7 - Social Expenditure and the Risk of ‘Social Dominance’

Summary

In the past decades, governments significantly expanded their ‘insurance’ role in the economy. The ‘all-insurance’ state today is expected to cover almost all risks and contingencies from social security, via protecting certain industries or the financial sector to supporting demand and mitigating international crises.Social expenditure reflects the most important ‘insurance role’ of government. Social expenditure has been on a continuous upward trend for decades and absorbed 24% of GDP on average in 2016. Projections for the coming decades point to further moderate increases in an optimistic scenario and very adverse dynamics with spending growing to well above 30% of GDP in pessimistic ones.Large additional social expenditure increases would be hard to finance and would crowd out other, productive spending. Such a world of ‘social dominance’ would not be stable and sustainable. Fortunately, we have all the policy levers to prevent it.