Today, government spending accounts for around 44pc of GDP while taxes are around 41pc of GDP. During the past decade, per capita growth has averaged 1pc per year while productivity has remained virtually stagnant. This is not a coincidence.
We have almost no hope of returning to historically normal rates of economic and productivity growth unless we tackle the bloated public sector that is crowding out private activity.
To get to that point, however, those in favour of markets need to start making a genuinely compelling case for them. Instead, they repeatedly commit at least one of the following errors.
First, too many claim to be “pro-business” as a badge of honour. It is hard to pinpoint when this trend started. As it is often heard in Washington, it may be an American import.
Even Rachel Reeves, the Chancellor, has a habit of saying it.
But it is wrong-headed. “Pro-business” implies higher margins, distortive subsidies, and high barriers to entry. When businesses believe that they can get a helping hand from the Government, they stop innovating and start lobbying.
To be genuinely pro-market means to be pro-consumer. Policymakers should aim to set rules and taxes in a way that makes markets as contestable as possible. In properly regulated markets, the desire by businesses to survive by competing on price and quality increases consumer welfare.
Second, free markets are not a perfect solution to the economic problem. They have flaws which must be managed. Some state intervention is necessary to soften boom-bust cycles, contain negative externalities that are often not properly reflected in prices, and mitigate socially and economically damaging inequality.