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unemployment, if funds are borrowed from abroad, if theborrowing is for productive investments complementaryto private investment, if private savings rise to offset gov-ernment borrowing, or as noted by Benjamin M.Friedman (1978), if the borrowing uses short-term bondsthat substitute for money, government borrowing canresult in “crowding in” or a stimulus to private invest-ment. Many economists think that optimally governmentshould borrow money only for productive investments,including enhancements to human capital, and use cur-rent revenues for its collective consumption, such as mili-tary operations.The size of the public sector can be measured by thetotal amount of spending, the share of GDP, workersemployed, and public sector assets and liabilities. TheU.S. federal government spent $2.5 trillion in 2005, 20percent of GDP. State and local governments spent fromtheir own sources $1.4 trillion, 11 percent of GDP. Therelative size of government for the members of theOrganization for Economic Cooperation andDevelopment with developed economies grew from 27percent in 1960 to 48 percent in 1996. Government out-lays as a percentage of GDP in 1996 were 44 percent inthe United Kingdom, and Denmark was the highest at 61percent.MACROECONOMIC ACTIVITY ANDINTERNATIONAL TRADEA large public sector can increase the trade deficit to theextent that taxation makes exports more expensive and tothe extent that government spends its funds abroad, as inthe case of a war. Governments mostly affect internationaltrade with tariffs and restrictions, such as quotas, and withpolicies that affect foreign-currency exchange rates.LABOR AND THE ENVIRONMENTIn most developed economies, public sector labor is about15 percent of employment. Several studies have con-cluded that workers in the public sector tend to be betterpaid than those in the private sector. Government work-ers typically are under a civil service system by which it isdifficult to fire an unproductive worker. A more funda-mental element of the cost of labor in the public sector isBaumol’s cost disease, put forth by William J. Baumol andWilliam G. Bowen (1966), who argued that productivityin services such as an orchestra or education has changedlittle compared to that in manufacturing, which explainsthe increase in relative costs in the service-intensive publicsector.With global warming recognized as an urgent issue,people increasingly seek remedies in government policy.The taxation of pollution is more efficient than regula-tions, as the former permits firms and households toadjust according to their individual costs and benefits.Pollution permits that trade in a market are also used toincrease the cost to business of polluting more.Environmentalists have proposed a “green tax shift” thatincreases pollution charges while reducing taxes that havean excess burden, a policy that would minimize the eco-nomic costs of reducing pollution.Advancing technology has meanwhile reduced therationale for some large-scale government involvement, asknowledge becomes more easily accessible and the privatesector becomes more capable of providing infrastructure,such as tolled highways and decentralized utilities.Nevertheless, conflict tends to expand the public sector, sothe future role of the public sector depends on the inter-play of advancing technology, threats to security and theenvironment, and the influence of theoretical knowledgeand real-world experience in shaping public opinion.SEE ALSO Capitalism; Economics, Public; Government;Planning; Policy, Fiscal; Policy, Monetary; PrivateSector; Public Choice; Public Goods; Public Utilities;Socialism; State Enterprise; TaxesB I B L I O G R A P H YBaumol, William J., and William G. Bowen. 1966. PerformingArts: The Economic Dilemma. New York: Twentieth CenturyFund.Edwards, Chris. 2005. Downsizing the Federal Government.Washington, DC: Cato Institute.Friedman, Benjamin M. 1978. Crowding Out or Crowding In?Economic Consequences of Financing Government Deficits.Brookings Papers on Economic Activity 1978 (3): 593–641.Gwartney, James, Randall Holcombe, and Robert Lawson. 1998.The Size and Functions of Government and Economic Growth.Washington, DC: Joint Economic Committee Study.Harrison, Fred, ed. 1998. The Losses of Nations: DeadweightPolitics versus Public Rent Dividends. London: Othila.Papadimitriou, Dimitri, ed. 2006. The Distributional Effects ofGovernment Spending and Taxation. New York: PalgraveMacmillan.Fred FoldvaryPUBLIC SPHEREDiscourse on the public sphere derives from the work ofthe German social theorist Jürgen Habermas, particularlywith his first major work, The Structural Transformation ofthe Public Sphere, which first appeared in Germany in1962, and in what some consider to be his magnum opus,The Theory of Communicative Action (1981). In these andother works, Habermas has been concerned with explicat-ing the historical and social structural factors that haveINTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 623Public Sphere
served to inhibit or advance democracy. Given the central-ity of free and open dialogue for the functioning of democ-racy, of particular concern to Habermas is identifying wheresuch discussions take place and under what conditions. Hisguiding question has been: Where is the space in whichdemocracy is nurtured? Habermas refers to this space as thepublic sphere, a term related to civil society, which refers to arealm of social life distinct from both the state and the mar-ket, where participation in public life occurs with a spirit ofcooperation and a norm of reciprocity. Seen in this light,Habermas construes the public sphere as a space withincivil society. By claiming that a prerequisite of a democraticpolity is an autonomous public sphere, Habermas can beseen as building on the work of Max Weber (1864–1920)and Seymour Martin Lipset (1922–2006) in attempting toidentify the most important social structural conditionsunderpinning democratic societies.What Habermas refers to as the “bourgeois publicsphere” came into its own in the nineteenth century, mostfully in Britain, as a result of the triumph of capitalismand the establishment of a laissez-faire state. In contrast tothe feudal era, in which the economy and polity were inti-mately linked, in the earliest phase of the capitalist indus-trial era this linkage was uncoupled. The public sphere canbe visualized as being carved out between the economyand the state, being separate and distinct from them. It isan arena that is accessible to all citizens on the basis ofequality and thus is not dominated or controlled by pow-erful economic actors or by state officials. His perspectiveon this sphere has been depicted as a theater where polit-ical discourse occurs.The public sphere requires the existence of indepen-dent voluntary associations of citizens and an institu-tionalized apparatus that permits the unrestricted dissem-ination of information and ideas. Thus the panoply oforganizations—ranging from local parent-teacher associa-tions and neighborhood clubs to labor unions, humanrights organizations, environmental organizations, and soon—is part and parcel of this arena. In addition, so aremedia committed to ensuring that citizens are informedabout the vital issues of the day and to providing outletsfor articulating an array of stances on issues and forumsfor debate and dissent.Critics of Habermas contend that he tends to roman-ticize the public sphere during its earlier years, confusinghis ideal vision about how it should have functioned withthe reality of the historical situation, which involved fromits inception persistent intrusions of powerful economicinterests and the repressive tactics of the state. The resultwas that the public sphere never managed to be asautonomous as he seems to think. This may be a some-what unfair characterization of Habermas’s positionbecause he provides ample evidence of being aware of thelimitations of actual existing public spheres in the past. Hedoes think, however, that public spheres in the past exhib-ited greater autonomy than their contemporary versions.At the same time Habermas leaves himself open tocharges of utopian thinking, especially when he developsthe ideal of a state of undistorted communication, freefrom coercion and restraint. In his view, democratic deci-sions arise dialogically. In an ideal speech situation, peopletalk to others to come to an understanding of which ideasand values are best, not to manipulate others to get one’sway. In other words, he assumes a willingness on the partof citizens to freely embrace the better argument. Thereare examples of situations in which this ideal seems tohave been more or less realized, such as old New Englandtown meetings and Quaker meetings. The participants inthese examples can be fairly depicted as being cooperative,tolerant, critical, self-reflective, and rational, whereas thedifferences among them in terms of both economic statusand levels of human capital are not great.Two other criticisms have been leveled at Habermas’sportrait of the public sphere. First, some feminists con-tend that he is insufficiently attentive to the relationshipbetween the private and public spheres and its implicationfor gender relations. Second, he has been accused of oper-ating with an overly rationalistic and overly civilized viewof human nature.Habermas has expressed concern that the publicsphere in what he describes as “late capitalism” is threat-ened by what he calls “refeudalization.” What he refers tois the tendency to link or integrate the economy and thepolity in a way quite at odds with their separation in theearlier period of capitalist development. Given his focuson communication, it is not surprising that he is particu-larly apprehensive about the concentration of mediapower in the hands of political and economic elites. Largemedia conglomerates have arisen to choke dissident voicesout of the market, and these corporations, far from beingindependent of political power, serve as apologists for it.The result is that genuine public debate has given wayto propaganda and increasingly sophisticated publicrelations.Although the portrait he paints might lead to despairregarding the future of democracy, Habermas presents acautious optimism. In particular he sees in the new socialmovements—environmental, antinuclear, peace, feminist,and so forth—potential for change. These movementshave abandoned any belief in the possibility of revolution-ary change, opting instead for radical reforms and a com-mitment to nonviolent change. Underlying his temperedhope for the future is a particular understanding of humannature. It presupposes that people are by nature politicaland thus concerned about and willing to participate inissues related to the well-being of society as a whole.Public Sphere624 INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION
SEE ALSO Associations, Voluntary; Civil Society;Feminism; Government; Habermas, Jürgen;Persuasion; Public Sector; Rationality; Utopianism;Volunteerism; Weber, MaxB I B L I O G R A P H YCalhoun, Craig, ed. 1992. Habermas and the Public Sphere.Cambridge, MA: MIT Press.Habermas, Jürgen.  1989. The Structural Transformationof the Public Sphere: An Inquiry into a Category of BourgeoisSociety. Trans. Thomas Burger. Cambridge, MA: MIT Press.Habermas, Jürgen. 1979. Communication and the Evolution ofSociety. Trans. Thomas McCarthy. Boston: Beacon.Habermas, Jürgen.  1984–1987. The Theory ofCommunicative Action. 2 vols. Trans. Thomas McCarthy.Boston: Beacon.Habermas, Jürgen. 1996. Between Facts and Norms:Contributions to a Discourse Theory of Law and Democracy.Trans. William Rehg. Cambridge, MA: MIT Press.Zaret, David. 2000. Origins of Democratic Culture: Printing,Petitions, and the Public Sphere in Early-Modern England.Princeton, NJ: Princeton University Press.Peter KivistoPUBLIC UTILITIESPublic utilities are firms that are sometimes synonymouswith natural monopolies. Some examples of public utili-ties include the Tennessee Valley Authority and IllinoisPower.These organizations are generally so called becausethere is structurally no room for market competition—one firm can “naturally” produce at lower costs than com-petitors who are eventually priced out of the market.Thus, natural monopolies tend to be regulated by govern-ments in the public interest. However, being a naturalmonopoly is not a necessary prerequisite for governmentregulation. Industries that are not natural monopoliesmay be regulated for a number of reasons, including ser-vice reliability, universal access, and national security.Public utilities generally supply goods or services thatare essential, like water, electricity, telephone, and naturalgas. For example, the transmission lines for the trans-portation of electricity or natural gas pipelines have natu-ral monopoly characteristics in that once these lines arelaid by one utility, duplication of such effort by otherfirms is wasteful. In other words, these industries are char-acterized by economies of scale in production.Left to themselves, private utility companies wouldmake decisions that are most profitable for them. Suchdecisions generally involve too high prices and relativelylittle service compared to competitive conditions. Thesedecisions may or may not be in the best interests of thesociety. The government or the society would like to seethese services being economically accessible to all or mostof the population.Not all utility companies are in the private sector. Inmany countries, utilities are owned by the government.Generally, in these cases, the government createsautonomous bodies for government utilities to preventthem from day-to-day political interference. In suchinstances, the government utilities’ goals are better alignedwith societal goals; however, they tend to be less efficientthan their private sector counterparts.Two main issues facing public utilities are coverage ofservice area and pricing. Alternately stated, the regulatorstry to balance the competing aims of economic efficiencyand social equity. Economic efficiency generally requiresthat markets be left to work by themselves with littleintervention. Such instances are usually not equitable orfair (some consumers might be priced out of the market).Equity issues demand that everyone gets the service at a“just” price. However, these instances can turn out to beinefficient (think about the cost to an electric utility ofhaving to run cables a number of miles especially to serveone or two remote fishing cabins that are used sparingly).In general, the pricing of the services of public utili-ties is problematic. As mentioned above most public util-ities are structural monopolies, implying that there is noroom for competition in the market for services they pro-vide. However, if they are left alone to price like monop-olies, the resulting price is too high and a large part of themarket area may not be served. While the utility compa-nies have no complaints about such arrangements, giventhe essential nature of the services they provide, the soci-ety would like to provide such services to all or most of thepopulation. Think, for instance, about the undesirabilityof denying heat to someone in the winter. Hence, theirpricing actions are regulated.However, these decisions are somewhat problematic.If these utilities are mandated to set prices at the low com-petitive levels, they generally end up making losses. Sothere continues to be an ongoing tussle between regulatorsand the utility companies regarding a “fair” price betweenthe monopoly and competitive levels.Common alternate pricing actions include (1) settingprices equal to average production costs and serving themaximum area possible; (2) rate of return regulation; and(3) price cap regulation. Under average cost pricing, theutility is assured of breaking even, since the prices equalaverage costs. The equity aspects are somewhat met sincemost of the market is being served. However, the regu-lated firm lacks incentives to minimize costs. Under rateof return regulation, the regulators let the firms charge anyINTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION 625Public Utilities