By Roman Frydman and Gernot Wagner
NEW YORK ( Project Syndicate ) — It’s easy to find fault with the United States’s COVID-19 response or, to be more accurate, the woeful lack thereof. Denial, delays, political infighting , and systemic failures have resulted in more than 100,000 U.S. deaths and deepened the social and economic crisis. Over 40 million workers — one in four — have filed for unemployment benefits since March. Now, Americans are being told that the country, though unprepared, should rush back to “normalcy.”
What has gone awry in the U.S. response to the coronavirus pandemic transcends today’s hyper-partisan politics. The roots of this American disaster run deep.
Whether the problem is COVID-19 or climate change, the market on its own will not produce a sufficient quantity of goods — like masks, vaccines, or environmentally sustainable growth — that benefit society. Capitalizing on America’s private-sector dynamism will require the state to create incentives to produce such “social goods.”
To be clear, much of the blame is deservedly partisan, with only the Democrats attempting — over Republican opposition — to patch up the threadbare safety net via direct support for the unemployed, the poor, the already sick, and the otherwise vulnerable.
But Democrats, too, have stopped short of calling for the U.S. government to direct — and pay — the private sector to produce the goods and services that are socially required but that the market on its own cannot and will not deliver.
Saying that the state must be called on to “deliver the goods” evokes images of Soviet-style central planners deciding which style, shape, and even size of shoes should be produced. The state clearly has no business interfering in such a way in the market for private goods. Doing so only leads to the artificial shortages reminiscent of command economies.
But in capitalist economies, too, governments play a direct role in providing certain goods.
Public goods — national defense, for example — clearly ought to be provided by government. In fact, in the U.S., it is not the public sector itself that produces defense goods; the government directs the private sector to do so. Use of the Defense Production Act (DPA) of 1950, modeled after the War Powers Acts that gave President Franklin D. Roosevelt massive authority to direct the economy during World War II, is not exactly rare. The military places around 300,000 orders each year under DPA, a practice that has continued under President Donald Trump.
But the Trump administration has been reluctant to rely on DPA for COVID-19 relief. It was used only in select cases, for example when directing 3M /zigman2/quotes/205029460/composite MMM -1.14% to prioritize government orders for N95 face masks and barring the company from exporting them, or when directing General /zigman2/quotes/205226835/composite GM -2.38% to manufacture ventilators.
The Trump administration deployed DPA in a way that was at once too interventionist and not interventionist enough. It relied on what one might call hard command-and-control provisions and used DPA “against” 3M and GM. The government told the private sector what to do.
A much better use of the state’s vast powers would be soft command: government creates incentives for the private sector to produce goods that benefit society. Germany, for example, used government purchase guarantees as part of a much broader support package. The goal was clear: not to command German companies to produce medical equipment, but to set the right incentives for them to do so.
None of this is to diminish organic corporate innovation and entrepreneurial ingenuity. We should all applaud the local distillery shifting its production from spirits to hand sanitizer, or the maker of coffee filters that switches to producing facemasks .
The market will fail
But it is clear that the market, left to its own devices, does not produce a sufficient quantity of personal protective equipment, ventilators, and therapeutic drugs. Nor, if and when the time comes, will it ensure universal vaccination.