Why are economic, social and political factors important to understanding contemporary public expenditure decisions

Topic: BusinessTime Management
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Last updated: March 28, 2019

In order to answer this question we must examine the economic, social and political factors first. They must be understood and analysed as separate entities. Once we have a firm grasp of the three concepts we must apply them to public services and how they influence public expenditure decisions for these services. We must also identify the key areas in which public money is spent.

Public spending is defined as spending by national and local government on services. Primarily the public uses these services.When we talk about the social factors that are important in understanding contemporary public expenditure decisions, we are talking about the community. It is the social welfare of the community. This, social welfare, is the well-being of the community; it is an intangible. It cannot be measured in terms of the quantity of goods and services available.

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This makes it difficult to make an accurate evaluation of what social factors have the most influence on public spending decisions.To get an accurate evaluation of social welfare we have to compile a quality of life index, and include such things as environmental factors (quality of air and water), social indicators like levels of crime and drug abuse, availability of essential services like education and hospitals, and other non-material factors like religious faith. This is difficult in a society like the UK because it is very diverse in parts; therefore it is harder to evaluate social welfare, since different groups may place varying values on different aspects of community life.In today’s society quality of life has increased so much so that the public not only demands but also expects a better service. We expect more resources for schools in our areas; we complain if we have to wait for a hospital bed. These pressures have been successful and the consequence of this is that distribution of public spending has been tilted away from the areas of greatest need to those, which generate the loudest demands. And those that generate the loudest demands are usually from the middle class. Therefore they (the middle class), according to Tony Crosland, receive most of the funds.

However this does over simplify things, because we do live in a more affluent society today in, which, not only a middle class minority, but most weekly wage earners as well, have more to lose than to gain from lop sided public expenditure decisions. Not only is this society more affluent it is more complex therefore the inputs used in determining competing needs across sectors can vary from miles of paved roads, irrigated land areas, access to drinking water and sanitation, school enrolments, infant mortality rates and life expectancy.Employment is also one of the social factors that are important when considering contemporary public expenditure. When considering public expenditure the government must take into account how it is going to acquire this money to spend on public services. One of the ways of doing it is to reduce the output received by workers to provide extra resources the government requires; however this will lead to wage inflation. Wage inflation occurs when employment rates rise above some critical flash point.Wages then rise sharply, which in turn causes the price of goods to rise.

This happens because firms try to counter their rising costs by increasing their revenue. Increased wages also lead to increased demand, due to the extra money circulating in the economy. This is classic supply and demand theory. Demand exceeds supply therefore prices rise.

This causes inflation to soar, and therefore interest rates rise. Cost of borrowing increases, the public find it is better to save their money and there is then less money in the economy.Public expenditure is sensitive to this situation because when wage inflation is on the up unemployment increases and this leads to people being increasingly dependent on government resources.

So, not only does the input into government funds decrease but funds going out increase, causing the government to have less money to spend in other areas of need. Wage inflation means that workers will pass the bulk extra taxation onto companies. The companies would respond by investing less.This will lead to structural unemployment, because with its faster productivity growth rate, the UK requires more investment, to maintain employment in the private sector.

And this trend will continue. The above paragraphs demonstrate quite clearly how social factors like employment are very important when it comes to public expenditure. Not only are social factors important when looking at he effects they have upon government expenditure, they are also important as to provide a reason for why government expenditure takes place.Alleviating poverty and creating an enabling environment for the private sector, this enabling environment consists of adequate, properly regulated and efficient infrastructure of airports, roads and ports, electricity, telecommunications, water, waste disposal and other similar facilities. As well as access to and provision of basic levels of education (primary and secondary) and preventive health care services have been recognised as central to increasing the welfare of the poor.

Therefore from this we gather that an appropriate mix of public spending is needed on equity and efficiency grounds.The transmission of norms and values and the ability for a society to know from right or wrong is another social factor that is important to contemporary public expenditure. This is achieved through education. It is in schools we are taught to distinguish from what is normal and what is deviant behaviour.

However the family is also serves this purpose. So how do we justify how much of the tax payers’ money is spent on education. Nursery schools are required to give children of a lower class a level playing field with middle class children when they go to junior school.

However in today’s society with the vast majority of mothers pursuing their careers nurseries seem to be used more for looking after children “while their mothers are at work”. Children between the ages of 3-5 years also seem to pick up more from pre school television shows such as “Tweenies” and “Teletubbies”. The issue with education along with other social factors is that it is intangible. It is difficult to measure how successful schools are. Therefore it is hard to justify the money spent on education.It is difficult to measure because when it comes to the mental development of young minds there are so many factors at play. The area they live in, the people they (the children) interact with, their parents etc.

One key study that showed the connection between media violence and real violence was the one by Dr. Leonard D. Eron. He followed a group of young people for 22 years and found that those who watched more television at age eight were more likely, at age 30, to have committed more serious crimes, to be more aggressive when drinking, and to punish their children more harshly than others.

Others have repeated Eron’s study and found similar results throughout the United States and other countries as well. (www. 4children.

org/news/1-97toxl. htm). This goes to show how money spent on education is difficult to justify. However it is seen as an investment for the future by the government.

It is necessary to train the workers of tomorrow. If nothing else schools do teach us to respect authority and to do as we are told. As well as social factors there are political factors that are important when considering contemporary public expenditure decisions.These take into account what the political agenda of the party is.

What issues it wishes to raise in its manifesto. For example when Thatcher came into power during the 80s, she wanted to stop the economic decline the country was in. in order to do this she privatised many industries and introduced a new tax (to her detriment).

However her strategy didn’t work and caused further stagflation, and she was challenged and beaten to the leadership by John Major. This briefly illustrates that the political factors that come into play depend on the direction in which the political party in power wishes to take the nation.It also depends on what issues are of concern during that time. Today the public is concerned with the state of the NHS. Both the government and we know something needs to be done in order to rectify this problem hence the extended coverage this issue gets in government manifestoes and conferences. With this extra coverage come extra funds. The government must be seen as it is addressing the problem and doing something about it. Otherwise we, the public, will get uneasy about being under the rule of a government that is unwilling to address issues that we feel are important.

So these issues are important when it comes to contemporary public spending. If the government feels the market is failing to provide a service to satisfactory standards it will then help the market by injecting funds into the economy. However the existence of a market failure is a necessary but not sufficient reason for public expenditure.

There are, if any, few examples of perfect markets. With budget constraints, competing claims on public money need to be evaluated by how large these market failures are and how these problems reduce welfare.You also have take into account when considering political factors the fact that classical economic theory breaks down because the economy is made up of human beings not bloodless calculating machines. The civil servants who check how public money is to be spent have interests to pursue, jobs to protect and empires to build. They also have the need to fill their own pockets. When considering civil servants’ pensions and salaries. We have to pay more for our civil servants’ salaries and pensions then most other European countries.

None other than our Civil Service Public Expenditure Establishment agreed to this. This illustrates that political factors are important to public expenditure decisions, because if the government wishes to get more support and get re-elected it will be very likely that the cabinet will allocate money towards areas in the public sector that will provide the most publicity and those areas which the public is most concerned about. Dirty tricks can also be used via the media; the government can be shown to be doing something in the public’s interest, and the media focus’ on it.Or the media can be used to create social panic, which enables the government to push through policies that it wouldn’t normally be allowed to, with ease.

Therefore the media is also influential when it comes to political factors and their importance to public expenditure decisions. Economic factors are also important when applying them to contemporary public expenditure decisions. First of all we must give economics as a term a definition. W. Stanley Jevons who, in the late 19th century, wrote that economics was “the mechanics of utility and self interest.

This can be interpreted as meaning that economics can be thought of as the social science that explores the results of people acting on the basis of self-interest (/ingrimayne. saintjoe. edu/econ/Introduction/Defintns. html). The fact is that we don’t live in a utopian society, where everything is available in abundance, and that resources are limited and the distribution of these resources cannot happen without conflict or without a regulatory body supervising.In the case of public services the government is the supervisory body.

The government is required to regulate the distribution of public services because the majority of goods in the public sector are public goods. These are goods that everyone has the right to use, free of charge. I. e. education, street lighting etc. the government must undertake the distribution of these goods because no monetary profit is made from them, therefore private sector firms are unwilling to trade in public goods.When it comes to fiscal discipline we must understand that budget totals should be the result of enforced decisions, which are open to interpretation. They should accommodate more than merely spending demands.

When we talk about economics in terms of public services we must take into account budgets. The government allocates a budget for each area of the public sector. This must be done because there are not an abundance of resources. Total spending must be limited, and these limits must be established before individual sounding bids are considered.

These limits can be expressed in money terms, relative of GDP, as rates of change, or in terms of balance between revenues and expenditures. And total spending must be consistent with these limits. Governments can reduce the level of public spending by confiscating resources. For example, by seizing privately owned land for road building, and compensating the owners below the actual market values.

This reduces levels of public expenditure.

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