The Hindu Business Line : Is bigger the better?

That's the question Christian Bjørnskov, Axel Dreher and Justina A.V. Fischer ask in a recent working paper titled, `The bigger the better? Evidence of the effect of government size on life satisfaction around the world' from the Swiss Federal Institute of Technology Zurich, available on www.ssrn.com.

Their first hypothesis is the `standard neoclassical economic theory'. That is, a governmentacts as a benevolent dictator by maximising the well-being of their citizens, which means that the "average life satisfaction increases with the size of the state sector."

The second view, the opposite, is called the `public choice' perception. It says, "Governments maximise their own well-being at the cost of society at large, implying that average life satisfaction decreases with the size of the state sector."

This happens because bureaucrats and ministers work on bloating the budget (an `indicator of unnecessary government activity'), aided by "administrative procedures and tight deadlines, which prevent conducting a profound cost-benefit analysis."

Also, politicians "engage in log-rolling to promote projects favoured by their own districts but not by the total population," note the authors, citing previous research. For evidence, you only have to look around. Do you know that politicians are deft in the art of `fiscal illusion' that manifests as activities `visible' to the public "at the expense of potentially more welfare increasing, but `invisible' government projects?"

Other hypotheses that the paper mentions are about government effectiveness, competition and ideology. The study uses `data on life satisfaction' drawn from `the third and fourth waves of the World Values Survey (1997 - 2001)', where the question asked was simply, "How satisfied are you with your life these days?" and the evaluation was on a 1-10 scale.

What are the answers that the paper provides to the longstanding dispute — whether government involvement in the economy is conducive or detrimental to life satisfaction?

The researchers find evidence to quite clearly support the public choice view that excessive government involvement is detrimental to individuals' quality of life.

Wait, before you dispense with the government, in a hurry to increase the quality of our collective life. Because, there is `an alleviating effect' when the government is effective. You may wonder if the question is when or if.

"Detrimental effects of government involvement increase as the political ideology of the median voter moves to the left," observe the authors. Though it is normal to expect that populations voting on the left of the political middle would tend to accept more active government, the authors find "evidence of the exact opposite." Moral, therefore, is that you can't lean on the leaning to justify an obese government.

The paper concludes with `a rather simple policy implication': "Governments interested in maximising the life satisfaction of their voters should, regardless of their ideology, limit their direct interventions in the economy to allow voters a high degree of personal freedom."

By increasing the size of the keyhole, today's playwrights are in danger of doing away with the door, cautions Peter Ustinov. Applies to ambitious politicians too. For, despite Wendelin Wiedeking's subjunctive statement, "If size did matter, the dinosaurs would still be alive," there are newer dinosaurs in the form of unwieldy governments.

SayCheek@TheHindu.co.in