The coronavirus crisis has reinvigorated old debates about the role of the state and the pros and cons of free-market capitalism. Many of the new contributions from all sides have been insightful and constructive. Some, unfortunately, have not.
One of the least helpful is a recent piece by Thomas Fazi, “Could Covid-19 vanquish neoliberalism?”, published by Unherd. Fazi’s thesis is that the global pandemic has “shattered practically every shibboleth in the neoliberal bible”. In fact, all the “shibboleths” turn out to be no more than strawmen.
The article’s sub-heading is a warning of what’s to come. Apparently, “this crisis is exposing the folly of applying market-based logic to every domain of human life”. But where on earth is life run this way? Even the fiercest critics of the “nanny state” would agree that public health cannot be left entirely to markets. As Chris Snowdon has explained, the risk of a great many deaths from coronavirus is a textbook example of serious negative externalities that can only be dealt with by collective action. This is uncontroversial.
The article itself continues in the same vein. Fazi’s “first and most obvious victim is the idea that money is a scarce resource”. It soon becomes clear that Fazi has bought into the most economically illiterate version of “modern monetary theory” (MMT). Regrettably, this interpretation is also increasingly popular among left-wing politicians both in the UK and the US.
It is obviously true that central banks can always print more money to pay for increased public spending if necessary. There is also no need for countries issuing in their own currencies to default on their national debt. I’m not aware of anyone, neoliberal or otherwise, who would disagree with that. However, Fazi goes on to conclude that “there has never been a lack of money for education, healthcare, infrastructure, welfare and other public services”.
This is baloney. Money itself may not a “scarce resource”, but the same does not apply to the goods and services that it is expected to buy. Otherwise, any country with its own currency could use its magic money tree to pay for world-leading education, healthcare, and so on. Most people, including the more sensible proponents of MMT, recognise that unlimited monetary financing of public spending could simply lead to higher inflation.
The exception, of course, is when there is plenty of spare capacity in the economy and high unemployment. But once again, the idea that expansionary fiscal and monetary policies might have a role to play in helping economies recover from recessions is not something that would trouble most neoliberals.
To be fair, there is a serious debate to be had about whether the austerity of the early 2010s went too far, or whether its burden should have been shared more evenly. I’m actually sympathetic to both these points. But Fazi has precisely nothing new to add here. Indeed, it’s revealing that he recycles the old claim that austerity resulted in 120,000 excess deaths in the UK, which has long since been debunked.
It gets worse. Fazi’s second “neoliberal shibboleth” is the “superiority of private and liberal strategies over centralised economic planning and the welfare state, and the obsolescence of nation states”. This conflates a number of different ideas, but the discussion that follows is mainly gibberish about the underfunding of public hospitals and the dangers of privatisation.
Here, Fazi notes that “Italy and Spain have today fewer hospital beds per inhabitant than China; France and Germany fewer than South Korea or Japan”. I have no idea why he chose these particular countries, or what we are supposed to conclude from this. Are South Korea and Japan not also neoliberal, capitalist economies? Is China’s healthcare system a world leader? What does this say about countries like Sweden and Denmark, usually darlings of the left, who have far fewer hospital beds per inhabitant than any of the others mentioned? We’re left none the wiser.
Ironically, it’s more usual to draw an unfavourable comparison during this crisis between the number of hospital beds in the UK and the much higher number in Germany. But then you’d have to acknowledge the awkward point that Germany has a decentralised health care system with much higher levels of private sector involvement and competition. This obviously wouldn’t fit the narrative.
Meanwhile, Fazi ploughs on. Now it’s getting surreal. The third neoliberal shibboleth apparently blown away by the coronavirus is the “benefits of belonging to the European Union and eurozone”. I confess I actually laughed out loud at this. I’m pretty confident that you’d find at least as many neoliberals lining up to bash the EU as to defend it. But at least this is something to agree on.
Then a final brief section on the fourth shibboleth, “hyper-globalisation”. Once again, there is nothing “neoliberal” about the idea that free trade has brought huge social and economic benefits and helped to lift hundreds of millions of people – if not billions – out of poverty worldwide. This is accepted by just about every serious economist, whatever their perspective.
Of course, there are many critics of globalisation too. But it’s not obvious that the coronavirus crisis has shed any new light on their concerns. It certainly seems odd to worry about the reliance on cross-border supply chains when social distancing and the lockdown means that you cannot even walk to the local shops.
Fazi’s only specific point here is the suggestion that the delocalisation of production has compounded shortages of basic medical equipment and medicines in some countries. However, it seems more likely that this crisis would have overwhelmed any country solely dependent on domestic production. Globalisation at least allows countries in need to access supplies from others that do have the capacity to increase output quickly.
In summary, Fazi’s attempt to use the coronavirus crisis to expose the follies of neoliberalism fails at every turn. But I’d go further – in the opposite direction. The health emergency has actually demonstrated many of the benefits of free-market capitalism.
It is only relatively wealthy liberal economies that have the resources to strengthen their safety nets in times of crisis, not those suffering from decades of socialist central planning. It is private businesses that are competing to come up with solutions to particular needs, from online delivery companies to those working on creating a vaccine. In the meantime, it is the most flexible and decentralised healthcare systems that are coping the best.
Above all, we have also seen numerous examples of how private businesses have been willing to work together and cooperate in the wider public interest. These examples demonstrate that free-market capitalism and the profit motive are perfectly compatible with socially responsible behaviour. And in most cases, the state hasn’t had to do anything – other than get out of the way.
