Big Governments are here to stay!

The much touted neo-liberal philosophies (private sector is given a free-hand with minimum regulation) of minimum government and maximum impact are increasingly being challenged in today's dynamic global landscape. Consider the following reasons:

1. Geo-political tensions: Due to the ever-growing geo-political tensions in the middle-east, Europe(Russia-Ukraine war) etc., defence capabilities and expenditure are taking center stage. The role played by a government's policies is shaping the global alliances and strategies, enhancing defence capabilities is perhaps more important now than any time in the history of the world.

2. Economic inequality and discontent: When the fruits of growth are limited to a privileged few, it is quite normal for the masses to feel discontented. The narratives of 'globalization and its benefits' are being replaced by the ideas of 'sons of soil' and protectionism. In such a situation, the role played by governments in redistribution of income does not have to be overstated. 

3. Advent of technology: The success or failure of a capitalist economy depends on the participation of the people for which they need education and skill sets. The rate of growth of technology is not commensurate with its proliferation among the labour force. As such there is a need for 'hand-holding' by governments to enhance the tech-adaptability and tech-intensiveness of the work force.

4. Climate-change and natural calamities: Agri-based economies are at the receiving end of climate change and its vagaries. Particularly developing economies are obliged to spend on rural infrastructure and welfare of the agriculture community.

5. Economic Cycles: The good old Keynesian economics ideas and practices are more relevant today than ever before. 

6. Pandemics like Covid: Global pandemics have exposed the fragilities of health-care systems around the world. We are well and truly exposed to the dangers of biological warfare.

7. Private investment: Post the 2008 global recession, the private sector investment is more scrupulous and hard to come by. The global economy seems to have gone through a structural change and the growth rates observed, hitherto, are hard to replicate now. 

Build to Divest: Keynes to the rescue again!

Many governments around the world have resorted to Keynesian spending to prop up employment, infrastructure and offer some solace to their citizenry. In view of reduced private capital investment, governments can perhaps take Keynesianism a step forward and invest in opportune sectors with little private participation. For example, areas such as rare earth minerals extraction or green energy equipment manufacturing may require large capital investments with long gestation periods to reap profits. In such scenarios, governments can come forward to make greenfield or in some cases brown field investments to accelerate these sectors. It is not necessary for governments to restrict themselves to infrastructure or regulation.

The idea is to build to divest in the long term or super long term. Since governments have larger capital bases, they can build new business models and companies, operate these businesses to profitability and divest at an appropriate time. This can be a virtuous and self-reinforcing cycle of build-operate-divest-build.

Last but not the least, any political philosophies based on 'smaller' governments need to re-assess their situation.