Let’s say you want to find out roughly how much of a country’s economy is controlled by the state vs the free market. How would you do so? My first instinct would be to look at state spending as a % of GDP, or maybe taxation as a % of GDP. If that state spends 90% of GDP, it’s pretty clear the government controls mostly everything and visa versa. Now, this isn’t a bad approach. State spending is a good indicator. The problem is it only captures a part of reality.

Imagine two countries. In both the state taxes and then subsequently spends 50% of GDP per year (no deficit or surplus). But let’s imagine a few different ways they could have more or less state control

• Both states want to use their % of GDP to buy the same basket of goods. State A uses it’s tax revenue to spin up state owned enterprises. These state owned firms only get inputs from other state owned firms and produce fixed quotas of certain goods. State B runs a competitive bidding process and then has it’s departments (e.g: the army) buy from the market.
• State A gives decides what the nation needs and spends all the revenue on that basket of goods. State B spends 10% of it’s tax revenue on core needs (the military, police, judiciary, etc…) and gives 90% of it back to citizens as direct cash transfers. Citizens then spend this money on whatever they want to buy from the private sector
• Both states spend their tax revenue in an identical way. Alongside this, state A imposes immense restrictions on the private sector. There’s a license raj. What you can build. Where you can build. Which specific business structures and processes are allowed and which aren’t. Everything is regulated down to the T. Opening a corner store or selling a new kind of Tea requires months of form filling and lobbying. State B largely lets the private sector do what it wants.

TLDR:

• % of GDP is a good indicator of state vs market economic control, but it’s a faulty one at best.
• If you want to increase economic freedom, it may be worth focusing more on specific, massive distortions of the private sector (zoning/planning, migration, etc…) than on decreasing the state’s tax take by a percentage point or two