MR. TOM GJELTENThanks for joining us. I'm Tom Gjelten, sitting in for Diane Rehm. In the history of the modern world, we've seen three great revolutions in government. All of them have been led by the West. That's according to two top editors at The Economist magazine. They say this ability to reinvent the state is what's given the U.S. and Western European countries their edge in the world. But the authors say Western democracy is now in trouble and only another revolution can save it. Their new book is "The Fourth Revolution: The Global Race to Reinvent the State.

MR. TOM GJELTENAnd the authors are here in the studio to discuss it -- John Micklethwait, editor-in-chief of The Economist and Adrian Wooldridge, management editor at The Economist. John Micklethwait and Adrian Woodridge, thank you for being here today.

MR. JOHN MICKLETHWAITThank you.

MR. ADRIAN WOOLDRIDGEThank you.

GJELTENSo these two authors say the 21st century is turning out to be a rotten one for Western democracy. What do you think? Call us at 1-800-433-8850. Share your thoughts via Facebook or Twitter. Or you can send us an email, drshow@wamu.org. We'll get to your comments and questions a little later. So, gentlemen, I was intrigued by, first of all, your -- the first three contests here that you describe over the last several hundred years. Run us very quickly through what these first three revolutions were, preceding what you now identify as a upcoming fourth revolution.

MICKLETHWAITI will try to do so. If you go back to 1500, 1600, if you had to guess where the future of government lay, you would have said China. China had the world's most impressive system and had Mandarin civil servants. The center of it, the Imperial City in Beijing, had 300,000 inhabitants. That was more than any European city, apart from London, Naples and Paris, even the whole city. Yet, Europe began to form these strong nation states. The first revolution was one of security. And they took on the China -- they competed against each other.

MICKLETHWAITThey didn't have any of the introspection of China. And they got much better. The second revolution was of liberty and took place in the 18th and 19th century. The obvious example here are the American Revolution, the French Revolution. The one we really focus on is Victorian Britain, which actually reduced the size of government even as it delivered a lot of services like the police force and health care and hospitals.

GJELTENI hadn't realized -- I hadn't realized that, John, the extent to which the Victorian government really shrunk government spending, and yet improved government.

MICKLETHWAITIt's the biggest example, I think, from the point of view of the old revolutions that the West really should look at now. The Britain then was a superpower of the world. But between 1815 and 1846, it reduced government expenditure from $80 million pounds to $60 million pounds, even as it did two things -- it added schools, it added hospitals, it developed the world's first proper police force. They didn't stint on government. But they ripped out cronyism. They got rid of every single thing which seemed to be associated with what they called the old corruption.

MICKLETHWAITAnd that, I think, is something which, if you look at America today, people could really do. You get rid of all of those tax exemptions, all that cronyism, that is where you really save on government. And this was at a time when British population was going up by 50 percent.

GJELTENOkay, so the second revolution was efficiency.

MICKLETHWAITEfficiency and liberty. John Stuart Mill, that's what it was about. The night watchman state, keep the state as small as possible. Then the third revolution was the welfare revolution, the welfare state. The need to try and promote equality, trying to paint efficiency. This week we're celebrating the 50th anniversary of Lyndon Johnson's Great Society Speech. And that was sort of the apogee of it in America. But it was really started by people like Beatrice and Sidney Webb, Fabian's and Socialists. And but it was basically the welfare revolution that we're living within the moment.

MICKLETHWAITWe do say, after those three big revolutions, each of which the West pushed even further ahead of Asia, there was then a counter-revolution, a half revolution -- the revolution of Margaret Thatcher, of Ronald Reagan and Milton Friedman.

GJELTENPulling back a little bit.

MICKLETHWAITIt pulled back a bit but it really didn't work. Government is, you know, the one thing, even the oldest person listening to this show, the one constant of all our lives will be the fact that the state has kept on growing throughout everything. It's kept on growing regardless, not just in terms of size, but in terms of regulation.

GJELTENWell, Adrian Wooldridge, these first three revolutions that John has been discussing sort of ended with an answer, ended with a proposition. I mean, certain problems of society were solved, at least temporarily, by a proposition. But it seems to me that in your book, "The Fourth Revolution: The Global Race to Reinvent the State," it's almost a question. I mean, it doesn't appear that you have -- that the answer is clear yet, what this fourth revolution is going to end up with. Is that correct?

WOOLDRIDGEYes. All of these revolutions were answers to a question. What is the state for? The first one, it's for security. The second one, it's for liberty. The third one, it's for welfare, a national minimum. The fourth revolution, which we think is beginning, is more anonymous in that sense. We haven't got an absolute answer to the question. But what we do insist is that we need to put this question, what is the state for, at the very heart of the debate, because I think a lot of people just think about this or that program, this or that way of doing things.

WOOLDRIDGEThey don't answer the big question, should the state actually be doing this? Should the state be subsidizing people to take out jumbo mortgages? Should the state be subsidizing the agricultural sectors, though that's the central institution in the economy? So we haven't got an absolute answer to what the state's for. Although we think that it should be much more about empowering individuals and promoting liberty than it should be about anything else.

GJELTENBut haven't those revolutions already happened? I mean that sounds like replaying the second revolution.

WOOLDRIDGEWhat we think is that we need to go back to the 19th century for inspiration. The 19th century was very similar to the current period in the sense that the state, the 18th century state, had become a sort of parasite. It had become self-serving. Mostly what it was about was about patronage, about giving jobs to the boys. And what they said is if you have a more efficient state, if you put efficiency at the heart of it and meritocracy and allocation of jobs on the basis of performance, then you can also have a smaller state. And I think we could do a lot of that.

WOOLDRIDGEBecause what was happening in the 19th century was a huge technological revolution. And we're seeing a similar technological revolution today. Not an industrial revolution, but an information revolution.

GJELTENJohn Micklethwait.

MICKLETHWAITYeah, I would say it's actually -- it's broader than that. I mean, I think people at the moment think -- our answer is twofold. One thing is you just need to modernize the state. Why does America have a system -- some of it is a lot still in the agricultural age. You still have a school calendar which is set as if all children go off to work in the harvest, it has a ludicrously long summer holiday. Another bit of it is set in the industrial age. You still have a thing where it tries to do everything, just like Henry Ford used to own the fields on which grazed the sheep whose wool went into his seat covers.

MICKLETHWAITThe state now tries to do everything. It tries to provide everything. You should contract out far more. And then a lot of it is still in the 1970s. It's still in that thing where nothing really entirely works. There's no competition, no global element to it at all. And if you really think that the public sector is not going to change, you have to challenge two things. And one of them is the fact that technology tends to affect everything. Just because it's -- it seems incredible to us to think it would have such a traumatic effect on the private sector and do nothing to the public sector.

MICKLETHWAITAnd the other is history. History shows that these things change dramatically. So one half of our answer is technocratic. Everyone should be doing that. But we do also have quite a, you know, strong ideological side. We say there should be a smaller, more efficient state, because that's about liberty.

GJELTENAdrian Wooldridge, John just used the term, what works. And that's very important to your thinking in this book, this sort of pragmatic approach to the role of the state, right?

WOOLDRIDGEAbsolutely. I think one of the problems with the United States is that you have very intense ideologically driven battles in which neither side will compromise. And one of the examples, interesting examples I think we take in this book is what happened to Sweden, which is a quintessential sort of social democratic, big government state. It's -- from 1945 to 1993, the answer to every question was more government, more taxation, more intrusion on the part of the state.

WOOLDRIDGEAnd what happened in the early 1990s, because they hit a sort of wall where the state was as big as it could become, it was 67 percent of GDP, is they said, actually we need to rethink this. We need to contract the state. It's now gone down to 49 percent of GDP. We need to reduce taxation levels. They reduced the tax for the top income earners by 27 percentage points. And we need to contract as -- we need to have a welfare revolution. So we need to bring the sort of efficiencies that we've seen in the private sector to the public sector.

WOOLDRIDGESo they gave every person a school voucher. Milton Friedman's idea of a voucher-driven school system was actually realized in Sweden, not in the United States. They allowed private companies to run schools, private companies to run hospitals. I went to one hospital in Stockholm. Everything was free at the point of delivery, but it was owned and run by a private equity company on a contract basis. And they're using all sorts of modern management techniques, total-quality management, they've brought in from serving the private sector to improve efficiency and services.

WOOLDRIDGEAnd what I'm -- the point of this story is to say that this was a pragmatic solution. The Swedes didn't say we want to get rid of the welfare state. They said we value the idea that all these services should be free at the point of delivery. But we don't think that they should be completely free of market mechanisms. We can actually use the mechanisms of the market to improve the way that the state works. And in America, you tend to have ideological divisions which stop the Republicans from acknowledging that the state has any role at all and which stop the Democrats from acknowledging that you can learn anything from the private sector.

GJELTENWell, what I'm wondering here is whether democracy is the enemy of pragmatism. I mean, you know, you mention Sweden. You also talk about in your book California, where we've had direct democracy where voters can vote on specific policy issues. And the outcome there has not been a pretty one.

MICKLETHWAITYes. I mean, in some ways, it's not the enemy of this. But it's something that's contributed to a great deal of it. If you look at who is responsible -- why does the state keep on growing? The answer is, it's both the left and the right. The left keeps on building hospitals and schools, and the right keeps on asking for more prisons and more army. Both sides grow the state. George W. Bush famously increased the state more than anybody since Lyndon Johnson. So politicians do it. But it's fundamentally because voters want it.

MICKLETHWAITVoters are bit like Augustus Gloop, the boy in the "Charlie and the Chocolate Factory," who just wants more and more chocolate. We keep on asking for the state to do more and more things. So to that extent, we have been part of the problem. But I think democracy fundamentally has the ability to correct itself. Adrian mentions Sweden. You look at some of the individual states around America, you can see things beginning to happen. Even California, which we do use in the example of so many things that have gone wrong with the Western state over the past 50 years, has begun arguably to right itself a bit. It's beginning to think about long-term problems again.

GJELTENWhat's necessary for that to happen? Do people just have to be convinced, rationally, of what's in their interest?

MICKLETHWAITI think they do. I think that's part of it. Part of it arguably is what we're doing now in -- with this book. It's a matter of making people think about big ideas. This book is partly about the history of political theory, but also about how technology and other things, practical things, can really make a big difference.

GJELTENThe book is "The Fourth Revolution: The Global Race to Reinvent the State." The authors are John Micklethwait and Adrian Wooldridge. They're editors at The Economist magazine. We're going to take a break here and when we come back we'll resume this discussion. Stay tuned.

GJELTENAnd welcome back. I'm Tom Gjelten. I'm sitting in today for Diane Rehm. And we are discussing the need in western democracies to rethink the state. My guests are John Micklethwait. He's editor-in-chief at The Economist and Adrian Wooldridge, management editor at The Economist. He also writes the magazine's Schumpeter column. And let's get into that a little bit later too, because there's another interesting thinker.

GJELTENSo we were talking before the break about -- and I asked you -- whether democracy in some ways might be an obstacle, whether democratic control might be an obstacle to societies moving in the direction of efficiency. Because efficiency requires tough choices and people don't like to make tough choices, do they, Adrian?

WOOLDRIDGEI think one problem with democracy is that the state, because of the pressure from voters, has been getting bigger relentlessly over the last century. It's very hard to roll it back. But on the other hand, (word?) once said of democracy that democracy looks very weak on the surface but is strong underneath. Autocracy, on the other hand, looks very strong on the surface but is weak underneath because it's brittle. It doesn't respond to signals.

WOOLDRIDGEAnd I think democracy is, in the end when they're really pushed when people begin to see that the limits are being reached, they do have a capacity to reform themselves. And they do have a capacity to innovate, which we would put our faith in. But I think you do need to have rules that govern how democracies work. In the early 1980s we had independence for central banks which squeezed inflation out of the system. And I actually now think we should have commissions of wise people that help to sort out entitlement problems, or else people will get obsessed by short term conflicts and not think about the big issues.

GJELTENWell, John Micklethwaite, I'm really glad Adrian mentioned the weakness of autocracies because a cursory reading of your book, or perhaps some of the columns around it, might lead readers to think that you are endorsing what you call the Asian alternative, which is on the one hand these Asian countries, whether it's Singapore, whether it's South Korea, whether it's to some extent China, they are very efficient but they're certainly not democratic.

MICKLETHWAITYeah, they're not. Singapore, to be fair, is a democracy. It just happens to be one where the same party always tends to win. And China certainly is not a democracy. Now, we're not endorsing it. What we are saying though is that there is an alternative out there, for the first time for 500 years there is something out there which is pushing.

MICKLETHWAITAnd what we describe is the Asian alternative. The purest version really is Singapore. This is a place -- and these are all -- some of this is -- a little bit is due to authoritarian, but most of it has nothing to do with that. This is a place which has a far, far smaller government than America per head, but has massively better services that really takes government seriously, that pays people to run it, $2 million a year to be head of Singaporean service. There is no way you can imagine a Republican congress thinking that was a good idea.

MICKLETHWAITBut the basic factor is it has much, much smaller government than we do. And that is something that we could learn from. I think there is an attempt there to rethink the welfare state because they're coming at it much later. And even the Chinese do. At the very beginning of the book we describe a place I went to go and visit, which is the leadership training academy on the outskirts of Shanghai. And coming in from the outside it's got barbed wire around the corner. You mentioned...

GJELTENIs the building really shaped like a desk?

MICKLETHWAITIt tis indeed. You wonder -- and it feels like Harvard as redesigned by Dr. No. It has a great big red desk in the middle, a huge building, and it has an inkwell beside it and lots of low-slung dormitories around it. And it's where you go in China if you're about to become an ambassador or you're about to be sent to run a state-owned company.

MICKLETHWAITAnd they -- the Chinese are saying, look, 25 years ago we started western capitalism. We learned from it. Now we want to study government. We want to pull in the best ideas. And they spend the entire time scouring the world, going to Chili, going to Singapore, going to Scandinavia, going to Norway, going to Iceland, going to some individual states in America to gain things and ask really basic questions like, is this the best way to do pensions? Is this the best way to do that?

MICKLETHWAITAnd it's relatively, relatively non-ideological that they are really competing because they, unlike the West, unlike the Americans, they know what it's like to lose the race of government. So there is an alternative out there. It's messy. We're not -- we're very rude about parts to do with China. I'll give you one very quick example is that if you look at the American Congress when it comes to inequality -- that was a huge fuss here because the wealth of the top 50 people in Congress was deemed to be 1.6 billion. The wealth of the top 50 people in China's congress is $96 billion.

MICKLETHWAITIn other words, they are 80 times better at grandizing themselves than the Americans. But it is -- China has huge problems in inequality, huge problems with corruption. It's not a viable alternative in that way but it is an alternative.

GJELTENWell, Adrian, we have an email here from a woman by the name of Barbara. And she says, "Please tell your guests thank you for me. I've been ranting for years that our two main political parties are so obsessed with defeating each other, they will fiddle while the United States collapses, oblivious of perhaps even indifferent to the consequences of their party wars.

GJELTENAnd the reason I call attention to this email is because the way that you talk about the reforms and the rethinking that needs to happen, it almost sounds like a call for a third party in this country. You guys are British but you know the United States fairly well. You could take this -- the argument that you have in this book and it could be virtually a manifesto for a third party in this country.

WOOLDRIDGEI think there's a sense in which you have ideological paralysis here. And I think there's a sense in which both parties have got the wrong answers to every question. The Republicans say, well, government is a bad thing, it's a parasite. We need to get rid of it. The Democrats say that government is a wonderful thing. We need to preserve everything and any attack -- any attempt to reduce it or reform it is an attack on the ordinary working people.

WOOLDRIDGEAnd what we believe, something profoundly different about government, which might be a manifesto for a third party, which is that government, the state really matters. That you'd have to be a fool to want to live in a country without a functioning government rather than one with a country with a very good functioning government. Government matters but it also needs to be reinvented, brought up to date, and, in some ways, chopped up.

WOOLDRIDGEYou know, some of the things that it does needs to be chopped off and got rid of. But we're not entirely calling for a complete renaissance of American government because on the one hand, we're very skeptical and very worried as most people are about what's happening in Washington. But if you look in the laboratories of democracy, if you look across the country, if you look at the level of government of mayors in cities, there's lots of wonderful creative things going on in the United States.

WOOLDRIDGEAnd one of the things about this fourth revolution is it's not likely, at least in the west, to be a top-down thing. It's likely to be as much a bottom-up thing with, you know, people who are much closer to the ordinary voters redesigning the system.

GJELTENWell, that's an interesting point because bottom-up movement, bottom-up reforms are not something you see in these autocracies that you mentioned. Right, John?

MICKLETHWAITI think that's true. I think that's one of the problems. You might see more bottom-up movement in China. That doesn't sound too weird -- than you have hitherto because you're seeing at the (word?), you're seeing -- there's something rather weird about some of these dictatorship. They're very responsive because they're terrified about what might happen if things don't move. But on the whole you're absolutely right. The top-down thing is not really going to work on this.

MICKLETHWAITI think in terms of a third party, I think there's very little in this book which somebody like Mike Greenberg would disagree with. There's a broad sense -- and a lot of what we're saying to the parties is be true to themselves. On the left, the Democratic Party has to make a fundamental choice. Is it trying to serve the poor or is it trying to serve the public sector unions? And on the right, they have to shed their addiction to crony capitalism.

MICKLETHWAITWhy -- just to use one very obvious example, why does America give more money in terms of mortgage interest tax relief to the richest 5 percent of people than it spends on social housing for the bottom half? That is madness under any (word?). That is not what the state was for. And so much money is being socked away into tax breaks and exemptions, $1.3 trillion worth. If you were a progressive in any way, you should be trying to tackle that. If you were somebody who believes in small government, you should be trying to get rid of these things.

MICKLETHWAITAnd there is a middle way and the problem is that both of them are connected to interest groups. The Democratic Party far too much to people like the teachers who weren't bringing new things, and the right far too much to things like big business who are hanging onto things like the private equity tax exemption.

GJELTENWell, Adrian, to be fair to the right, there is of course this Tea Party movement in the United States among conservative circles that actually has been pretty hostile to crony capitalism and pretty hostile to corporate welfare.

WOOLDRIDGEI think that's one of the most admirable things about the Tea Party. I think they've been really right in pointing that out and pointing out that the traditional Republican Party has been too happy to get into bed with capitalist interests and to give special exemptions to those capitalists. The thing that worries me a bit about the Tea Party is it does seem to almost echo Tom Paine's argument that he governs best who governs least.

WOOLDRIDGEAnd we actually think that the state has a really vital role to play in all sorts of things, from infrastructure to providing a basic set of health care, to providing education. So we want to shrink the state, we want to reform the state but we do think the state is a vital part of a successful society. So I'm half a Tea Party person.

GJELTENDo you have -- I mean, one of the things -- one can read your book and sort of be discouraged by the retreat from democracy you say is a -- quoted you saying at the beginning that this century so far has been a rotten one for the western democratic model. You mentioned Sweden. You've mentioned Singapore. Are there any countries out there that you see moving in the kind of direction that you'd like to see the rest of us move in?

MICKLETHWAITI think you can see some evidence actually weirdly in person. I think what Cameron came in. He's cut the size of government. He's freed up the education system. He's bungled health care, I would argue and he seems to be making a little bit of progress on welfare. And the reason fundamentally is because Britain owes a lot of money. There are two huge prompts why things will change and there's a bad prompt. And the bad prompt is the fact that government's everywhere run up so much money.

MICKLETHWAITI was looking at some numbers the other day. They have borrowed an extra $16 trillion since the financial crisis but they're always in debt. They borrowed, I think, $10 trillion more in the first seven years of this century. So they've kept on borrowing, kept on running things inefficiently. And eventually that has to stop. There's a great Herb Stein line, famous economist, something cannot go on forever. It will stop. At some point America has to stop governing as if it's a big-government country and taxing as if it was a small-government country. So that's the bad reason. The good reason is actually all this technology. There are ways you can do government so much better.

GJELTENAdrian, we have a question from Will that came in over the -- over Twitter. And he is asking, "Are the battles emerging over digital freedoms?" And he's referring to the NSA controversy, net neutrality, intellectual property, part of this fourth revolution. And just to add on to that question, Adrian, I mean, I think a key here is how much technology has been changing? How much our environment has been changing. How important is innovation and thinking in innovative ways to what you're talking about?

WOOLDRIDGEOh, absolutely. I think what we're seeing now is the equivalent of the industrial revolution. In the industrial revolution you hugely increase productivity in the manufacturing sector. And that liberated large numbers of people from very basic toil. What we're seeing now is a dramatic increase in the productivity of the service sector of the same sort. And that the welfares of the state is their service-intensive economy.

WOOLDRIDGESo we can see extraordinary improvements, for example, in the quality of education. You can -- instead of the teacher standing up and giving the lecture and the chalk and the talk, you can now absorb information over the internet. You can empower really good superstar teachers to talk not to a thousand people but to tens and tens of thousands of people over the internet. So you can improve the quality of instruction whilst liberating teachers to do hands-on personal instruction.

WOOLDRIDGESecondly, you're seeing in the health care system, the use of telemets and consulting doctors over the internet online. And also with, you know, attaching sensors to people so you can monitor people's health at a distance. I think there's a hospital in New York, the Montefiore Medical Center, which has reduced admissions of all the patients by 30 percent simply because it monitors their health over the internet. And if there's something wrong, they can go and look after them and intervene but they don't have to be there constantly watched in the center.

WOOLDRIDGEThe policing revolution, we've seen across the west, including the United States, a fairly dramatic reduction in crime over the last 15 years. And one reason for that is policing is much, much more efficient than it used to be.

GJELTENAdrian Woodridge is management editor at The Economist. His colleague is John Micklethwaite, editor-in-chief of The Economist. And they're the authors of "The Fourth Revolution," a new book that is just out about reinventing the state. I'm Tom Gjelten. You're listening to "The Diane Rehm Show." John, you were going to pick up on what Adrian just said.

MICKLETHWAITWell, the NSA, correctly the caller asked about that, if you think about the areas where government has got too big, to me a vast degree of what the Snowden affair showed, regardless of what you think of Edward Snowden, was things got wildly out of control. You had a million people had the right to be able to find data about it, including people at Bradley Manning, including people like Edward Snowden, to have fine (word?). This is a state which has got out of control.

MICKLETHWAITAnd it wasn't only that. It was not accountable as well. And that, I think, is something that actually when people think about old style liberalism, by which I mean on the whole you want to keep government as small as reasonably possible and give people as much liberty as possible. How on earth the Republican Party got to a position where they thought that was a good idea I think is very, very difficult to defend.

GJELTENOkay. Another big issue that is looming over us here in the United States and to some extent in all western democracies, is the entitlement problem. You write that the biggest problem governments face is the explosion of entitlements which have relentlessly, since World War II, fixing the entitlement crisis will not only save the state from insolvency, it will preserve the social contract that is at the heart of the welfare state.

GJELTENNow, Adrian, we had a commission in this country that was formed from the top-down. It was called the Simpson-Bowles commission. They tackled the entitlement problem. They tackled the size of government problem. They came up on a bipartisan basis with a number of recommendations and largely they were ignored. What's the lesson of that story to you?

WOOLDRIDGEI think it's the blackest mark against Barack Obama actually. I think there was a real potential there for Barack Obama to say yes, this is a commission that's come out with really good recommendations. It's come up with an attempt to bring under control our biggest long term problem which is entitlements. And it's demonstrated. You can actually control these entitlements. You can actually prevent the country from going bankrupt by relatively small, relatively tolerable changes, pushing the retirement age a bit further, linking retirement to life expectancy.

WOOLDRIDGEAnd for Obama, I think for the president not to have seized on that and pushed it is about -- in the end in the sort of political system that you have, it has to be the president who addresses those sorts of problems. Because congress, there's too many people pushing in too many different directions. I think it's the worst thing he's done.

GJELTENBut here's the thing, John. What that showed also is that when you take the best minds of both parties, basically the elite of the country, they actually can come up with solutions. But whether it's Barack Obama or somebody else, you know, the democratic forces tend to push back against those -- that kind of elite judgment.

MICKLETHWAITThat's a very good point. And one of the -- probably the most impulsive quote in that way is actually from when the European politicians who famously said that we know what we have to do. We just don't know how we would get elected if we did it. And that seems to be the problem behind this, is politicians are very scared. They worry about individual bits. Barack Obama a bit was bad on that. So were the Republicans.

MICKLETHWAITI would argue -- and actually you need firstly leadership, which Obama could've showed. I think he will probably regret that decision more than anything else in his presidency. Because people will come back and say, you had a chance to fix this and you ran away from it. But secondly also, without being too pretentious or self promoting, I think it is because of books like this that if you can put forward an intelligent centrous point of view, if you can make it clear that these things can change, and if you can show people that in the context of history and technology, that is important. I think it's a very, very important thing.

GJELTENOkay. John Micklethwaite and Adrian Woodridge, editors at The Economist. Their book is "The Fourth Revolution: The Global Race to Reinvent the State." We're going to take a short break here. When we come back, we're going to go to the phones. And I'm curious whether you would be willing to support this new approach to government where you'd be willing to perhaps give up some of the benefits that you've become accustomed to in the interest of a more efficient, more modern, more innovative state. Stay tuned. We'll be right back.

GJELTENAnd hello again. It's Tom Gjelten. I'm sitting in for Diane Rehm today. And we are talking about the global race to reinvent the state with John Micklethwait and Adrian Wooldridge, editors at The Economist Magazine. I actually want to go right to the phones right now. Remember, our phone number is 800-433-8850. And you can join our conversation. On the line now is Bill, from Cape Cod, Mass. Hello, Bill. Thanks for calling.

BILLHello, Tom. Thanks for taking my call. With all respect to the two gentlemen, the two authors, this is the second time I've had a chance to see and hear them interviewed. I've sort of come away with the notion that really they're espousing what we think of here in the States as really Libertarian thoughts about shrinking government and, you know, private freedoms and things like that.

BILLAnd so when I hear the word liberalism, pardon me, as I've grown to think of it and see it willowing on the vine here in the States, I'm kind of of the view that in our country Democracy is reduced to, practically speaking, the freedom to vote, but arguably little more with the disparate inequality of incomes and things like that. And we have a country where corporate interests, as defined by the Supreme Court increasingly, is really dominating the U.S., both social and economically. And I don't see that being addressed in the thesis put forward for the -- this program.

GJELTENWell, Bill, give us your definition of liberalism.

BILLWell, it's really cast more in the FDR and JFK and RFK tradition that I sort of emerged through. And I don't -- first of all, we see -- we talk about schools and hospitals. And those are actually shrinking in public investment these days, rather than increasing. And, you know, Bill Clinton, who -- for many of my Republican friends, think of him as the best Republican president we've had in recent times because he, A, he ended welfare, but did very little else.

BILLSo and at the same time I see this emerging corporate dominance. And I will say that I share the author's view with the idea that things like mortgage deductions on second homes for the wealthy is just something to be addressed, but…

GJELTENOkay.

BILL…so is in corporate welfare, which is…

GJELTENOkay. Right. All right. Bill, I think you've made your point. So clearly Bill is talking about liberalism in the conventional American sense of the term. When you use the term, John and Adrian, you're talking about it in more of a liberal, more of European sense.

MICKLETHWAITIt's not European, it's real liberalism.

GJELTENOkay.

MICKLETHWAITLiberalism is the creed of people like John Stuart Mill and Adam Smith. It is the creed that says the liberty of the individual is very important. There is a difference. The Economist is a liberal newspaper. We've been so for 170 years. We came into power -- we came into being to fight against the Corn Laws, which were tariffs. And since then we've championed everything from gay marriage to prison reform.

MICKLETHWAITAnd that comes from the perspective that we want to keep the state out of people's lives, but there is a difference, with all due respect to your caller, between liberalism and Libertarianism. Libertarianism just wants no state at all or a very minimal one. Liberalism says let's be pragmatic about it. If you read this book it may surprise him. We put forward arguments about why a single-payer system, like the NHS, actually provides much better value than the sort of all private sector thing you have in America.

MICKLETHWAITWe put arguments forward, as we said, for why things -- even a place like Sweden, America could learn from. So liberalism -- and actually, I think that's part of what we need to educate people about, is if you look at these -- Americans, I think, particularly, need to go back and read the big thinkers. They need to go back to read Locke and Mill and Thomas Hobbes and the idea that there is a big issue there about what the state is for. And there's a danger I think that people tend to small-time this and look at very tiny things, rather than looking at the design of the whole building.

WOOLDRIDGEI'm very sympathetic about what the caller was saying about the power of crony capitalism and big corporations in this country. And I think that is a threat to liberty, actually. But I think one of the things at the heart of liberty is a war against vested interests. And there are vested interests on the right, crony capitalists. But there are also vested interests on the left, which are the public sector unions and the teachers' unions. And we would say both of those things need to be taken on because both of them are distorting the states and using it to serve sectional interests, rather than the public good.

GJELTENLet's go now to Ed, who's on the line from Kalamazoo, Mich. Hello, Ed. Thanks for calling "The Diane Rehm Show."

EDHi. Yes, I have to agree a lot with the previous caller. But I wanted to review sort of the history of taxation since Ronald Reagan. The idea on the right that lower taxes -- continually lowering taxes on the wealthy supposedly stimulating economic growth. And all what we've really gotten is we've got an increasing debt, ever increasing debt. And we have low tax rates on the rich. We have growing inequality, growing poverty.

EDSo to me -- and we used -- I think people have forgotten that the upper tax rates in this country used to be very high at 70 percent, 80 percent during the Eisenhower years. And things weren't that bad. So maybe you could address the, you know, American tax policy for tax-cutting and then creating deficits and debt and then increasing poverty and not really stimulating the economy?

GJELTENOkay. All right. Well, John, I'm sure that you have looked at this correlation between tax rates and sort of the general welfare. What have you found?

MICKLETHWAITWell, the obvious thing -- obvious point to make about American tax rates is actually they're not too low. In many ways they're too high. The problem is all the exemptions. If you look at corporate tax rates, which are such a big issue here, they're actually much higher than overseas. And the reason why is it's riddled with exemptions. It's riddled with all the things that lobbyists come forward. If you're a rich person here, theoretically you have a tax rate, but in fact, you can deduct endless things.

MICKLETHWAITWe've mentioned a million dollars for mortgage tax relief. That is a demented policy because it encourages people to go out and borrow against one particular form of asset. Taxation, essentially, needs to be clear and transparent. And that is the key point. This book is -- makes -- that, again, should be a technocratic, very simple thing. Government needs a certain amount of money.

MICKLETHWAITThis is the most efficient way to go and collect it. And the current way, a tax code with is thousands and thousands of pages long, only helps accountants because it provides lots of business for them, without ever doing any of things about equality that we really want.

GJELTENYou know, you guys have touched a nerve here among our listeners, about the role of the state. I mean, this is an issue that has really dominated our political debate, actually, in recent years. And clearly people have strong feelings about it. A.R. Lortz (sp?), from Sarasota, Fla., writes, "In terms of shrinking government and reducing regulation, take a look at GM's latest recalls, where the lack of oversight led to deaths, due to a failure of regulators to demand recalls.

GJELTEN"When the bottom line is king, the 1 percent in corporations win and the rest of us lose. How will privatizing schools to maximize profits improve education, other than improving standardized test scores?"

MICKLETHWAITWell, I think one problem is you have too many regulations. And when you have too many regulations you don't implement the ones that really matter, which is, for example, safety in cars. And you spend a lot of times implementing ones that do not matter at all. We talk -- the caller was from Florida. In Florida it takes two years to get a license to braid hair. It takes two years to get a license to become a qualified interior decorator.

MICKLETHWAITI think whatever the people who founded the welfare state imagined the state should be doing, I don't think they thought the state should have this role in guarding against the terrible possibility of clashing color schemes in interior decoration. There's a huge number of regulations in this country, particularly occupational licenses, which have been going from, I think, you know, a relative reasonable level in the 1950s, endlessly going up and up and up.

MICKLETHWAITAnd I think some economists have argued that the effective tax that's imposed by all these regulatory bodies is one of the worst things holding back the American economy. Because you're freezing up the labor market, essentially. So regulations matter, but if you have too many regulations then you're not implementing the ones that do matter and you're wasting a lot of resources on ones that don't.

GJELTENWell, I think you guys are having to make this point over and over again. That you're not anti-state. That you are for a modern state, an innovative state, an efficient state. You know, you mentioned the Great Society. We also just had the 50th anniversary of the Civil Rights Act in this country, which is a classic example of the authority of the federal government, I mean, that was opposed at the time as an infringement on state rights and individual rights. And yet, I think it's proved, it's fair to say, it was very important in the achievement of justice in this country.

MICKLETHWAITThere's a whole series of examples in this book. I mean to sell it to people, you know, this is an attempt to spell out to people the political history, political theory over quite a long period of time. There are endless examples about how the state does matter. Indeed, if you look at government, as a competition between states, at different times it has been, strangely, the demands for some national greatness that have pushed people forward.

MICKLETHWAITOne reason why the welfare state came about, was because of compassion. People thought it was wrong that people were being sent up chimneys without education. But the other bit was a desire to compete with other people. The, again, Britain was at the center of this. It saw Prussia, it saw Germany, and saw that it was doing better. And so it wanted to compete and it wanted to do better.

GJELTENDo either of you want to bring up one issue that the last emailer raised, that we haven't really talked about that much, and that is the privatization of education.

MICKLETHWAITI think he's taken the wrong message. We're not saying privatize education. We're saying open it up so anybody can deliver it. We don't -- the answer -- that's what Sweden did. It doesn't say you have to go to private. It says public things can do it, but let them compete with charities, let them compete with companies. It doesn't matter who provides it. Fundamentally, these people have got to -- some of your callers have got to ask themselves the question, if they're liberal, do they care about the poor or do they care about the people who provide public services?

MICKLETHWAITBecause most of the evidence is, from the point of view of users, you should really care about getting the best services to the poorest people as quickly and efficiently as possible. And if people don't believe in that then I wonder whether they really are liberal or not.

WOOLDRIDGESo we're saying education should be free at the point of delivery, but different people should be able to compete to offer that education, to run the schools, to run the teaching profession.

GJELTENLet's go now to Neno, how's on the line from Chapel Hill, N.C. Hello, Neno. Thanks for calling "The Diane Rehm Show."

NENOHello, Tom. What an excellent topic.

GJELTENGood.

NENOTwo questions. Doesn't the purpose of the Democratic state -- wasn't it spelled out in Article 1, Section 8, of U.S. Constitution, "The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay for the deaths and provide for the common defense and general welfare of the United States." And the second one, how can anybody with a straight face call Democratic Party the left? To the left of the Republican Party, but not the left. Thank you.

GJELTENOkay. Well, he correctly cites Section 8, of Article 1, of the U.S. Constitution. But when you talk about the role of the state being to promote the general welfare, that, sort of, is not exactly very specific definition of the state's role, is it?

WOOLDRIDGENo. Absolutely. What we say in this book is that the question you have to ask yourself is what is the state for? And the answer to that question has evolved over the years. It's evolved from the early modern period when it was essentially about order, to a much more generous notion that the state has to make sure that people have educational opportunities, have to have insurance against catastrophic disasters in their life.

WOOLDRIDGEWe wouldn't want to row back on that. The state has a big, expansive role in modern society, but it must deliver that, it services, efficiently. And it mustn't be tried to do the wrong things.

GJELTENAdrian Wooldridge and John Micklethwait, they are editors at The Economist and the author of a new book, "The Fourth Revolution: The Global Race to Reinvent the State." I'm Tom Gjelten. You're listening to "The Diane Rehm Show." The other point, John, that the last caller made, is that the Democratic Party has no right to call itself the left.

GJELTENYou have looked at these political debates around the world, what do you make of that? I mean, clearly the U.S. left is different than the European left, and yet, some of the countries that we associate with the left -- and Sweden is a good example -- are actually doing some things that people on the left in this country would object to probably.

MICKLETHWAITThere are many ways -- and we wrote a previous book about this -- the "left in America," is still way to the right of the right in other countries. The Democratic Party still believes in a much tougher justice system than most conservatives in Europe would do, for instance. But I think fundamentally it's about a way of thinking that's about -- it does share many, many preconceptions with other parties on the left in Europe.

MICKLETHWAITThere's the same adherence to public sector work as part of it. And there's the same actual inability to rethink the future. And I think within this there's a very important thing, it's to suddenly imagine that things can change. I think what you're hearing, repeatedly, is people have two things. They have apathy. They just don't -- and anger. People go off to the midterm elections, both Republican and Democrats, and they will be angry about what their government -- they think their government can't change.

MICKLETHWAITThe message of this is we think government can change. There's an example of this years ago, that from my point of view, is that I was a young man wandering around America. And I came to stay in San Francisco prior to going to university. And I stayed with somebody. And I was taking off to have a sauna rather strangely with this elderly fisherman.

GJELTENWith a chicken fisherman.

MICKLETHWAITThe man who ran chickens and then also with his friend, Milton. And this is 1980. I had come from, actually…

GJELTENAnd what does Milton look like?

MICKLETHWAITMilton was small and wiry and very energetic. And we sat there. And I sat there. Well, there's this complete crazy man, and I just emerged from Britain, where there had been miner strikes, where I had been taught by candlelight because things weren't working. He told me the world would change with the steam of the sauna. He said that things like British telecom and British rail would be privatized. There would be education vouchers. Inflation would be tamed.

MICKLETHWAITAnd I sat there and I looked at this man, who you may have guessed was Milton Friedman. And I thought, he is demented. He is mad. Nothing will ever change. And later that week I went to go and watch the Grateful Dead in concert. And I thought they were considerably less hallucinogenic than what that man was saying. But it changed. Things did change. As we say, Reagan and Thatcher didn't reverse things that much, but at least they changed the sense of things.

MICKLETHWAITAnd I think the left, the progressive part of America, needs to have the same element, an ability to rethink about how exactly you deliver services. People like Friedman were thinking about that. They may not be wholly in accordance, but there needs to be the same reinvention of ideas.

GJELTENWell, he is considered to be Libertarian. And, yet, he said something once along the lines of if government does not want something to happen they should tax it because it keeps it from happening. And if they want something to happen that isn't happening, they should provide incentives. So he was not above using tax policy to achieve social ends. And this is Milton Friedman.

WOOLDRIDGENo, absolutely. I mean, we have a very much more expansive view of what the state should be doing than Milton Friedman. I think Milton Friedman really didn't like the States. He once said that if you put the government in charge of the Sahara Desert, there'd soon be a shortage of sand. Maybe true, but we think the state has a lot of important roles. But one of the ideas that we most like about him, the school voucher idea.

WOOLDRIDGEIt's particularly intriguing because you say -- you give people the money. You give -- people have, essentially, in the form of the voucher, the right to a free education. But they can choose where they spend it. And I think what the left has to do is stop defending vested interests, stop defending producer groups. And say that, you know, it's just a matter of making sure the children get the best education possible, make sure the parents have power in their own hands. And that might well involve choice.

GJELTENWell, your book, "The Fourth Revolution: The Global Race to Reinvent the State," might, hopefully, provoke exactly the kind of discussion that will lead to more intelligent considerations of our policy options. My guests have been John Micklethwait. He is the editor-in-chief at The Economist Magazine. And Adrian Wooldridge, the management editor at The Economist. Their new book is "The Fourth Revolution: The Global Race to Reinvent the State." Thank you so much for coming in.

MICKLETHWAITThank you, Tom.

WOOLDRIDGEThank you.

GJELTENThanks for listening. I'm Tom Gjelten.