People power after the pandemic

Even with the Covid-19 pandemic still raging, speculation has turned to what society will look like afterward. Citizens, shocked by how easily their lives can be upended, will want to reduce risk. According to the emerging new consensus, they will favour more government intervention to stimulate demand (by pumping trillions of dollars into the economy), protect workers, expand health care, and, of course, tackle climate change.

But every country has many layers of government, so which one should expand? Clearly, in the United States, only the federal government has the resources and mandate for nationwide decisions on issues such as health care and climate change. Yet it doesn’t necessarily follow that this level of government should grow larger still. After all, it could adopt policies that protect some constituencies while increasing the risks faced by others.

In the case of Covid-19, some countries have centralised decision-making about when to impose and lift lockdown measures, whereas others have left these choices to state governments, or even municipalities. What has become clear is that not all localities face the same trade-offs.

In crowded New York City, a strict lockdown may have been the only way to get people off the streets, and its economic impact may have been softened by the fact that many there work in skilled services like finance, which can be done remotely. In contrast, in Farmington, New Mexico, The New

York Times reports that, “few people know anyone who was ill from the coronavirus, but almost everyone knows someone unemployed by it.” The lockdown, imposed by the state’s Democratic governor, seems to be unpopular across a community that was already in serious economic decline before the pandemic. In this case, economic concerns have trumped more modest health worries.

These differences show the drawbacks of a centralised, one-size-fits-all approach. But decentralisation can also be problematic. If regions have contained the virus to different degrees, is travel between them still possible? It stands to reason that safer regions would want to bar visitors from potential hot zones — or at least subject them to lengthy quarantines. A fast, cheap, reliable testing system might solve the problem, but that is unavailable.

Some degree of harmonisation between regions can be beneficial. In the absence of federal coordination, US states have been in a bidding war with one another over scarce medical supplies

from China. In normal times, competitive markets would allocate such goods efficiently. But in a health emergency, markets may perform poorly, allocating goods according to buyers’ ability to pay rather than their need; rich states would buy up all the ventilators and testing kits, leaving poorer states with none. The country’s ability to contain the pandemic would suffer.

In this situation, centralised procurement could keep prices lower, potentially enabling more needbased allocation. But “could” and “potentially” are the operative words. If a central government has questionable motives or simply is incompetent, the calculus changes. As we have seen in Brazil, Mexico, Tanzania, and the US, when heads of government minimise the dangers of the pandemic, they can do considerable harm to their country’s response.

In India, the central government imposed a stringent lockdown without making the necessary arrangements for millions of migrant workers, who were forced to flee the cities for their home villages. A decentralised decision-making process might have allowed states that locked down later (because they initially had fewer cases) to learn better management from those that went first.

Given that extremes of centralisation and decentralisation can both be problematic, a coordinated middle ground may work best. The federal government might establish minimal standards for closing down and opening up, while leaving the actual decision to states and municipalities. That said, if there is to be a bias, it should be toward decentralisation, whereby powers are delegated to the lowest-possible administrative level that will be effective.

There are important reasons to favour a carefully managed decentralisation. Not only do members of smaller political entities tend to face similar problems; they also typically demonstrate greater social and political solidarity.

Expanding government further while limiting the risk of authoritarianism requires independently powerful bodies that also enjoy popular support.

Constitutionally decentralising more powers to regional and local government may be the way forward. —Raghuram G. Rajan is Professor of Finance at the University of Chicago Booth School of Business. —Project Syndicate

Constitutionally decentralising more powers to regional and local government may be the way forward.