The paradox where Liberalization, Privatization, and Globalization (LPG) alongside New Public Management (NPM) aimed to limit government functions and reduce public expenditure, yet often resulted in an increase in both, is a significant observation in contemporary public administration. This outcome can be accounted for by several interconnected factors that reveal the evolving and often unanticipated complexities of governance in a globalized world.

Stated Objectives of LPG and NPM:

• Liberalization: To reduce state control over the economy, remove barriers to trade and investment, and deregulate markets, thereby fostering efficiency and growth through market mechanisms and reducing the need for direct state intervention.
• Privatization: To transfer state-owned enterprises and services to the private sector, aiming to reduce the fiscal burden on the state, improve efficiency through competition, and generate revenue.
• Globalization: To integrate economies worldwide through increased trade, capital flows, and technological exchange, promoting global competition and efficiency, and theoretically reducing the need for national governments to protect domestic industries.
• New Public Management (NPM): To apply private sector management techniques to the public sector, focusing on efficiency, effectiveness, accountability, and cost reduction. Its mantra was 'steer, not row,' implying that government should set policy and regulate, while service delivery could be outsourced or privatized.
• Overall Goal: A smaller, more efficient, less costly government focused on core functions, with markets and the private sector taking on a larger role in service provision.

Accounting for the Paradox (Increased Functions and Expenditure):

1. The Rise of the Regulatory State: While direct provision of services might decrease, liberalization and privatization necessitate a stronger, more sophisticated regulatory framework. Governments must establish and enforce rules for competition, consumer protection, environmental standards, financial stability, and labor rights in newly liberalized or privatized sectors. This requires new agencies, specialized expertise, and significant resources, leading to an expansion of regulatory functions and associated expenditure.

2. Addressing Market Failures and Externalities: LPG policies often expose or exacerbate market failures (e.g., monopolies, information asymmetry, environmental degradation, financial crises). Governments are then compelled to intervene to correct these failures, leading to new functions and expenditures in areas like environmental protection, financial oversight, and consumer advocacy. The 2008 global financial crisis, for instance, demonstrated the critical need for robust state intervention and regulation.

3. Social Safety Nets and Inequality: Liberalization and globalization can lead to increased economic inequality, job displacement, and social dislocation as industries restructure or face global competition. This often necessitates increased government spending on social safety nets, unemployment benefits, retraining programs, healthcare, and welfare services to mitigate social unrest, ensure political stability, and address the human costs of economic restructuring.

4. Transaction Costs of Contracting Out: NPM's emphasis on contracting out services to the private or third sector (e.g., through Public-Private Partnerships - PPPs) does not eliminate government costs. Instead, it shifts them from direct provision to contract management, monitoring, evaluation, and dispute resolution. These 'transaction costs' can be substantial, requiring specialized administrative capacity, legal expertise, and oversight mechanisms, which are often more complex and costly than initially anticipated.

5. New Public Demands and Expectations: Citizens, empowered by information and rising expectations, demand more and better services, even from a 'smaller' government. This includes demands for transparency, accountability, responsiveness, and quality, which require investment in e-governance, citizen engagement platforms, performance management systems, and robust grievance redressal mechanisms.

6. Global Challenges and Interdependence: Globalization brings new, complex challenges that require state intervention and expenditure, such as international terrorism, pandemics, climate change, cyber security, and managing global migration. These are cross-border issues that no single market actor can address effectively, necessitating increased government functions and international cooperation.

7. 'Steering' is Not Cost-Free: The 'steer, not row' mantra of NPM implies a sophisticated capacity for policy formulation, strategic planning, performance monitoring, and coordination across multiple actors. Building and maintaining this capacity, especially in a complex networked governance environment, is resource-intensive and often requires highly skilled personnel.

8. Fiscal Illusion and Hidden Costs: Sometimes, costs are shifted off-budget (e.g., through guarantees for PPPs, or future liabilities) or are simply less visible, creating a fiscal illusion that government is smaller, while actual public sector liabilities and functions expand.

In conclusion, the paradox arises because the initial assumptions of LPG and NPM often underestimated the enduring and evolving role of the state in a complex, globalized world. While the nature of government functions may have changed (from direct provider to regulator, enabler, coordinator, and risk manager), the volume and cost of these new and adapted functions have often increased. The state remains crucial for providing public goods, correcting market failures, ensuring social cohesion, and managing the complexities of a globalized economy, even if its methods of intervention have become more indirect and sophisticated.