Much of the ideological debate in the US revolves around the question of size of government. Size matters, but so do lots of other things. Let’s take infrastructure. Here are some data on government spending as a share of GDP:
Let’s compare China and Brazil for a moment. China has lousy infrastructure. So does Brazil. But China is rapidly building a first class set of infrastructure, and Brazil decided long ago to put their money into social programs, lavish pensions for public employees, etc. China’s already ahead of Brazil in infrastructure, and will soon be far ahead. Brazil is still richer than China, but will soon fall far behind. It’s hard to leave the middle income trap with horrible infrastructure. I added Chile simply for comparison purposes. Brazil’s level of government spending is high for a Latin American country (Mexico is at 23.7% and Argentina is at 24.7%).
America has decent infrastructure, but I consider it rather poor quality for a country as rich as the US. Why is this? It’s certainly not because we are a low tax economy. Switzerland has excellent infrastructure, and universal healthcare and all sorts of other excellent public services, and has a much smaller government than the US. So does Singapore. It’s all about where you allocate the money, and how effectively you spend it. America allocates lots of money to social programs, and to national defense. The money we do put into education, infrastructure, etc, is not spent very effectively. That’s why even high income tax states like New York and California have such lousy infrastructure (Although California to its credit does have excellent universities). Even when we try to build high speed rail, we fail. (Or are about to fail, as in California, where the dream of truly high speed rail has already been abandoned.)
America has two political parties:
1. One is so anti-government that they refuse to do serious thinking about how to make government work.
2. The other is so pro-government that they refuse to make the tough choices necessary to make government work.
As a result we may increasingly resemble Brazil, not Switzerland.
PS. Tyler Cowen recently had this to say:
Last night I read the new and excellent Michael Pettis book Avoiding the Fall: China’s Economic Restructuring. It is the single best treatment I know for understanding the dilemmas of the current Chinese economy and the need for restructuring. My favorite bits are those comparing the current Chinese economy to the Brazilian growth of the 1960s and 70s, also investment-driven, and lasting longer than most people thought possible, and culminating in the crack-up of the 1980s, which turned out to be a lost decade for Brazil.
In my view the China of 2013 is quite unlike the Brazil of the 1970s, for all sorts of reasons. One is infrastructure. Another is education. Another is culture. Another is macro policy. Another is non-commodity trade competitiveness. Brazil never seriously tried to become a developed country. They never really tried to build a developed country infrastructure. China is trying. They certainly may fail, but if they do fail it will almost certainly be for reasons unrelated to Brazil’s failure. China’s not about to stop building high speed rail and put 40% of GDP into things like public employee pensions.
Chinese people don’t make jokes like “China’s the country of the future, and always will be.” They are deeply ashamed of their poverty, and they know how to end it. That’s not a knock on Brazil—in lots of ways I prefer the Brazilian culture. But not for wealth accumulation.
PPS. China is not a good development model. Singapore and Hong Kong are much better models.
PPPS. Here’s some data on infrastructure as a share of GDP: