The return of the state

Expect to see the state expand its role, on the back of disruptive changes in the global economic & political environment

‘The era of big government is over’, President Clinton, 1996 State of the Union

One of the striking aspects of recent policy across advanced economies has been an expanding role of the state.  The massive government support to households and firms to cope with Covid and now the energy crisis, as well as commitments to increased defence spending, provide recent examples. 

Small state models of economic policy work better in more benign conditions.  The pandemic, war, and strategic geopolitical competition are now generating new policy dynamics.  Indeed, global economic and geopolitical regime change have previously led to regime change in the role of the state: the emerging narratives around the Washington Consensus, the flat world, and the end of the Cold War, supported a shrinking of the state from the mid-1990s.  

This transition will likely be turbulent.  The omnishambles of last week’s UK ‘fiscal statement’ (debt-funded tax cuts on top of substantial fiscal support for energy payment…