Micro-Budgetary Adaptations to Fiscal Stress in Industrialized Democracies

Abstract

A previous article by this author examined the manner in which industrialized democracies have adapted their macro-budgetary practices to fiscal stress.' This article extends the discussion to adjustments in micro budgeting. The findings presented here are drawn from surveys and interviews conducted by the author in a number of member countries of the Organization for Economic Cooperation and Development (OECD).2 Budgeting is an adaptive process; it changes as the larger political and economic environment in which it operates changes. In the postwar period, budgeting was a growth-oriented process; in recent times, it has adapted to the less favorable economic circumstances of democratic countries. Adjustments have occurred in both macro and micro budgeting, the former pertaining to decisions on total expenditure, the latter to spending on particular programs and agencies. The postwar era was characterized by sustained growth, widespread improvements in productivity and standards of living, and low rates of inflation and unemployment. Economic expansion begat incremental budgeting which concentrated government policy on the size and distribution of spending increases. Strict budgetary balance was abandoned as an operative norm in most OECD countries, as it was deemed more important to balance the economy than to balance the budget. Nevertheless, deficits usually were modest and manageable. Economic growth was accompanied by political stability. A broad consensus about the role of government in combating unemployment and in ameliorating the financial distress of the jobless, aged, and ill led to steep increases in social expenditure and transfer payments. As governments became more confident of their capacity to sustain economic vigor and promote the public welfare, their budgetary machinery was broadened to include (among other adaptations) multiyear planning and program analysis, the former to prepare for long-term growth, the latter to identify the most effective opportunities for spending the budget increments provided by an expanding economy. Economic and political stability were jarred in the late 1970s and early 1980s by stagflation-soaring inflation, high unemployment, and a slowdown (or halt) in the productivity gains that had previously made it possible for both public spending and private consumption to rise. Economic adversity transformed budgeting from an engine of government expansion into a process of

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