How the rich and poor benefit from government

I had blogged yesterday on the critical role played by governments in the effective functioning of free markets. I also pointed out that despite being more critical of governments than the poor, the rich benefit disproportionately from government and its activities.

Here is a Venn diagram that captures the relative shares of rich and poor in both private and public provisions of physical infrastructure and rule of law.



The circle (B+E+C) represents government provision of physical infrastructure and rule of law. The remaining part of the square represents private provision of infrastructure and social and private capital driven contracts.

The rich rely on the governments to provide a major share (C) of both these - physical and social/economic - infrastructure. The rely on private provisioning only where governments fail. In contrast, the poor rely mostly on private provisioning of all infrastructure (A) and have a limited uptake of public infrastructure (B). The intensity of government provisioning of both types of infrastructure is much more in cities than villages, where most of the poor live. Even in case of the urban poor, they work mostly in the un-organized sector and transact in the parallel un-regulated economy.

So, despite the very evident benefits that the rich derive from the role of governments, why are they and the middle class the most vocal critics of governments? Why do they want to down-size the very agency whose activities underpin their own success? There are obviously many reasons, ideological and non-ideological. However, I have three fundamental explanations that come to mind

1. There are a few related cognitive biases at play here. Human blindness to availability bias means that they easily recall the high-profile failures of governments (and there are no dearth of such ones) while over-looking the several government-driven provisions that are taken for granted. Their vulnerability to representativeness bias means that they over-estimate the probability of government failures instead of using a Bayesian calculation to weigh the relative successes (or benefits) and failures (or losses) of governments.

2. On a more material dimension, human beings naturally prefer to partake of benefits without having to pay for it. Public provision of physical and social-economic infrastructure is expensive and requires that people pay substantial taxes. Who likes to pay taxes? It must be one of those rare things which though everyone dislikes, is essential to maintain a functional society and economy.

3. People find government a convenient "other" that can be blamed for everything that is wrong with the economy and society. Government (by implication politicians and officials) is responsible for corruption, inefficiency, poor quality of service delivery, poverty and under-development, deficient infrastructure. Though the blame is richly deserved, it is not their exclusive preserve. It should be apportioned among the larger society itself, its populist opinion makers, our own disinclination to pay taxes, free-ride on public infrastructure, and so on.