Monday, 18 April 2022

Why Governments Failed the Challenge of Covid and Capitalism Succeeded

Capitalism has had a good Covid. While governments of every political hue seem to stumble from one crisis to the next, for profit corporations stepped up to deliver our food and consumer goods to our doors, reroute disrupted supply chains, manufacture huge amounts of PPE, and develop multiple safe and effective vaccines in record time. I put this triumph of capitalism over statecraft down to two factors in particular. 

  1. Corporations are better at globalisation than national governments 
  2. Political incentives are less well aligned with the public interest than those for corporations

I. Corporations are Better at Globalisation

Governments evolved to do two things: 

1) Solve tricky collective action problems at the national scale by centralising and monopolising authority (legitimate violence), and 

2) Fight wars to defend that authority from internal and external challengers. 

Given this emphasis on strong sovereignty we should hardly be surprised that states are so ineffective at addressing the international problems of our time, from climate change to tax avoidance to overfishing to the Covid pandemic. Thus, at multiple points in the pandemic governments tried to prioritise their own people's interests by blocking exports of PPE equipment as well as components and ingredients needed for test kits and for developing and manufacturing vaccines. Their efforts to put their own people first undermined the international supply chains that make the most efficient use of the world's talents and resources and undoubtedly cost lives at home as well as abroad. 

In contrast to the vulgar and incompetent selfishness displayed by national governments, private companies coped impressively with the many disruptions to their supply chains (wherever they were allowed to) while expanding the supply of goods suddenly in demand (like masks and hand sanitiser). The pharmaceutical industry in particular managed to develop multiple safe and effective vaccines in record time and then triple global vaccine production. 

It is true that pharma corps needed government help to achieve this outcome so quickly, but that doesn't mean it was the governments that did it. Pharma corps needed funding for the big bets they were making (e.g. building out production capacity even before it was even proven that their vaccines would work - several didn't). And they needed governments to speed up their own regulatory bureaucracy (which ended up showing that there was no good reason for drug development to take as long as it usually does). Some governments - notably the US and UK - were willing to do this, but most governments were not. Notably, governments with a more managerial approach to the economy (such as in Europe) were more averse to giving pharma companies the freedom they needed to get on with the task. The EU Commission, for example, bargained hard for lower prices and to avoid indemnifying pharma against unforeseen side-effects, thus undermining the business case for faster vaccine production. Hence it took longer for vaccines to become available to EU citizens than the UK or US - a delay for which the EU Commission naturally tried to blame the pharma corps. 

Various NGOs and poor country governments (and Biden's administration) blamed the scandalously slow and globally unequal distribution of vaccines on the global inequality of their production by pharma corps. This is misleading. In fact most of the distribution problems had to do with policy decisions by national governments (rich and poor). It is government regulations and us-first policies that hindered the easy movement of vaccines (and components needed for their production) to where they were most needed, for example the export restrictions by the governments of the US, India, and EU. And let us not neglect the bizarre behaviour of the Russian and Chinese governments, which did export their state-capitalist produced vaccines but also evaded transparency about their effectiveness; launched disinformation campaigns against Western vaccines that undermined the global vaccination programme;  and banned the importation of more effective Western vaccines. 

In contrast to this myopic dysfunction, capitalist pharma corps managed something extraordinary: a tripling of global vaccine production within a year. They expanded the facilities they owned and also made licensing deals around the world with nearly every facility that could be brought up to the highly demanding quality and safety requirements. This extraordinary feat of global collaboration required far more than sharing mere information. Patents by themselves are useless without mastery of the technical process of production, for which you need specialised (and scarce) machinery, personnel, and components. It is not surprising that countries too disorganised to keep electricity flowing 24 hours per day also lack a biotechnology industry and so haven't any companies capable of licensing the vaccines. But that wouldn't matter so long as capitalist companies were free to export vaccines produced elsewhere and someone was willing to pay them to do it.

In brief, at the global level governments responded to Covid mainly by intervening to stop things from moving: slow regulatory approval (e.g. for foreign pharma corps), export bans, and closing borders to civilians. Presumably they do this because stopping things (especially at borders) is what governments evolved for, and what comes easiest to them. The Chinese government presently provides an especially sharp example of a highly developed capability for stopping activity (locking people in their homes), combined with dismal inability to meet the resulting needs of those people.

Shanghai Lockdown 2022: Source

There have been exceptions - islands of government excellence in pandemic management, mostly in countries which learned from SARS, often literal islands (although even these have also made major missteps). And richer governments did come through with economic assistance for those thrown out of work by the shutdowns (that they mandated). However, governments' biggest contributions to the international fight against Covid have generally come from getting out of the way - occasionally and partially. In contrast, for profit multinational corporations are designed for successful cooperation across borders. They have managed to utilise the world's resources effectively in the struggle against Covid, often in spite of the efforts of national governments.


II. Government Incentives Are Not Aligned with the Public Interest

Their origins in a competitive selection for strong sovereignty gives governments a structural bias towards negative rather than positive interventions. But an additional cause of governments' relative underperformance during Covid is their incentives tend to be less well aligned with the public interest than those of key corporations.

Governments evolved to fight wars. They are capable of making tough decisions and sacrificing the few for the many (and the many for their own survival). However, the key to their success is also what makes them poor at dealing with pandemics. First, governments only care about and respond to political problems, i.e. something that threatens their rule. Even plagues that kill vast percentages of the population - like the Black Death - do not necessarily pose a political problem insofar as they leave the power structure untouched amid the piles of dead (although they may disrupt economic relationships on which political power ultimately depends). A disease that kills only around 2% of those it infects, as the original Covid strain did, is not in itself a threat to the regime. 

However, in the modern world the potent idea of democracy has steadily expanded what governments are perceived to be responsible for, and hence answerable for. This means that almost anything can become the government's responsibility if it can be politicised - seen by the dominant political class as something the government ought to fix if it is to keep their loyalty. Think of litter, the price of gas, dangerous dogs, health care, abortion, recreational drugs, and so on. A great deal of political activism is about trying to tie a favoured issue to the government's credibility. It follows that governments also expend lots of effort trying to evade these attributions of responsibility. Many governments - such as Trump's and Putin's - denied the severity of the pandemic for far longer than was reasonable seemingly because they didn't want to take public responsibility for a very difficult problem with no upside (see here for a neat game theory representation). This strategic abdication of responsibility caused millions of unnecessary deaths. 

Second, once a problem is politicised governments must be seen to be successful at dealing with it, which is not quite the same thing as actually addressing it in the most successful way. The audience the government is trying to please are not epidemiologists! They can be fooled by actions and announcements that seem significant and decisive, such as travel bans or mask mandates. In authoritarian countries governments can control the media to such an extent that people only have their own personal experiences to compare the official story to, and discussion of the government's effectiveness or the full opportunity costs of its actions can be suppressed. Hence for example the original Chinese (local) government cover up that allowed Covid to spread around the world unnoticed. Hence also the Chinese (national) government's present reluctance to drop its zero-Covid policy, no matter its increasing ineffectiveness and its social and economic costs

The governments of liberal democracies don't have such control of the media and civil society, and so don't have the same control over how their policies are evaluated. They also have a higher tolerance for humiliating policy failures and U-turns than autocracies, so they are not so tied to their mistakes.  Nevertheless, even these governments managed Covid with an eye to political perceptions as much as public health reality, for example by blocking flights from countries foolish enough to collect and publish data on new variants. 

In contrast, capitalist companies just want to sell people things they like so they can make more money. While this narrow motivation can certainly cause great problems (externalities like pollution) it can also bring great collective benefits. Significantly, companies have an immediate practical interest in solving the problems they face, and in really solving them rather than creating the perception that they have. They also receive more immediate and direct feedback on their decisions than governments do. Thus, because companies wanted to sell people the things we wanted, they found ingenious ways to work around many of the supply chain disruptions caused by (governments' reactions to) Covid. Societies benefitted from this as our needs - as well as our whims - continued to be met. Whatever supply disruptions we do have, especially in N. America, they would have been much worse without this profit-motivated ingenuity. 

The multi-national pharma industry is a particularly good example of capitalist motivations at work. Pharma corps had a clear financial interest in developing a new vaccine as quickly as possible, and then in making as many doses as possible as quickly as possible at a competitive price. In particular, patents have not been a license to print money, as so many commentators seem to believe. Since there are so many effective vaccines - and yet more in development - no pharma corp can maximise its profits by selling fewer doses for a higher price (monopoly pricing). Instead there is a competitive market in which profits are maximised by selling as many units as possible. 


III. Covid is a Wicked Problem

Is it possible to agree with the preceding analysis and yet still defend the necessity and the relevance of government to this kind of crisis (and generally)? I think so. 

First, governments make, and most importantly, enforce, the rules that allow private actors like corporations to operate, cooperate, and make plans, and to do so in ways that create net value. For example, governments have the power to set the rules of the game so that the players' private incentives line up with public value. Therefore capitalism's success against the pandemic itself depended on the prior - 'meta' - success of government. Unfortunately, it is much harder for governments to set the right incentives for themselves because the nature of government - 'sovereignty' - is that it gets to make the rules (although the institutions of liberal democracy are a partial solution).


Second, Covid is clearly a Wicked Problem in which even the character of the problem is opaque and solutions can be better or worse, but never 'right'. Wicked problems are too complicated, interdisciplinary and ill-formed to be outsourced to experts. Lots of actors face wicked problems: At the individual level, what career should I aim for? At the corporate level, how should I organise the supply chain for this product, or its marketing campaign? But the really big wicked problems tend to end up with governments, often becoming permanent civil service departments: climate change, war, crime, education, poverty, health care, and so on. This is partly because even trying to deal with such problems requires overcoming political disagreement and deploying vast resources, powers that only governments have. It is also because no one else wants them. 

Plenty of corporations failed to rise to the challenges set by Covid, but the way the game of capitalism is set up allowed the system as a whole to succeed, and even to benefit in aggregate from this trial and error. Governments aren't playing in such a game. Their mistakes don't only have consequences for themselves. At the same time, mistakes are inevitable given the extreme complexity and ever-shifting character of a pandemic and our understanding of it. We should scrutinise the various failures of governments in the crisis and attempt to learn what we can from them (i.e. making use of the aggregate trial and error experience of governments around the world). But we should also recognise the impossible task they were faced with.