by Richard Rahn
Do you think there would be more jobs, less poverty and higher real incomes if government was 60 percent or 18 percent of gross domestic product? Fortunately, a global economic-growth experiment has been underway for more than a half-century. Some countries have opted for the big-government model, others for the small-government model. Based on the data, the small-government crowd wins.
Periodically, as new data becomes available, I revisit the topic of how big or small government should be. Many on the left in the United States want a big government like they have in France, which they think will be fairer and provide better services. There are success metrics, such as real per-capita incomes, economic growth, job-creation rates and life expectancy to give us a good indication of what works and does not work.
The accompanying table gives us recent data about how well 10 rich countries are doing. Outside of small oil-rich economies, such as Qatar and Norway, and a few small financial centers, the four richest real and diverse economies are Singapore, Switzerland, the United States and Hong Kong (which is not a country, but a special economic and political zone of China).
Fifty years ago, Singapore and Hong Kong were very poor Asian city-states, without natural resources. Yet now, their millions of citizens enjoy the highest living standards and life spans on the planet — Singapore being No. 3 and Hong Kong No. 4 in terms of longevity. They did not achieve success from foreign aid or by government spending (which is well under 20 percent of GDP in both places). They achieved this by having a great deal of economic freedom — Hong Kong being No. 1 and Singapore at No. 2 out of the 159 countries ranked. Other countries that are not yet as rich as Singapore and Hong Kong but that have opted for the smaller government model, such as Taiwan and South Korea, and developing countries, such as Chile, have been growing more rapidly than their more statist competitors — which results in the vast majority of their citizens having a much higher quality of life.
According to the World Bank, Switzerland now has a higher GDP per capita, both in nominal terms and in purchasing power parity (PPP), than the United States. France and Switzerland are neighbors, and France has many more natural resources than Switzerland, as well as numerous ports, of which Switzerland has none. Yet, the Swiss have a per-capita income one-third larger than the French, and an unemployment rate one-third of the French.