Lessons from the outbreak: quantity or quality of government?

Martí Jiménez-Mausbach

April 14, 2020

The intellectual battle for the Covid-19 economic narrative is already underway. In the midst of the pandemic, which has already brought the most dramatic extension of state power since the second world war, some voices are trying to make the case for even stronger control of the economy, invoking price controls and permanent nationalisations of banks, medical supply businesses, railways and even retail companies

This global health crisis is forcing us to rethink our welfare systems. Indeed, governments have already made unprecedented interventions to provide financial support to both families and businesses, thereby avoiding longer-lasting damage. More robust social insurance systems, direct cash transfers, loan guarantees, and investment in research and innovation will certainly be instrumental in protecting both incomes and jobs as we go forward. 

At the same time, we have witnessed how red tape, inefficient market regulations, and bureaucratic proceduralism have hampered speedy mitigation and response strategies. The grotesque mishandling of an effort to roll out diagnostic kits by the FDA led to tragedy in the USOn the other hand, a substantial number of countries have been forced to overturn certification and approval regulations in order to permit hospitals to purchase N95 masks, which were previously only approved for industrial use.

When research labs, hospitals, and other businesses have the freedom to quickly adapt without having to beg slow-moving bureaucracies for permission, testing capacity and clinical results drastically improve. 

Absurd entry barriers to competition are also being called into question. In Spain, people with chronic diseases (hypertension, obesity, diabetes) and individuals with limited mobility are currently left in a dangerous position: direct mailing and online selling of prescription medicines are expressly forbidden, so patients are obliged to leave the house to get their medicines in person

It’s obvious, therefore, that the economic narrative needs something more than the classic framing of “government versus market”. Societal challenges such as climate change and global health crises will only be effectively addressed through a balanced combination of government fiat, market incentives, and civil society participation. South Korea’s massive testing and tracing strategy, immediate social distancing (all for the most part voluntary) and fast mobilisation of scientific expertise are a striking example of such a balance. 

Over 500,000 South Koreans have already been tested for Covid-19, a level that would have been impossible to enforce without an engaged citizenship. As the great Elinor Ostrom once wrote, “it is ordinary persons and citizens who craft and sustain the workability of the institutions of everyday life. We owe an obligation to the next generation to carry forward the best of our knowledge about how individuals solve the multiplicity of social dilemmas – large and small – that they face”.

No government will be able to address challenges like the current pandemic without a civic-minded citizenry that trusts the public health advice of its government and is committed to contributing to collective action while preserving its liberties and civil rights. 

Both in the UK and Spain, centralisation in public health and testing strategies has not delivered the expected results. Information flows better in polycentric, competitive environments. There is no point in centralising supply imports or prohibiting both regional governments and private companies from providing decentralised solutions to the crisis. As pointed out by the Adam Smith Institute’s latest report, allowing universities and small private labs to undertake production of tests and ventilators through a process of trial and error was one the main reasons behind South Korea’s success. 

Remembering the lessons of Friedrich Hayek, we must also be aware that it is private businesses that have access, as a result of their daily activities, to local information and experience which is of great value when it comes to securing supplies during an emergency. Unfortunately, government institutions are not fully taking advantage of the private sector’s expertise in managing logistics and supply chains – and it is ordinary citizens who are suffering the consequences.  

The current crisis underlines some relevant lessons on institutional and policy design: the market, the state and civil society are complements, not substitutes. The most pressing social problems, including tackling global pandemics, fixing traffic congestion, and improving childhood education, will require better states rather than bigger states. And in this challenging process of reform, state capacity, market competition and civic engagement will need to go hand in hand, opening the “narrow corridor” where liberty-supporting states can exist.

Well-designed government policies and trust in public institutions enhance both market dynamism and the salience of cooperative behaviours. At the same time, competitive markets and engaged civil societies both empower governments’ legitimacy and make them more accountable. In the aftermath of the pandemic, these will be lessons worth remembering.


Written by Martí Jiménez-Mausbach

Martí Jiménez-Mausbach is vice-president and head of research at the Ostrom Institute, a neoliberal think tank based in Barcelona.


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