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Growth in Public Sectors of Major Economies Over the Past 60 Years

Introduction

The public sector is the main service delivery point for most nations. Citizens obtain basic services from this crucial part of the economy. The control of the public sector is mainly by the government that is in power at any particular time. Traditionally, authorities were charged with the delivery of services to citizens based on the situation in the concerned region. The emergence of trade and increased complexity of delivery of goods and services together with the development of facilitative regulation led to the emergence of the private sector. The private sector dominated the different economies of the world for a long time. It is still the single most important driver of trade and other forms of interaction. This sector is driven by a desire to make a profit in an effort to succeed in the area within which it cooperates while the public sector ensures that basic services are provided at whatever cost. The public sector has emerged from the shadows of the private sector. In fact, developed nations have strengthened their public sectors (Blank 1994). An improvement in the public sectors of developed nations has been noted over the past 60 years. Different theories and reasons have been advanced to explain these developments. This report looks at the growth that has been experienced in the public sectors of major economies in the world over the past 60 years and the reasons behind this growth. The study also exposes the reasons why authorities should control this growth. Besides, the study recommends ways of controlling this growth.

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Growth in Public Sectors of Major Economies

Over the past 60 years, there has been a general trend in the public sector of major economies where these sectors have been reported to perform positively. Literature on the trends in public sector growth provides different reasons for the expansion of economies of the major powers of the world. After the Second World War, public sector employment surged, with major economies increasing their employment in this sector. The major industrialized economies realized significant growth in their public sectors after World War II. Some authors have confirmed that this growth was driven by the expansion that was seen in the government-run programs for these nations (Blank 1994).

The period of the 1960s saw significant growth in the public sectors of major economies such as the European Union and the United States. According to Blank (1994), the European nations experienced significant growth in their public sectors in the period between 1950 and 1960. Moderate growth was experienced in the same sector in the United States. The 1960s saw a general reduction in the growth rate of these major economies. The above nations and territories experienced moderate growth or no growth at all during this period (Afonso & Gomes 2014). Although the major economies in the world have different parts of their public sectors dominating their economy, they generally reported considerable growth in the overall public sector over the last 60 years. For example, the United States has the military making up a large part of the public sector while the UK has many publicly owned industries, including the nationalized health sector (Blank 1994).

During the 1960s, the public sectors of the US and the UK were similarly sized. The growth that followed was not at the same rate for these two economies. According to Blank (1994), the growth in the public sectors for the US and the UK happened during different parts of this period. The UK saw a marked growth in its public sector in the period between the 1960s and 1970s while the US saw moderate growth in the same sector over the same period. However, the US managed to achieve significant growth in the periods after the 1980s while the UK along with other industrialized nations at the time only recorded insignificant growth as shown in the figure below.

the public sector trends in the major industrialized nations over the years. 
Figure showing the public sector trends in the major industrialized nations over the years. Source: (Blank 1994, p. 224).

Political change has been at the center of the changes in the public sectors for the major developed nations in the world. An example of political influence in the intensification in public sectors of developed nations is the expansion that was witnessed in the UK and the US in the 1980s. During this period, political winds blowing in these two economies were similar. Authorities in power were conservative (Blank 1994). Conservative leaders in these two nations were focused on decreasing the public wage bill in their respective countries, with promises to shrink their respective public sectors (Blank 1994). Margaret Thatcher from the UK and Ronald Reagan from the US were the leaders in power during this period. Their aim was to increase the public sector’s competitive pressures in their countries. The other reason behind the suggested reduction in the size of the public sector for these nations was to align the wages in this sector with the private sectors (Harding & Preker 2003).

The public sector for the developed nations continued to expand over the years after the 1980s, with most of the growth being realized in the major sectors in each of the nations. The United States recorded the largest growth in its public sector. The European Union followed closely. The main reason behind the growth in the private sector for this federation can be said to be the economic growth that was experienced during the same period. The various researches into the public sectors of the nations that record significant economic growth reveal many areas of growth (Blank 1994). The economic boom in these nations also led to the growth in the private sector. This expansion resulted from the expansion of investment in various areas. Although the private sector has grown faster and at a significant proportion, the public sector also continued growing at a constant rate (Blank 1994).

Unlike the developed economies, developing nations have traditionally had a larger private sector. Most of them experience significant growth in their private sectors. However, the major economies experienced growth in the private and public sectors, especially at the onset of globalization. Many industrialized nations continued to increase their public sector sizes after the 1980s, with the 1990s proving the most significant in these areas. The increase in public sector size slowed over the same period. Policies were implemented to trim this sector. The main change that was recognized in this area is the mass retrenchment of employees where redundant staff members were laid off to stop the drainage of public funds. Despite the slowed change in the size of the public sector for these nations, the general picture is an increase in the sectors.

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Reasons for Observed Growth

The growth in public sectors for the major economies over the past 60 years may be attributed to a number of reasons. The main reasons behind the expansion in the public sectors for these nations include the policies that were adopted in the different economies. According to Blank (1994), the initial growth in the public sector resulted from the expansion in the income security programs. The same growth was experienced in the transfer programs of income in these countries. The running of income security programs in the major economies has always been under the control of the government. This situation has caused the observed growth in the public sector for the respective nations. The number of public organizations that were offering these services was reported to increase over the period under discussion. As a result, the growing number of businesses led to the observed change in the public sectors for these economies (Pierre & Peters 2000).

The administrations that have been in power in these nations over the same period have also led to changes in public sector sizes for these nations’ economies. After the end of the Second World War, most leaders who came into power in the major economies faced the challenge of unemployment, which they promised to tackle in the campaigns that were run in the nations (Haskel & Wallis 2013). The main solution that was offered by these authorities was to increase the public sector hiring to reduce unemployment rates (Christensen & Yoshimi 2003). The result of the measures was the enlargement of the public sector, which was also followed by increased public spending.

The 60-year period that is under discussion was occasioned by an increase in government spending for the economies. This observation reveals the measures that followed to reduce the size of the private sector while at the same time reducing the growth rate (Christensen & Yoshimi 2003). The same period was also largely dominated by poor economic governance, with few public companies being privatized. The period between the 1990s was largely dominated by government control of the major economies. It is only after this period that the concept of New Public Management (NPM) was utilized in the public sectors of the major economies (Christensen & Yoshimi 2003). According to Blank (1994), the absence of a clear measure to control the public sectors of these economies resulted in rapid expansion for the public sectors of these countries.

Globalization is also partly to blame for the changes observed in the public sector of the major economies of the world (Blank 1994). The economies experienced growth because of governments wanting to control their public sectors from an international competition that was occasioned by globalization. The publicly owned companies are largely protected from competition that is available on the global front. Hence, the major economies were cautious about privatizing the crucial parts of their economy. For example, the United States continued to protect its public sector from interference by external forces. The main force that allowed this nation to do so was the need to increase the public sector as opposed to its privatization (Christensen & Yoshimi 2003).

The underlying reason behind the growth in the public sectors of these nations is the favorable economic environment that has prevailed over this period (Christensen & Yoshimi 2003). The major global economic powers experienced significant economic growth during this period. The western nations prospered in the period after the Second World War. The growth is reflected in the size of their economies and their public sectors. Growth was attributable to the development in international trade, the relative security that was established after the war, and the global trade treaties (Christensen & Yoshimi 2003). The general environment that prevailed after the Second World War was favorable for these nations.

The UK and France had a shift in policies that allowed the expansion of their respective private sectors to create employment for youths and other individuals. The public sector was the only direct route that these nations could use to develop their economies and assure their citizens of continued growth (Christensen & Yoshimi 2003). The desire to prevent future skirmishes and/or establish security led to the US increasing its military in the form of economic spending and recruitment, with the result of this move being the increase in the public sector in the nation. New services have also grown over the years, thus relating to the rapid growth in technology and innovation. The emergence of these fields has also contributed to the growth of the public sectors of the developed nations and economies. The result is the rapid expansion of public companies.

The growth in the public sector has not always been positive such as the example of the UK (Blank 1994). The reasons behind the negative growth in the public sectors of some of these economies include the retrenchment of public employees and the privatization of public companies. The best example of this change is in the 1980s UK, which was under Margaret Thatcher (Blank 1994). Thatcher’s administration led to the privatization of many public companies and institutions. The underlying aim was to reduce government spending and wastage. The US also experienced a slowing of the public sector growth under Ronald Reagan, although this situation was more subtle (Blank 1994).

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Why control this Growth?

The growth in public sectors should be adequately controlled in any nation. There are several reasons why this growth in the public sector should be controlled. A large public sector can be a source of increased government spending. The economy suffers because of this increased spending. For a nation to experience growth in the economy, the spending should be restricted for development and not in the recurrent budget for public employees (Vrabková 2013). Some public institutions also present a challenge in management, with several of them performing less favorably as opposed to their private counterparts. This finding is one of the reasons why authorities should control growth in the public sector such as the one that was experienced in the 60-year period in the developed economies.

The other reason why the growth in the public sectors of the developed nations should be controlled is to encourage competition within the economy. An economy that is dominated by public institutions and organizations is less competitive as compared to one that has several private institutions (Blank 1994). Privately controlled companies are able to work more efficiently in relation to their public counterparts. This situation allows them to ensure positive economic growth for these nations. According to Vrabková (2013), the public sector is dependent on the political class for direction and the legislation in place in a country, unlike the private sector that utilizes research and information to make necessary decisions to propel it to success.

Vested personal interests are also evident in the public sector. They may hinder the commitment that is demonstrated by officers in the private sector (Tillema, Mimba & Van Helden 2010). The private sector focuses on the needs of the clients and customers who form the main reason for its existence. This sector also provides customers with the best services and comfort, unlike the public sector which offers limited comfort and convenience for customers (Afonso & Aubyn 2013). Therefore, there is a need for economies to exercise reduction in the public sector in relation to the size of the economy. The growth of the public sector should be put in check to enable the right growth in the economy.

The public sector has some degree of flexibility when it comes to the utilization of infrastructure, unlike the private sector that leases and rents these facilities. The public sector owns this infrastructure. However, the public sector is slow to respond to the changes in market conditions unlike their private counterparts (Tillema, Mimba & Van Helden 2010). Reducing the growth in public sector size ensures that the economy as a whole is able to respond quickly and adequately to the changes that occur in the various sections and parts. Therefore, the developed nations should curtail the growth that is being experienced in the public sector.

The size of the public sector in the economy is an important point to consider while determining the strength of this economy. According to Pierre and Peters (2000), countries that have a large proportion of their economies have a poorly performing economy as compared to those that have significantly sized public sectors. The trimming of the public sectors for economies has been attributed to the positive performance of economies where such trimming is done. According to Harding and Preker (2003), the public wage bill reduces with the surplus being used to institute economic growth in areas that are important to the economy. Developing nations are unable to match the developed nations since the public wage bill makes up a large proportion of their economy. Hence, little of the revenue is used in developing the other areas of the economy.

Privatization and areas where this plan has been instituted ensure that the economy is closely controlled, with the authorities being able to perform their oversight responsibilities adequately. The trends observed in the public sectors for the developed economies over the past 60 years should be altered over the next years. The developed nations should let their public sectors develop and grow at a slower rate. Therefore, there is a need to control the growth that is observed in the public sectors for these nations to ensure that the sectors remain checked and in small proportions of the overall economy.

Ways of Controlling the Growth

The growth in the public sector as observed in the major economies of the world over a 60-year period can be controlled in a number of ways. The methods of controlling growth in the public sector have been tried with success in many parts of the world, including the developed nations and economies. One critical way of controlling growth in the public sector is the formulation of legislation (Chittoo, Ramphul & Nowbutsing 2009). Economies and countries need to have a public policy that ensures the existence of a few public institutions as possible. The development of this legislation needs to be thought out and passed through the necessary government routes.

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The legislation that may be changed to allow new ones include the traditional requirements for special areas of the economy to be under pubic control. In some economies such as China, some areas of the economy such as financial institutions and the media are under public control. This plan prevents their optimum performance (Tillema, Mimba & Van Helden 2010). Privatization of these areas can ensure improved performance. This goal can be realized through the establishment of necessary legislation.

The other measure to reduce the growth in public institutions and the public sector is the privatization of the existing public institutions. Many institutions can perform better in the developed nations if they are privatized because private institutions are better organized as compared to their public counterparts. They are able to offer services that are related to the needs of the individual customers. Privatization also ensures adequate reliance on information while making decisions. The management is more focused on the specific needs of the organization and its customers (Harding & Preker 2003).

Harding and Preker (2003) assert that private institutions have better chances of success because they recruit their managers based on cost-benefit considerations. This strategy allows better success in their operations. These institutions also demonstrate greater synergy between personal interests and the business, with accountability being available (Lavelle 2006). They also pay special attention to the needs of each customer by providing them with convenient services. Therefore, the privatization of public companies is an effective way of ensuring that the growth of public institutions is controlled and checked.

A different approach that may be used to ensure that the growth that is observed over the past 60 years is controlled is the introduction of New Public Management (NPM) (Pierre & Peters 2000). The introduction of accounting technologies is one of the major components of NPM, with this move assuring the improved performance of any sector that receives a change in this direction (Pierre & Peters 2000). Over the past several years, growth in international trade or globalization has allowed public institutions and organizations to increase their competitiveness and intensification. However, these organizations have had a significant comparison in the different nations, with the result being research challenges. Therefore, there is a need to have the public sectors in the respective nations adopt NPM, which can result in slowed growth in the public institutions (Pierre & Peters 2000).

It is worth noting that the limitation to the growth of public sectors in the economies above does not mean stopping any growth in this area. The instituted changes should be restricted to an increase in the number of public institutions, which should involve disposing of the existing public institutions to the public sector. If there were limitations in the number of new public institutions, the economies would record a significant depreciation since most of them are dependent on the public sector for most of the services. Therefore, the changes should be instituted in a manner that maintains the performance of the overall economy. Past changes that have been associated with the private sector have led to growth in the respective economies. Therefore, it is important for governments and economies to maintain a significant proportion of the public sector to safeguard the basic services while at the same time protecting the ordinary citizens (Pierre & Peters 2000). Private institutions may not be considerate of the needs of the public.

Conclusion

In conclusion, with reference to the expositions made in the paper, there has been an observed change in the size of the public sectors of major economies of the world over the past 60 years. Most studies indicate that the size of the public sectors in the respective economies increased over the same period. Reasons that have been established as being behind the increase in the public sector as a proportion of the economies of these nations include the measures adopted by the respective authorities, the advent of globalization, and the economic boom that followed the Second World War. The public sector’s growth rate was different in the various nations and economies, although the general trend was the same. The report has established that there is a need to control the growth of the public sector in these economies as a way of ensuring that they do not hinder service delivery. Some of the proposed ways of accomplishing this goal include the privatization of some of the institutions, the introduction of legal structures, and the implementation of changes in the public sector to improve efficiency while reducing the necessity for new organizations. There is also a need to merge some of the public institutions that have duplication of roles.

References

Afonso, A & Gomes, P 2014, ‘Interactions between private and public sector wages’, Journal Of Macroeconomics, vol. 39 no. 1, pp. 97-112.

Afonso, A & Aubyn, M 2013, ‘Public and private inputs in aggregate production and growth: a cross-country efficiency approach’, Applied Economics, vol. 45 no. 32, pp. 4487-4502.

Blank, R 1994, Social Protection versus Economic Flexibility: Is There a Trade-Off? University of Chicago Press, Chicago.

Chittoo, H, Ramphul, N & Nowbutsing, B 2009, ‘Globalisation and Public Sector Reforms in a Developing Country’, Culture Mandala: Bulletin of the Centre for East-West Cultural & Economic Studies, vol. 8 no. 2, pp.30-51.

Christensen, M &Yoshimi, H 2003, ‘Public Sector Performance Reporting: New Public Management and Contingency Theory Insights’, Government Auditing Review vol. 10 no. 1, pp. 71-95.

Harding, A & Preker, 2003, Private Participation in Health Services, The World Bank, Washington, DC.

Haskel, J & Wallis, G 2013, ‘Public support for innovation, intangible investment and productivity growth in the UK market sector’, Economics Letters, vol. 119 no. 2, pp. 195-198.

Lavelle, J 2006, ‘It’s All About Context and Implementation Some Thoughts prompted by: Unlocking the Human Potential for Public Sector Performance — The United Nations World Public Sector Report 2005’, Public Personnel Management, vol. 35 no. 3, pp. 217-228.

Pierre, J & Peters, B 2000, Governance, Politics and the State, Macmillan Press, London.

Tillema, S, Mimba, N & Van Helden, G 2010, ‘Understanding the changing role of public sector performance measurement in less developed countries’, Public Administration & Development, vol. 30 no. 3, pp. 203-214.

Vrabková, I 2013, ‘Quality Management in Public Sector: Perspectives of Common Assessment Framework Model in the European Union’, Economic Studies & Analyses / Acta VSFS, vol. 7 no. 2, pp. 145-159.

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StudyCorgi. "Growth in Public Sectors of Major Economies Over the Past 60 Years." July 11, 2022. https://studycorgi.com/growth-in-public-sectors-of-major-economies-over-the-past-60-years/.

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StudyCorgi. 2022. "Growth in Public Sectors of Major Economies Over the Past 60 Years." July 11, 2022. https://studycorgi.com/growth-in-public-sectors-of-major-economies-over-the-past-60-years/.

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