Beware those bear­ing sim­plis­tic ‘lessons’ from this cri­sis

If any­thing, the Covid-19 out­break has de­fied the ar­gu­ments made against small-state cap­i­tal­ism

The Daily Telegraph - Business - - Front Page - Ryan Bourne

Those hos­tile to the idea of small-state, free-market cap­i­tal­ism never let a good cri­sis go to waste. The hor­ren­dous events of 9/11 were said to prove that “small gov­ern­ment” had to give way to a more mus­cu­lar state at home and abroad. The 2008/09 fi­nan­cial cri­sis later sup­pos­edly dis­proved mar­kets’ ef­fi­cacy, po­ten­tially even mark­ing the be­gin­ning of the end of cap­i­tal­ism it­self.

That one proved wish­ful think­ing from the market econ­omy’s harsh­est crit­ics. But now, those who de­sire vast new gov­ern­ment reg­u­la­tion or con­trol of the econ­omy see fresh pan­demicborn op­por­tu­ni­ties. Com­men­ta­tor Will Hut­ton wrote in 2008 that the fi­nan­cial cri­sis was “our gen­er­a­tion’s once-in-a-life­time chance to change Bri­tish cap­i­tal­ism”. He was wrong about the one-off call to arms. To­day, he says, presents an­other chance for “one form of un­reg­u­lated, free-market glob­al­i­sa­tion” to give way to “an­other form that recog­nises in­ter­de­pen­dence and the pri­macy of ev­i­dence-based col­lec­tive action”.

In­gest The Guardian’s com­ment pages and you would be­lieve the pan­demic makes a slam-dunk case for al­most all the Left’s pol­icy pref­er­ences. It sup­pos­edly jus­ti­fies a “great re­set” on en­vi­ron­men­tal pol­icy, shows “we must democra­tise work”, proves the case for rapid de­car­bon­i­sa­tion, and high­lights the need to over­haul labour mar­kets to make life less work-driven. Of course, it pur­port­edly con­firms the need to end aus­ter­ity and in­tro­duce wealth taxes too, not least to part­fi­nance all these new gov­ern­ment pro­grammes.

It’s not just the usual, Left-wing sus­pects who have con­cluded that the de­sir­abil­ity of more ac­tivist gov­ern­ment is the key les­son from this cri­sis, how­ever. Con­ser­va­tives here and in the US now seem to be­lieve the pan­demic proves the brit­tle­ness of free global sup­ply chains and the need for gov­ern­ment ef­forts to re-shore phar­ma­ceu­ti­cals, medicines and man­u­fac­tur­ing ca­pac­ity.

Even Boris John­son, the Prime Min­is­ter, is high on the mo­ti­vated rea­son­ing for more in­tru­sive gov­ern­ment. He has claimed the pan­demic con­firms the de­sir­abil­ity of “dou­bling down on lev­el­ling up” – us­ing state power to “re­bal­ance” the econ­omy ge­o­graph­i­cally through in­fra­struc­ture spend­ing, in­dus­trial pol­icy and re­gion-spe­cific “deals”. Why a viral pan­demic that has dis­rupted ways of work­ing and kept many of us at home proves the long-term need for HS2 and other trans­port in­vest­ments is any­one’s guess.

These “lessons”, uni­fied only by their greater de­mands for cash from tax­pay­ers or for pow­ers to bu­reau­crats, are ten­den­tious. Yes, we in­evitably have learnt valu­able things about deal­ing with this spe­cific type of viral pan­demic, in­clud­ing ac­quir­ing the knowl­edge by ex­pe­ri­ence that left east Asian coun­tries, burnt by ear­lier dal­liances with SARS or MERS, bet­ter pre­pared to test, trace and con­tain this virus. Go­ing through an episode like this high­lights pinch-points in pub­lic sup­ply chains and in­ad­e­qua­cies in gov­ern­ment bu­reau­cra­cies too, just as firms in mar­kets re­assess their re­silience when un­ex­pected shocks hit.

But any fu­ture cri­sis will not be the same as this one. Even if, mirac­u­lously, all the rag-tag ideas above might have helped in pre­par­ing or re­act­ing to this virus, re­or­gan­is­ing “so­ci­ety” or “the econ­omy” based on a par­tic­u­lar once-in-a-gen­er­a­tion event would be a dis­pro­por­tion­ately costly re­sponse. Con­sider the sheer mad­ness of sub­si­dis­ing or set­ting aside year-onyear pro­duc­tion ca­pac­ity for pan­demic-level per­sonal pro­tec­tive equip­ment and ven­ti­la­tor needs in nor­mal times, for ex­am­ple.

More broadly, there is no gen­er­alised ev­i­dence that larger gov­ern­ments dealt with this cri­sis bet­ter. South Korea, Tai­wan, Aus­tralia and New Zealand all have smaller gov­ern­ments than the UK, but are held up as Covid-19 ex­em­plars. Many of those with larger gov­ern­ments, such as France, Bel­gium and Italy, have seen sim­i­larly shock­ing death tolls to us. At best, any fail­ure to de­liver re­sources where needed for this pan­demic re­flects faulty state pri­or­i­ties, rather than an im­pov­er­ished pub­lic realm.

Pri­vate sec­tor in­ad­e­qua­cies – in­clud­ing a sup­posed lack of re­silience of sup­ply chains – are a pe­cu­liar place for politi­cians to start too. Af­ter all, we weren’t be­ing asked to stay home to “pro­tect our pri­vate sec­tor” dur­ing lock­downs. “Our” NHS is, of course, a na­tion­alised, so­cialised sys­tem un­like, say, Ger­many’s de­cen­tralised model, and was on the ropes for a time. Cen­tralised plan­ning on test­ing has been an orig­i­nal sin of the UK’s re­sponse. Yet now many be­lieve it’s cru­cial for a gov­ern­ment that’s made a pig’s ear of that en­deav­our to plan out the in­dus­trial and spa­tial di­men­sions of eco­nomic life.

In fact, the rapid global re­sponse of the phar­ma­ceu­ti­cals in­dus­try and su­per­mar­ket sup­ply chains to dis­rup­tion in this cri­sis has been noth­ing short of re­mark­able. A re­cent re­port by McKin­sey doc­u­mented the in­tense global in­ter­con­nec­tions in the pharma and medicine sec­tors, high­light­ing per­haps how heavy­handed gov­ern­ments un­pick­ing them might cre­ate a host of un­in­tended con­se­quences.

That re­port con­cluded pan­demics and nat­u­ral disasters were rel­a­tively low risks to the op­er­a­tions of these sec­tors. What does it say is a much big­ger risk? Politi­cian-driven pro­tec­tion­ism. Specif­i­cally, trade dis­putes and “sicken thy neigh­bour” at­tempts to hoard or re-shore med­i­cal pro­duc­tion in the name of pub­lic health, poli­cies which have al­ready proven dam­ag­ing dur­ing this cri­sis and that con­ser­va­tives now de­mand.

It takes some chutz­pah then, at a time when we ob­serve tales of com­pletely in­ad­e­quate test­ing ca­pac­ity in the right places, for the uni­ver­sal take­away to be that the pan­demic proves the ne­ces­sity of more gov­ern­ment plan­ning in nor­mal times.

Of course, a global pan­demic is a true col­lec­tive action prob­lem, ne­ces­si­tat­ing a large role for gov­ern­ments. But what is good in a pan­demic tells us lit­tle about what is op­ti­mal af­ter it. This pe­riod has high­lighted just how easy it is for gov­ern­ments to fail, even in core func­tions. In a ra­tio­nal world, this would set the bar higher for new ideas for state action. In­stead, the shack­les are off, with mo­ti­vated “lessons” that stretch credulity.

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