America in the World's Briefings: The role of government in America

It is often suggested that America is a vastly less compassionate society than most other Western nations, because it embraces a more capitalist economic system. Whether less government intervention suggests less compassion is itself debatable, but also dubious are myths that contribute to the notion that America is ruthlessly and uniquely capitalist when compared to other Western countries.

Myth: Government in the United States spends significantly less than government in other countries
Fact: The amount that governments tax and spend is perhaps the most telling measure of a country’s public policy. In 2006, all levels of government in the US spent 36% of the national income. The equivalent figure in the UK was 40%.[1] This is a reasonable difference, but one that shrinks when one considers spending per person. At that time US government spending averaged $15,462 per person. Using today’s exchange rate[2] (which probably understates the dollar in the long term), the UK amount is equivalent to $16,488. So the gap in share of gross domestic product is not great, and taking into account the higher GDP per capita of the US, American government at all levels spends roughly the same per person as the UK government.

Myth: Americans pay particularly low taxes
Fact: The complexity of the American tax system and its division of federal, state, and municipal taxes that are incident on income, sales, and death means that while the tax rates considered individually may appear especially low, the total tax burden is not. The above on spending largely proves this point as the government spending must be coming from somewhere. However it is also possible to find tax rates in the US which are higher than those elsewhere. Perhaps the most striking is the company tax rate which, at 39%, is higher than the equivalent in all Scandinavian countries and most of the OECD.[3]

Myth: Americans are on their own for healthcare whereas others enjoy generous government benefits
Fact: Another common perception of the United States is that there is no public healthcare expenditure and citizens receive only the expenditure that they, their employer, or their family can afford. The statistically forcefully rebut this claim. According to the OECD, Canada’s and the United States’ governments both spend 6.9% of GDP on healthcare,[4] more than the OECD average of 6.4%. As with the previous section, the greater GDP per capita of the United States means that these GDP percentage figures understate US public spending.

Myth: The American economy is laissez-faire and unregulated
Fact: In reality the United States economy is as highly regulated or, depending on your perspective, unregulated, as most Western nations. The Economic Freedom of the World Index, which seeks each year to quantify the levels of economic freedom enjoyed by citizens of each country. The US comes in 5th alongside the United Kingdom and Canada, eight basis points behind frontrunner Hong Kong. Within the same eight basis point range but below the US come a further 25 nations including most of Europe.[5] Significantly, the weakest factor making up the US score by far came from the measures of business regulation.[6]

Myth: America does not have a welfare state
The United States has had its fair share of welfare state initiatives. The ‘New Deal,’ ‘Great Society’ and the ‘War on Poverty’ were all welfare state initiatives that have become part of the American lexicon. Today, spending on social programs amounts to 16% of GDP.[7] This is significantly less than countries in Northern and Western Europe, but comparable to Canada and Australia, countries with big welfare state reputations. Once again, higher GDP per capita figures in the USA mean that these figures under-represent the actual amount spent on the average person.

Myth: American workers are without the kinds of labour law protections enjoyed by others
Fact:Labour laws in the United States vary from state to state, but the level of compulsory unionism surprises most outsiders. The big labour law issue in the United States is actually so-called ‘right to work’ laws. These laws, passed at state level, mean that an employee is not obliged to join or pay fees to a union, should one exist in his or her workplace. Currently, 22 states, mainly in the South and Central regions of the United States have right to work laws. For better or worse, compulsory unionism is the norm in the majority of the 50 states.

Conclusion
Whatever ones attitude to free market capitalism and limited government, it is inaccurate to believe that the United States is massively different from the rest of the western world in these respects. For better or for worse, American public policy is in the most important respects little different from that of the rest of the OECD.