Public sector, private sector and their interdependence

The current economic and financial crisis, which has lasted for more than two years so far, urged both experts and non-experts to reconsider their views about the size of their government, its involvement in their lives and also their spending habits and plans for their future. Unemployment rates have hit the two digits, while most of us – regardless of whether we are employed, underemployed, unemployed, laid off, or looking for a job – have lost money in one form or another. Some of us have lost money because of what is going on with the financial markets, others got themselves into schemes and so on. These issues returned politicians back to the stage.

The left and the right are back in their fight to prove their ideologies as the best social, political and economic models. The former calls for big government and more regulations while the latter calls for the exact opposite. Politicians from both sides of the political spectrum are using both reasonable and unreasonable arguments to further push their agenda. For example, lefties do it by promising the constituents to take them to the Promised Land on their own, while righties convince the same constituents that they can do everything on their own and that the government is, should I say, inexistent.

In other words, a left belief is that there should be more public sector, and a right belief is that there should be less public sector and the higher the percentage of the private sector, the better. More than fifteen years ago, when I hadn’t even started first grade, I was good enough at mathematics to see that it is impossible for the government to have control over everything while keep everybody happy and able to cover their basic needs. However, I was ignorant enough not to know how right I was. Instead, I was telling myself that I was not mature enough to understand that what I couldn’t see, an omnipotent government, was actually possible.

Which sector serves which sector?

Indiana Governor Mitch Daniels poses a very good question: “Who serves whom here? Is the public sector—as some of us have always thought—there to serve the rest of society? Or is it the other way around?

Today, at the age of 22, majoring in Political Science and minoring in Economics and Studies in the Law, I claim that my experience has allowed me to see both sides of the debate and look for reasonable solutions to the issue. Namely the issue has to be solved by having in mind that the private sector funds the public sector in order for the former to help the latter.

The role of the public sector is to maintain the private sector in return of a compensation in the form of taxes paid by the private sector (businesses) and the citizens as individuals. As a result of paying these taxes, the economy is being slowed down and shrinked for that’s what taxes generally do to the economy. However, taxes are necessary because they fund the public sector as a result of which there is a better order (police power), fewer damages (fire or any natural disaster, whether caused by a human being or by nature itself), access to education for people of every financial background (public schools and in some cases private schools), and to one extent or another  injuries, illnesses, diseases and so on (hospitals).

Calculations regarding the appropriate size of the public sector are rather complex – determined by factors such as demographics, work force, the public’s purchasing power, consumer behavior, private sector behavior, and last but not least taxes. Taxes are where the money for public employees – police, fire fighters, teachers, elected officials and government bureaucrats –  mainly come from. Raising their salaries most often has to do with raising taxes. This recent Politico article very well presents the basics of the issue in the United States, and may serve as an indirect explanation to why Greece got itself into its current fiscal mess of 113% of budget deficit for 2009 FY and why speculators predict similar scenarios for Spain, Portugal, Italy, Ireland and other European countries. It’s all about the size of the public sector (the greater it is the more expensive it is to maintain), government spending (huge budget deficits) and taxes (the greater they are the more suffocating they are to businesses).

However…

Trimming the public sector is not an easy political decision to make. It involves laying off public servants, and these public servants – like all decent citizens – are not servants per se, let alone robots, and they have a family and themselves to feed. Not to mention that these people’s pension plans, health care and other benefits are subject to taxpayers’ debates anyway. It becomes even harder for politicians to do so when they unionize.

However, such a decision has to be made in cases such as the Greek one – with its bloated public sector. It may raise unemployment in the short term but it will lower it in the long term due to switching careers and lowered taxes which would attract foreign investment. The creation of private sector in the former Eastern Bloc countries led to all that.

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1 Comment

Filed under Economy, Life, Politics

One response to “Public sector, private sector and their interdependence

  1. Pingback: How non-partisan is the Congressional Budget Office? « Evolution is the key!

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