Government and the colonial economies: An alternative view

Government is one of the crucial institutions that shape the development of economies and in a recent issue of this journal H. M. Boot contributed a useful survey of its effects on Australia during the colonial period. Boot emphasized the beneficial effects of government in terms of creating stability and secure property rights, but also argued that important decisions about capital works came to be influenced more by political expediency than by sound economic criteria. This flawed decision-making process created a significant field of unproductive investments which 'crowded out' private-sector activity and weakened the economy. The purpose of this article is to examine this argument closely and critically. It will argue that there is no evidence to support the contention that politicians saw public works simply as an opportunity to buy votes and that an awareness of the costs of unproductive investment forced Parliament to use market-based criteria to assess proposed spending. The article will suggest an alternative explanation of the failure of the private sector to generate sufficient investment to increase the rate of economic growth, and of the extent to which public investment crowded out the private sector.