From Welfare State to Warfare State?

By Usvatte-aratchi-August 14, 2014

The very high proportion of total expenditure
that government pays off as interest on public debt in 2008 and 2013 is a
result of deliberate government policy to tax the public low because it
wanted to win elections and yet raise government expenditure for more
reasons than one, some of them entirely fraudulent and cynical. desire to
tax low and spend high must result in heavy borrowing and the high
interest payments are the ineluctable result.
! put together some figures which help one to spea" sensibly about this
#uestion. $ne of the main strands in our claim to be a civlised people in
the 20th century, which came under #uestion towards its end, was the high
priority that this society gave to state provided subsidised food
distribution, state financed health services, especially vigorous public
health campaigns and state financed education. These in combination
reduced infant and maternal deaths and raised the average expectation of
life at birth, raised levels of nutrition among the public, especially the poor,
and permitted people to read and write. These are massive achievements.
They permitted someone li"e me to begin in an illiterate home and end up
in %ambridge. They were made possible by an enlightened leadership, not
simply of leftist politicians but also of generous individuals who saw value
in giving their own personal wealth to build schools for government.
%hildren, rarely, if ever, were prevented from going to school because they
were female, from disadvantaged families or were poor. %ompared with
situations in our neighbouring countries, or even the now rich countries in
18th and 1&th centuries, these were indeed mar"s of a highly civili'ed
people.
(ore narrowly, ! am interested in the way government spent the money it
had collected from tax payers, borrowed both at home and abroad and
grants received from governments and other organisations overseas. )or
this purpose we need to classify expenditure into various functions on
which government spent money. This is done #uite satisfactorily by the
%entral *an" for recent years and published in its nnual +eport. )or
earlier years the classification is not so neat and ! managed with the best
that ! could put together. %omparisons with 1&,- are done with due
reservations in mind.
There is a substantial amount of expenditure in 1&,- that is not classified.
This because, ! did not have the data at hand. .omeone can earn an (
degree if he/she were to classify government expenditure systematically
for the years 1&-8 to 1&80. ! once tried a classification for the early years
but that is entirely unsatisfactory now in light of new "nowledge.
There is one figure that is #uite neat and can be compared straight away0
interest on public debt. !t does not contain impurities that hinder easy
comparison as in other categories. !n 1&,-, government paid 10 percent of
all its expenditure as interest on public debt. The reasons are well "nown.
The stoc" of debt was low because, first governments up to that time had
decided that it was not wise policy to borrow heavily to pay for largely
expanded expenditure. .econdly, loans from overseas were mostly from
governments and intergovernmental organi'ations and at very low
concessional interest rates. There were also a substantial amount of
outright grants. Thirdly, the rupee had been "ept fairly stable in value and
therefore the foreign debt, denominated in foreign currency, did not rise in
rupee terms and raise interest payment in rupees. !n contrast during the
last two decades, government had spent well above its revenue and the
resulting inflation had perforce depreciated the currency raising the rupee
value of debt denominated in foreign currency and the costs of servicing
that higher rupee debt.
The very high proportion of total expenditure that government pays off as
interest on public debt in 2008 and 2013 is a result of deliberate
government policy to tax the public low because it wanted to win elections
and yet raise government expenditure for more reasons than one, some of
them entirely fraudulent and cynical. desire to tax low and spend high
must result in heavy borrowing and the high interest payments are the
ineluctable result. !nterest rates in international capital mar"ets have been
remar"ably low in recent years and if they rise sharply, interest costs of
government will rise further. The expenditure of government has been high
also because there have been no competitive bidding for the construction
of large infrastructure pro1ects, contrary to the practice of all responsible
governments. 2eparture from these norms are best accounted for by the
+a1apa"se government. !n contrast, had government decided not to
underta"e huge infrastructure pro1ects whilst it had to raise expenditure on
the war, or to raise taxes to pay for war, we would not have been fallen
into this straight 1ac"et of having to lay aside annually 23 percent and
more of all government expenditure to pay interest. +a1apa"se
government also deliberately adopted a policy of allocating government
expenditure to 4conomic .ervices, especially on transport and
communications and to "eep down the proportion spent on .ocial .ervices.
%onse#uently, expenditure on 4ducation and 5ealth has fallen as a
proportion of total government expenditure. ! consider this strategy wrong.
6et me complicate the picture a bit more, which is the nub of my argument
here. !n 1&,-, expenditure on .ocial .ervices was about 33 percent of
total expenditure, 7about, because there is a large percentage
unclassified8. 9overnment spent no more than 3 percent of its total on
2efence and :ublic .afety. !n 1&,-, we were a ;elfare .tate. !n 2008,
government spent 1, percent of its total expenditure on 2efence and
:ublic .afety and 30 percent of its total on .ocial .ervices. !n 2008 we
were a ;arfare .tate and remain so in 2013. $n 0& ugust, the .ecretary
to the (inistry of 2efence in a lecture, occasionally interrupted by a prop
put up by .irasaT<, told the public that in 201- we were yet in a ;arfare
.tate with a heavier emphasis now on intelligence operations compared to
battle field operations in the years up to 200&. !t is strongly argued by
+a1apa"sa government that there was no alternative to that set of policies.
*y and large the public agrees enthusiastically. nyone who argues the
contrary case is a traitor. (any governments, especially in frica and a few
in sia do not see that there was an alternative. 5owever, someone
"nowledgeable needs to wor" out an alternative scenario and compare the
costs. !t is necessary that we do not be traitor to the discipline that we
cultivated. (y argument here is that the terrorist movements in the =orth
and the 4ast and government>s reactions to them, enthusiastically
endorsed by the public, have converted us from a ;elfare .tate to a
;arfare .tate. nd that transformation continued to the indefinite future
will have conse#uences in1urious to our welfare.
! present, for rough comparison, a set of figures on public expenditure in
*ritain presented by ?rsula 5ic"s of $xford, some @0 years ago. )rom
about 1800 to 1&30 *ritain was an imperial power and spent large sums of
money on defence. !n 1&13, the year before the outbrea" of the 1&1-A18
war, now one hundred years old, and well before the emergence of a
welfare state, expenditure on defence amounted to 38 percent of total
central government current expenditure to fall to 1- percent in 1&23 and
to rise to 23 percent in 1&30.
2uring the two disastrous wars :?*6!% expenditure as a percentage of
=ational !ncome rose to ,3 percent 1&1-A1&18 and to 82 percent 1&3&A-3.
!n 1&20, that proportion was down to 30 percent and in 1&30 to 38
percent.
The observations of a recent writer 7;illiam )awcett B201-C, 6iberalism,
pages 1&@A,8 contrasting the ways in which 9ermany and *ritain paid for
the 1&1-A1&18 war are relevant to us, leaving wide allowances for the
large differences between the two situations. DE. $nly -0 percent of
*ritain>s central budget went on defence, as against &0 percent of the
+eich budget in 9ermanyEE..;hen war came *ritain paid for itE..by
taxing its own people. 9ermany paid for war almost by borrowing.> ;e all
"now the different conse#uences.
9iven our 20th century history, ! expected that we would revert to a
;elfare .tate soon after the war. )rom the evidence for 2013, five years
after the end of the war which eliminated 6TT4 as a fighting force, which
was the rationale for conversion to ;arfare .tate, we remain a ;arfare
.tate, probably for the foreseeable future, 1udged by policy statements by
government and confirmed by the .ecretary/2efence on 0& ugust. !n
2013, government still allocated 12 percent of its total expenditure to
2efence and :ublic .afety. +ecall the 3 percent in 1&,-. 9overnment>s
further policy of raising expenditure on Transport and %ommunications
whilst maintaining very high expenditure on 2efence and :ublic .afety has
denied us the benefits of a ;elfare .tate. These policies of government has
made it necessary to borrow both at home and overseas, raising !nterest
payment on the public debt and to reduce expenditure on .ocial .ervices.
The :resident of the +epublic, who is also the (inister of )inance, spea"s
1ubilantly about his policies. ! don>t hear other members of the %abinet or
the academic community discuss these ma1or changes in policy, which
depart from that which was dear to us, most of the 20th century. =obody
else in government nor in universities nor in civil, society, seems worried
about this change. ! find these policies of the +a1apa"se government
wrong and not in our short or long term interest. ! want to revert to a
;elfare .tate. ?nfortunately, the public are not aware of the conse#uences
of a ;arfare .tate and wrongly imagine that they can go bac" to the
benefits of a ;elfare .tate whilst remaining a ;arfare .tate. =o, we
cannot. They cannot go together. The sooner the public realise that, the
better for all of us.
(y wish list would be that we do not allocate more than 20 percent of total
government expenditure on interest on debt with plans to reduce it further
to 13 percent later. That would re#uire that we raise taxes and restrain
other expenditure severely. ;e may not need higher rates of taxes if
existing tax laws are administered honestly. ;e do not need a teacher for
every 18 students in school. teacher on average can manage a class of
2- students. ;e do not need one public officer for every 1- persons in the
population 720 million divided among 1.3 million public servants8 as we do
now and most certainly not 100 ministers. These irresponsible polices are
conse#uences of polices that have failed to create employment in the
economy. )or the same reasons, the economy is compelled to exile 23
percent of the labour force to see" employment overseas. ! would cut
down expenditure on 2efence and :ublic safety to 10 percent and divert
more of that lower allocation to intelligence services. The allocation for
other 9eneral :ublic .ervice would be 3 percent. ! would "eep the
allocation for 4conomic .ervice at 23 percent. That would raise the
allocation for .ocial .ervices to -0 percent. !t is these sorts of figures that
must be played with and feasible allocations arrived at.
7Fou may have noticed that ! have almost ceased writing to newspapers,
except for short letters to the 4ditor. The present piece is exceptional.
nyone who wishes to read my previous contributions to newspapers and
other publications and future writings, whether in .inhala or in 4nglish, is
invited to visit www. g.usvatteAaratchi.me =ot all writings have yet been
published in the website. Those remaining, still a lot, will be posted in
time.8
Posted by Thavam