the influence of special interests (politicians, voters, bureaucrats, interest groups). Additionally, information asymmetry between companies and the state, and the tendency for users of public services (who may not pay a market price or pay a lower price) to demand more public services and less market involvement, can contribute to inefficiency.
The limits to the growth of public sector intervention, particularly in social matters, are challenged by the economic sustainability of such intervention. Regardless of ideological positions, the economic limitations of public expenditure must be considered. These limits can result in a fiscal crisis of the state, arising from the need to meet public demands while ensuring the profitability of private capital and maintaining social consensus.
O’Connor’s Fiscal Crisis of the State
According to O’Connor, the state’s fiscal crisis arises from:
- Monopoly capital increasingly socializes capital and production costs, but the benefits tend to be concentrated in specific groups.
- Wage costs in the state sector rise faster than productivity.
- The state must address growing social needs that capital does not cover, leading to an increase in the number of people dependent on the state.
Social and Economic Challenges
The loss of legitimacy of public institutions can lead to the breakdown of social consensus. The economy and society face new risks, including globalization, demographic changes (aging), and social changes (single-parent families, women entering the workforce), leading to new forms of poverty (immigration).
The changing nature of work and the right to adequate social benefits raise questions about the role of the state and the challenges facing public intervention in the 21st century. New welfare models must be able to effectively respond to evolving social demands.
Factors Determining the Limits of Public Intervention
The crisis of public intervention stems partly from its inability to adapt to emerging issues in changing social structures, particularly in the home and workplace. The limits to public intervention are determined by the efficiency of its operations. The need to provide more resources to more people has opportunity costs, potentially leading to citizen passivity and reliance on the state.
The limits of public intervention also depend on how it is financed and the type of benefits provided. During periods of economic growth, social spending may decrease (less unemployment, less early retirement), while the financial basis strengthens (increased tax revenues and contributions).
Reasonable Limits and Collaboration
It is important to establish reasonable limits to public intervention to avoid cyclical fluctuations and ensure a rational basis for its application. This requires consistency with assigned objectives and economic efficiency, allowing the use of prices as a cost-determining mechanism.
This implies the need for collaboration between civil society and institutions at different levels of public administration. A return to community-based care and support systems may be more efficient in terms of cost and social integration.