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Why has the Public Sector Grown so Large in Market Societies? The Political Economy of Prudence in the UK, c. 1870-2000

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  • Avner Offer

Abstract

The public sector allocates 40 percent of expenditure in Britain. Why do affluent consumers acquire so much welfare outside the market? If choice is affected by myopic bias, optimisation is costly, consumer choice is fallible, and collective consumption provides a commitment device. For a century after 1870, collective investment gave superior payoffs, and collective consumption grew faster than the economy. Public/private standoffs were resolved against entrepreneurs. By the 1970s, prudential saturation set in, as public investment soared. Rising incomes, new goods, and falling prices shifted consumer preferences towards market provision, and crowded out the public sector. This shift supported investor capture of government, privatisation and de-regulation. Consumer expenditure increased, while prudential investment declined sharply. In consequence, Victorian-style public/private standoffs have emerged again, with prudential crises in pensions, education, health, communications, and transport. These will need to be resolved once again by means of political competition.

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  • Avner Offer, 2002. "Why has the Public Sector Grown so Large in Market Societies? The Political Economy of Prudence in the UK, c. 1870-2000," Oxford Economic and Social History Working Papers _044, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:esohwp:_044
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    Cited by:

    1. Camilla Brautaset & Regina Grafe, 2006. "The Quiet Transport Revolution: Returns to scale, scope and network density in Norway's nineteenth-century sailing fleet," Oxford University Economic and Social History Series _062, Economics Group, Nuffield College, University of Oxford.
    2. J.Humphries & T. Leunig, 2007. "Cities, Market Integration and Going to Sea: Stunting and the standard of living in early nineteenth-century England and Wales," Oxford University Economic and Social History Series _066, Economics Group, Nuffield College, University of Oxford.
    3. Avner Offer, 2017. "The market turn: from social democracy to market liberalism," Economic History Review, Economic History Society, vol. 70(4), pages 1051-1071, November.
    4. Natalia Mora-Sitja, 2006. "Exploring Changes in Earnings Inequality during Industrialization: Barcelona, 1856-1905," Economics Series Working Papers 2006-W61, University of Oxford, Department of Economics.
    5. Daudin, Guillaume, 2010. "Domestic Trade and Market Size in Late-Eighteenth-Century France," The Journal of Economic History, Cambridge University Press, vol. 70(3), pages 716-743, September.
    6. Asadullah, Mohammad Niaz, 2010. "Educational Disparity in East and West Pakistan, 1947-71: Was East Pakistan Discriminated Against?," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 33(3), pages 1-46, September.
    7. Alexandre Debs, 2003. "The Source of Walras`s Idealist Bias: A Review of Koppl`s Solution to the Walras Paradox," Oxford Economic and Social History Working Papers _049, University of Oxford, Department of Economics.
    8. Regina Grafe & Camilla Brautaset, 2006. "The Quiet Transport Revolution: Returns to Scale, Scope and Network Density in Norway`s Nineteenth-Century Sailing Fleet," Oxford Economic and Social History Working Papers _062, University of Oxford, Department of Economics.
    9. Robert Dryburgh, 2003. "Individual, Illegal, and Unjust Purposes`: Overseers, Incentives, and the Old Poor Law in Bolton, 1820-1837," Oxford Economic and Social History Working Papers _050, University of Oxford, Department of Economics.
    10. Natalia Mora-Sitja, 2006. "Exploring Changes in Earnings Inequality during Industrialization: Barcelona, 1856-1905," Oxford Economic and Social History Working Papers _061, University of Oxford, Department of Economics.
    11. Asadullah, Mohammad Niaz, 2010. "Educational Disparity in East and West Pakistan, 1947-71: Was East Pakistan Discriminated Against?," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 33(3), pages 1-46, September.
    12. Regina Grafe, 2004. "Popish habits vs. nutritional need: Fasting and fish consumption in Iberia in the early modern period," Oxford Economic and Social History Working Papers _055, University of Oxford, Department of Economics.
    13. Regina Grafe, 2004. "Popish Habits vs. Nutritional Need: Fasting and Fish Consumption in Iberia in the Early Modern Period," Oxford University Economic and Social History Series _055, Economics Group, Nuffield College, University of Oxford.
    14. Richard H. Steckel, 2005. "Fluctuations in a Dreadful Childhood: Synthetic Longitudinal Height Data, Relative Prices, and Weather in the Short-Term Health of American Slaves," Oxford Economic and Social History Working Papers _058, University of Oxford, Department of Economics.
    15. repec:hal:spmain:info:hdl:2441/2241 is not listed on IDEAS
    16. Eloranta, Jari, 2004. "WARFARE AND WELFARE? Understanding 19th and 20th Century Central Government Spending," Economic Research Papers 269593, University of Warwick - Department of Economics.
    17. Alexandre Debs, 2003. "The Source of Walras`s Idealist Bias: A Review of Koppl`s Solution to the Walras Paradox," Economics Series Working Papers 2003-W49, University of Oxford, Department of Economics.

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