After all, how big should the state be?
With the exception of anarchist thinking, which is not confused with disorder, but with absence of the State, the role of the State as a regulatory agent is no longer discussed. It is impossible to imagine millions of inhabitants living together in cities without an empowered entity that brings uniformity to certain situations, such as registration of property ownership, traffic rules, currency in circulation, and so on. Nowadays it is practically impossible to imagine social coexistence without the role of the State.
Hence the inevitable question. How large should the state be? Should it only have a regulatory role, as liberals want, or should it have a greater presence in the economy, as socialists preach? The extremes have already been proven wrong. Communism did not work, and please don't argue that China is a communist country, and pure liberalism ended up being fertile ground for greater social inequality and for the birth of communism and fascism. Admitting that the State is necessary does not mean consenting that the public power must be present in everything. Is there, then, a formula that applies to all countries? That is where the debate lies. Does importing from Chicago the liberal ideas that work in the US mean that they will work here?
Countries with low per capita income, with enormous social inequalities and income distribution inequalities, need a greater presence of the State in the economy. As much as I agree with Adam Smith's thought, in Wealth of Nations, that individual development ends up generating more wealth for the collective, I recognize that in certain projects of social need, but with low economic return, or high risk, only the State can serve as an inducing agent for their development. Sectors such as infrastructure, education, transportation, and public health hardly prosper in underdeveloped countries without a State presence. These are sectors that need a public incentive policy, given the high financial volumes, high risk, insufficient capital market size and financial market very concentrated in a few agents, besides the usually high interest rates.
Even so, the role of the state should be limited to creating the conditions for economic viability. The private agent should execute the project, earn the imagined profits or assume the undesired losses. The state should not, for example, interfere in the price of the product or service provided. If it is abusive, it should stimulate national or international competition so that prices are adjusted to market practices. The State must ensure that people have a choice. It should avoid tutelage of the citizen to make the choice in his place, as if he were incapable.
Regulate only to correct distortions, but without interfering with free trade
In the regulatory realm, the state should be concerned with correcting distortions. I cite for example the health insurance plans. The role of the State should not be to regulate whether or not a certain medical exam or medical procedure should be covered by the plan, but to oblige the plan's company to offer coverage that is customized to the client and, at the end, charge for the chosen package. What's the point of a single man getting a plan that covers childbirth if he doesn't intend to have children? Why force bikers to wear helmets if they believe in their abilities. Why ban the uber-bike service? Some will say that traffic accidents cause costs to the State. Well, it is enough to charge a much higher IPVA for the motorcyclist to choose between his pocket and the greater risk to his life. There is always an indirect cost in excessive regulation, which is the cost of inspection. In the case of the uber taxi, it is enough to create the requirements of the service. Motorcycles of certain colors and models, place where they can ride, prohibition to sew traffic, specific fee to foresee possible accidents, instead of discussing the existence of the service. If there is demand, the legal, or illegal, supply will emerge.
Some sectors need a greater presence of the State for their development. Hence the need for public policies. It is not about subsidy, a model that is not sustainable in the long term, but about incentive through public policy. It is also not about choosing privileged people, but recognizing that certain sectors will not exist without the participation of the State. How can we develop the naval, aeronautical, technological, and energy industries, just to mention a few examples, without the certainty of an adequate infrastructure for the sector? The role is that of inducer, never of participant.
The specialized economic literature, shows with econometric studies an inverse relationship between the size of the State and the economic growth of a country. The larger the State, the lower the economic growth. The American economist Richard Rahn arrives at establishing an optimal size of the State between 15% and 25% of the gross domestic product (GDP). In other words, he recognizes that government spending can maximize economic growth, but that after a certain level it becomes harmful. The theory is used by classical liberals to defend the idea of decreasing public spending and taxation. Also worth reading is a 2011 European Central Bank study of 108 countries from 1970 to 2008, which concludes that "there is a significant negative effect of state size on economic growth" and that "the negative effect of state size on GDP per capita is more pernicious in countries with low quality institutions," as is unfortunately the case in underdeveloped countries.
Private property is a sign of freedom and synonymous with efficiency
As St. Thomas Aquinas already explained, private property is much more effective than its alternative, firstly because "each one is more diligent in managing what belongs to him exclusively than what is common to all, secondly because human affairs are managed in a more orderly way if each one is responsible for looking after his own interests. Thus, an essential condition for progress is individual freedom and a robust rule of law that protects the citizen from the state. The state must regulate the contours of economic activity so that they are attractive and private enterprise must assume the inherent risks of its operation.
The combination of the state and private enterprise has given rise to great social and economic developments. The railroad that cuts the United States from east to west is an example of the demand created by the state and the opportunity well captured by private enterprise. Neither private enterprise nor the state alone explains Silicon Valley. Both occurred in different areas. One in the creation of knowledge, the other in the rise of an industry. As Pedro Doria well explained in his recent article "If it weren't for the State, there wouldn't have been a creative explosion of technological development in that corner of California since the 1970s. And, were it not for private enterprise, the creative explosion would not have become the most powerful industry in the world in the decade we entered. It was the American state, mainly through the Department of Defense and NASA, that funded the scientists and engineers who created the microchip, the mouse, and the Internet ...., but it was not the American state that created Intel, the company that popularized microchips. In the vicinity where Intel was born, several small garage companies were born creating computers that people could have at home. One of them was Apple.
The contributory combination of the state and private initiative generates long-term social benefits. The democratic state must invest in knowledge and basic infrastructure capable of fomenting the appetite for private initiative, creating a strong, open market confident that economic policy will not change with each electoral cycle.
