II. THE EXPANSION OF GOVERNMENTAL ACTIVITY

The structure of governmental activity in the United States — in terms of both its size and its content — went through two major changes during the quarter-century after World War II. The first change, the Defense Shift, was a response to the external Soviet threat of the 1940s; the second change, the Welfare Shift, was a response to the internal democratic surge of the 1960s. The former was primarily the product of elite leadership; the latter was primarily the result of popular expectations and group demands.

The year 1948 is an appropriate starting point for the analysis of these changes in the structure of governmental activity.* By that time governmental activity had adjusted from its wartime levels and forms; demobilization had been completed; the nation was setting forth on a new peacetime course. In that year, total governmental expenditures (federal, state, and local) amounted to 20 percent of GNP; national defense expenditures were 4 percent of GNP; and governmental purchases of goods and services were 12 percent of GNP. During the next five years these figures changed drastically. The changes were almost entirely due to the onslaught of the Cold War and the perception eventually shared by the top executives of the government — Truman, Acheson, Forrestal, Marshall, Harriman, and Lovett — that a major effort was required to counter the Soviet threat to the security of the West. The key turning points in the development of that perception included Soviet pressure on Greece and Turkey, the Czech coup, the Berlin blockade, the communist conquest of China, the Soviet atomic explosion, and the North Korean attack on South Korea. In late 1949, a plan for major rearmament to meet this threat was drawn up within the executive branch. The top executive leaders, however, felt that neither Congress nor public opinion was ready to accept such a large-scale military buildup. These political obstacles were removed by the outbreak of the Korean war in June 1950.

The result was a major expansion in the U.S. military forces and a drastic reshaping of the structure of governmental expenditures and activity. By 1953 national defense expenditures had gone up from their 1948 level of $10.7 billion to $48.7 billion. Instead of 4 percent of GNP, they now constituted over 13 percent of GNP. Nondefense expenditures remained stable at 15 percent of GNP, thus making overall governmental expenditures 28 percent of GNP (as against 20 percent in 1948) and government purchases of goods and services 22 percent of GNP (as against 12 percent in 1948). The governmental share of the output of the American economy, in short, increased by about 80 percent
during these five years, virtually all of it in the national defense sector.

With the advent of the Eisenhower administration and the end of the Korean war, these proportions shifted somewhat and then settled into a relatively fixed pattern of relationships, which remained markedly stable for over a decade. From 1954 to 1966, governmental expenditures were usually about 27 percent or 28 percent of GNP; governmental purchases of goods and services varied between 19 percent and 22 percent; and defense expenditures, with the exception of a brief dip in 1964 and 1965, were almost constantly stable at 9 percent to 10 percent of GNP. The basic pattern for this period was in effect:

Governmental expenditures 28%
Defense expenditures 9%
Nondefense expenditures 19%
Governmental purchases of goods and services 21%

In the mid-1960s, however, the stability of this pattern was seriously disrupted. The Vietnam war caused a minor disruption, re/ersing the downward trend in the defense proportion of GNP visible in 1964 and 1965 and temporarily restoring defense to 9 percent of GNP. The more significant and lasting change was the tremendous expansion of the nondefense activities of government. Between 1965 and 1974, total governmental expenditures rose from 27 percent to 33 percent of GNP; governmental purchases of goods and services, on the other hand, which had also increased simultaneously with total expenditures between 1948 and 1953, changed only modestly from 20 percent in 1965 to 22 percent in 1974. This difference meant, of course, that a substantial proportion of the increase in governmental spending was in the form of transfer payments; for example, welfare and social security benefits, rather than additional governmental contributions to the Gross National Product. Nondefense expenditures, which had been 20 percent of GNP in 1965, were 25 percent of GNP in 1971 and an estimated 27 percent of GNP in 1974. Defense spending went down to 7 percent of GNP in 1971 and 6 percent in 1974. Back in 1948, defense spending had been less than 20 percent of total governmental spending. At the peak of the defense build-up in 1953 it amounted to 46 percent of the total, and during the long period of stable relationships in the 1950s and 1960s, defense accounted for about 33 percent of total governmental spending. Under the impact of the Welfare Shift of the late 1960s, however, the defense proportion of total governmental spending again dropped down to less than one-fifth of total governmental spending, that is, to the relationship which had prevailed in 1948 before the military implications of the Cold War had become evident.

The extent of the Welfare Shift in the scope and substance of governmental activity can also be seen by comparing the changes in governmental expenditures during the two decades of the 1950s and 1960s. Between 1950 and 1960, total governmental expenditures rose by $81.0 billion, of which $29.1 billion or roughly 36 percent was for defense and international relations. Between 1960 and 1971, governmental expenditures increased by $218.1 billion, of which, however, only $33.4 billion or roughly 15 percent were accounted for by defense and international relations, while expenditures for domestic programs grew by $184.7 billion. This growth in domestic spending is also reflected in a change in the relative shares of federal, state, and local governments in total governmental expenditures. In 1960 the federal government share of total government spending, 59.7 percent, was virtually identical with what it had been ten years earlier, 60.3 percent. By 1971, the relative growth in state and local spending had dropped the federal share of governmental expenditures down to 53.8 percent of total governmental expenditures.

The major increases in government spending during the 1960s occurred in education, social security and related insurance benefits, public welfare, interest on the public debt, health, and hospitals. In 1960, government at all levels in the United States spent about 125 percent more for defense than it did for education; in 1972 it spent less than 15 percent more. In 1960, defense spending was about four-and-a-half times that for social security; in 1972 it was less than twice as much. In 1960 ten times as much was spent on defense as on welfare; in 1972 the ratio was less than four to one. Even in terms of federal government spending alone, the same trends were visible. In FY 1960, total foreign affairs spending accounted for 53.7 percent of the federal budget, while expenditures for cash income maintenance accounted for 22.3 percent. In FY 1974, according to Brookings Institution estimates, almost equal amounts were spent for both these purposes, with foreign affairs taking 33 percent and cash income maintenance 31 percent of the federal budget. Across the board, the tendency was for massive increases in governmental expenditures to provide cash and benefits for particular individuals and groups within society rather than in expenditures designed to serve national purposes vis-a-vis the external environment.

The Welfare Shift, like the Defense Shift before it, underlined the close connection between the structure of governmental activity and the trend of public opinion. During the 1940s and early 1950s, the American public willingly approved massive programs for defense and international affairs. When queried on whether the military budget or the size of the armed forces should be increased, decreased, or remain about the same, the largest proportions of the public almost consistently supported a greater military effort. In March 1950, for instance, before the Korean war and the NSC 68 rearmament effort, 64 percent of the public thought defense spending should be increased, 7 percent thought it should be decreased and 24 percent thought it should remain about the same. These figures were typical results of the early years of the Cold War. During the middle and later 1950s, after defense spending had in fact expanded greatly, support for still further expansion eased somewhat. But even then, only_a small minority of the public supported a decrease, with the largest group approving the existing level of defense effort. Popular support for other government programs, including all domestic programs and foreign aid,' almost always was substantially less than support for defense spending.

During the mid-1960s, at the peak of the democratic surge and of the Vietnam war, public opinion on these issues changed drastically. When asked in 1960, for instance, how they felt about current defense spending, 18 percent of the public said the United States was spending too much on defense, 21 percent said too little, and 45 percent said the existing level was about right. Nine years later, in July 1969, the proportion of the public saying that too much was being spent on defense had zoomed up from 18 percent to 52 percent; the proportion thinking that too little was being spent on defense had dropped from 21 percent to 8 percent and the proportion approving the current level had declined from 45 percent to 31 percent. This new pattern of opinion on defense remained relatively stable during the late 1960s and early 1970s. Simultaneously, public opinion became more favorable to governmental spending for domestic programs. When polled in 1974, for instance, on whether spending should be increased, decreased, or remain about the same for some twenty-three governmental programs, the composite scores (where 50 represents maintaining the existing level) for domestic programs were all in favor of an increase, ranging from a score of 51 for welfare programs for low income families up to scoresof 84 and 86 for helping the elderly and developing greater self-sufficiency in energy. All five foreign affairs programs rated much lower than any domestic program, with their scores ranging from 39 for total defense spending down to 20 for military aid for allies. For every foreign affairs program, the weight of opinion was thus in favor of reduced rather than higher spending. The overall average score for domestic programs was 70, and for foreign policy and defense programs it was only 29. During the 1960s, a dramatic and large-scale change thus took place in public opinion with respect to governmental activity.

So far, our analysis has focused on the relations between governmental expenditures and GNP and between different types of expenditures. The growth in expenditures, however, also raises important issues concerning the relation between expenditures and revenues. After the Defense Shift, during the 1950s and early 1960s, governmental expenditures normally exceeded governmental revenue, but with one exception (1959, when the deficit was $15 billion), the gap between the two was not large in any single year. In the late 1960s, on the other hand, after the fiscal implications of the Welfare Shift had been felt, the overall governmental deficit took on new proportions. In 1968 it was $17 billion and in 1971 $27 billion. The cumulative deficit for the five years from 1968 through 1971 was $43 billion. The federal government was, of course, the principal source of the overall government deficit. In nine of the ten fiscal years after 1965 the federal budget showed a deficit; the total
deficit for those ten years came to an estimated $111.8 billion, of which $74.6 billion came in the five years for FY 1971 through FY 1975.

The excess of expenditures over revenues was obviously one major source of the inflation which plagued the United States, along with most other industrial countries, in the early 1970s. Inflation was, in effect, one way of paying for the new forms of government activity produced by the Welfare Shift. The extent of the fiscal gap, its apparent inevitability and intractableness, and its potentially destabilizing effects were sufficiently ominous for the existing system to generate a new variety of Marxist analysis of the inevitable collapse of capitalism. "The fiscal crisis of the capitalist state," in James O'Connor's words, "is the inevitable consequence of the structural gap between state expenditures and revenues." As Daniel Bell suggests, in effect, the argument represents a neo-neo-Marxism: The original Marxism said the capitalist crisis would result from anarchical competition; neo-Marxism said it would be the result of war and war expenditures, the garrison state; now, the most recent revision, taking into consideration the Welfare Shift, identifies the expansion of social expenditures as the source of the fiscal crisis of capitalism. What the Marxists mistakenly attribute to capitalist economics, however, is, in fact, a product of democratic politics.
The Defense Shift involved a major expansion of the national effort devoted to military purposes followed by slight reduction and stabilization of the relation of that activity to total national product. The Welfare Shift has produced a comparable expansion and redirection of governmental activity. The key question is: To what extent will this expansion be limited in scope and time, as was the defense expansion, or to what extent will it be an open-ended, continuing phenomenon? Has nondefense governmental spending peaked at about 27 percent of GNP? Or will it increase further or, conceivably, decrease? The beneficiaries of governmental largesse coupled with governmental employees constitute a substantial portion of the public. Their interests clearly run counter to those groups in the public which receive relatively little in cash benefits from the government but must contribute taxes to provide governmental payments to other groups in society. On the one hand, history suggests that the recipients of subsidies, particularly producer groups, have more specific interests, are more self-conscious and organized, and are better able to secure access to the political decision points than the more amorphous, less well-organized, and more diffuse taxpaying and consumer interests. On the other hand, there is also some evidence that the conditions favorable to large-scale governmental programs, which existed in the 1960s, may now be changing significantly. The political basis of the Welfare Shift was the expansion in political participation and the intensified commitment to democratic and egalitarian norms which existed in the 1960s. Levels of political participation in campaigns have leveled off, and other forms of political participation would appear to have declined. Some polls suggest that the public has become more conservative in its attitudes towards government generally and more hostile towards the expansion of governmental activity. In 1972, for instance, for the first time, as many liberals as conservatives agreed with the proposition that government is too big. At the same time, liberals continued to be heavily in favor of new government programs, such as national health insurance, which conservatives opposed. If, however, the general skepticism about what government can accomplish remains a significant component of public opinion, the pattern of governmental activity which the Welfare Shift produced by the early 1970s could well remain relatively stable for the immediate future.