Sunder Katwala on the Era of Big Government

Rolling back the state has been the dominant idea in western political debate for 30 years. The "big idea" of the Ronald Reagan and Margaret Thatcher revolution was that less state equals more freedom. But in the midst of the financial crisis, it now seems that big government is back—and that citizens are glad to have it. The most telling finding from the election-night exit polls is that for the first time since pollsters began asking the question in 1994, a majority of Americans believe that government should do more to solve problems, not less.

But for all the wailing and gnashing of teeth among conservatives about a return to big government, the truth is that its demise has been greatly exaggerated. Reagan changed the mood of American politics, but the antigovernment right failed to significantly roll back the state. He massively increased defense spending while making little serious attempt to cut domestic programs. His tax cuts were popular in large part because he left spending intact, letting the ballooning deficit take the strain. Government spending rose in real terms by almost a quarter during his administration. As a share of GDP it fell, but only from 22.2 percent to 21.2 percent. Even excluding defense personnel, the federal government workforce rose by 200,000 under Reagan, to 3 million.

In Thatcher's Britain, it was a similar story. Public spending as a proportion of GDP was 43 percent in 1980 and 41.9 percent in 1996. There were significant and regressive shifts in the distribution of the tax burden—with large cuts on income taxes at the top offset by increases elsewhere, such as the doubling of VAT, the national sales tax. Priorities between public services shifted—toward policing and defense and away from education and health. But, as Anthony Giddens, the former director of the London School of Economics and the intellectual guru to Tony Blair, has written, "The resilience of welfare budgets in the U.K. is all the more remarkable given the determination of Margaret Thatcher's governments to cut them." Thatcher publicly declared her determination to make the British less collectivist. But she knew that the principle of free universal health care funded out of general taxation enshrined in the National Health Service was almost a secular religion, and promised it was "safe in our hands."

The failure to rein in spending left Bill Clinton and Tony Blair to grapple with the doublethink of much democratic political debate. Calls for "less government" are popular in the abstract, while the concrete calls are for government to act—and especially to protect citizens against the worst risks in a recession. So Blair's Third Way often tried to split the difference between public pressures for more and less government, but most often within the anti-government mood set by the right. Similar was Bill Clinton's claim in the 1996 State of the Union address that "the era of big government is over." The next line in the speech—"we cannot go back to the time when our citizens were left to fend for themselves"—was quickly forgotten.

Now conservatives and progressives on both sides of the Atlantic are struggling to figure out what to do next. U.S. Treasury Secretary Henry Paulson spoke of how the administration's own policy offended its core instincts. British Prime Minister Gordon Brown was able to laugh off the charge that he was ditching New Labour's support for the market and returning to his party's socialist traditions by nationalizing banks when it was the Republican Bush administration that had undertaken some of the largest market interventions anywhere, pouring hundreds of billions of dollars into attempts to prop up struggling financial institutions. At the same time, the Cato Institute has calculated that discretionary federal government spending has grown more under George W. Bush than even during LBJ's Great Society. That harsh reality has forced U.S. conservatives to begin an anguished postelection inquest. But they will need to dig deeper than simply observing that the Bush administration has not kept faith with the principle of smaller government.

Barack Obama will surely be aware of both his mandate for active government—and its narrow and contingent nature. But he is better placed than Clinton. The activism of his campaign could help him to articulate why civic engagement and government action are necessary partners, not alternatives as the right claims, and also to present a more attractive, bottom-up argument for how government can respond to citizens' concerns. The U.S. right in opposition is likely to return to its ideological comfort zone, hoping that an intellectually coherent libertarian case for a much smaller state will fuel a political comeback. The British Conservative recovery offers an opposing lesson: David Cameron tries his best to sound progressive—claiming that inequality and the environment are now the great causes of Thatcher's party. So a return to electability may depend on repaying the tribute to Bill Clinton: that an age of global-capital flows, climate change and fragile states means that "the era of minimal government is over," too.