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Bureaucratic Growth

Buchanan, James M. and Tullock, Gordon

• Virginia Polytechnic Institute and State University

“The Expanding Public Sector: Wagner Squared.” Public Choice (USA), 31 (1977): 147–150.

Morris Beck in a recent article, “The Expanding Public Sector: Some Contrary Evidence,” National Tax Journal 39 (1976): 15–21, claims that the real growth of the American public sector adds up to less than the public sector's 31% share of gross domestic product would imply. But contrary to Beck's claim that, “in real terms the era of public sector growth in most developed economies may have ended,” the actual data suggest that the public sector runs out of control.

During the last 20 years, the jump in the salaries of civil servants caused most of the rise in the government price index. However, civil servants were not earning less than nongovernment workers in 1950. How then, do we explain the relative rise in government salaries?

We can find the answer in the political power of civil servants themselves. At first, when bureaucracies are relatively small, bureaucrats employ their efforts and votes to expand the physical size of the public sector. This policy continued until the early 1950s. However, once bureaucrats reach some critical size, they then use the political power (i.e., votes) to vote themselves higher salaries. While the share of the population employed in the public sector may be reaching a limit, this does not imply that the government budget itself is reaching a maximum.

Insofar as government spending continues to expand without increasing productivity in the public sector, we will witness a mixture of lower wages in the private sector, inflation, and unemployment where there exist downward wage rigidities. Hence we can partially explain the “stagflation” of the 1970s by the growth of the public sector salaries relative to private sector salaries.