The Alternate Universe of Anti-Capitalist Coronavirus Experts

In the midst of the COVID-19 epidemic, during which the state is now called upon to protect the population and keep economic life going, anti-capitalist recriminations are once again spreading in Europe whether on social media or in newspapers. A German weekly newspaper even spoke of a “capitalist pandemic”: “It is not the virus that kills people, but capitalism.” Once again, free market economies and free trade become suspect, and the expansion of state activity becomes popular. Some call for a nationalization of the economy and an even stronger government. Upon closer inspection, however, such considerations prove outrageous and unrealistic.

Globalization Is Not to Blame. It Is More Helpful Now Than Ever

Some people think that without globalization, the Coronavirus would not have spread worldwide so quickly. One thing is clear: without flight connections to China, the Coronavirus could not have been carried to other parts of the world in a matter of hours. And people who completely isolate themselves from the world (such as the inhabitants of the North Sentinel Island in the Bay of Bengal) are likely not even in contact with the virus.

A world consisting of subsistence economies would, of course, not be able to maintain today’s level of prosperity, or even supply the current world’s population. But not even a less interconnected world with slower travel routes could stop the global spread of such epidemics. One hundred years ago, Spanish flu raged across all continents, both in large cities and among indigenous peoples in Canada and New Zealand. Moreover, in the mid-fourteenth century, the “Black Death” reached Europe via trade routes from Asia, where it swept away an estimated third of the population within a few years.

The worldwide exchange of knowledge between medical professionals is particularly helpful right now.

The speed of trade routes does not change the speed of human-to-human transmission of the virus. However, thanks to the internet and new channels of communication, doctors and politicians now have all the relevant information about the virus much more quickly, at a time when the virus is still in the early stages of spreading. This enables them to take preventive measures much earlier. The worldwide exchange of knowledge between medical professionals is particularly helpful at this time, as Florian A. Hartjen from the Berlin-based Prometheus-Institut rightly points out. Global crises reveal the importance of globalization

The Global Division of Labor Is Still Essential for Our Prosperity

Thanks to modern capitalism and the global division of labor we are enjoying an unprecedented growth in prosperity. Hartjen is also right when he says: “Poverty is the greatest health risk.” Not only tourism hotspots, but also poor areas with poor hygiene become sources of infection in no time at all.

Nevertheless, some now have doubts. The interruption of supply chains from China has made them aware of their dependence on foreign producers, which is why they criticize the global division of labor as a supposedly “neoliberal” economic model: there is an urgency to overcome the dependence on pharmaceutical suppliers in Asia. Such demands for more self-sufficiency also come from the political and business sectors.

Those who accept more expensive drug production and delivery should not be surprised by public outcry over rising healthcare costs.

The speed of trade routes does not change the speed of human-to-human transmission of the virus. However, thanks to the internet and new channels of communication, doctors and politicians now have all the relevant information about the virus much more quickly, at a time when the virus is still in the early stages of spreading. This enables them to take preventive measures much earlier. The worldwide exchange of knowledge between medical professionals is particularly helpful at this time, as Florian A. Hartjen from the Berlin-based Prometheus-Institut rightly points out. Global crises reveal the importance of globalization.

The Global Division of Labor Is Still Essential for Our Prosperity

Thanks to modern capitalism and the global division of labor we are enjoying an unprecedented growth in prosperity. Hartjen is also right when he says: “Poverty is the greatest health risk.” Not only tourism hotspots, but also poor areas with poor hygiene become sources of infection in no time at all.

Nevertheless, some now have doubts. The interruption of supply chains from China has made them aware of their dependence on foreign producers, which is why they criticize the global division of labor as a supposedly “neoliberal” economic model: there is an urgency to overcome the dependence on pharmaceutical suppliers in Asia. Such demands for more self-sufficiency also come from the political and business sectors.

Those who accept more expensive drug production and delivery should not be surprised by public outcry over rising healthcare costs.

Their argument cannot really call globalization into question. Basically, globalization expands the availability of possible manufacturers and suppliers. In this situation, even private entrepreneurs can access other potential suppliers if they want, not just the cheapest one, so that they are not dependent on it alone. In fact, we cannot say anything against diversification. But one thing must be clear: first, everyone buys goods and services where they can get them most cheaply and for the same level of quality. If we buy medicines elsewhere at much higher cost or produce them ourselves, it will not be without consequences for our already expensive healthcare system. (I should note that, at least in Europe, the prices for prescription drugs are not determined by supply and demand). So those who accept more expensive drug production and delivery should not be surprised by public outcry over rising healthcare costs. One thing is certain: as soon as it pays to produce in our country, pharmaceutical companies will do so.

If you rely on European rather than Asian manufacturers, you are in fact replacing one dependency with another. Geographical proximity does indeed shorten transport, but it does not make producers more resistant to crises. We should not forget, incidentally, that thanks to the free market economy and globalization, around one billion Asians have also risen from poverty to the middle classes over the past 30 years.

A “Neoliberal Minimal State” Would Not Be Overburdened with Taxes

Sometimes one even hears that the demands on government of the Coronavirus crisis show us the uselessness of neo-liberal state concepts. An editor of the Austrian Public Television Company (ORF) said on television: “There are the ambassadors of neo-liberalism … who say: ‘you just have to run a state like a business, and then the state will be fine’. In days like these you can see what kind of… illegitimate approach it is.”

Here an admittedly faulty view of the state is declared neoliberal. Liberal (or if you prefer, “neo-liberal”) thinkers do not demand that the state be run like a business—quite the opposite! It is socialism that tries to turn the state into a mega-enterprise and plan all economic activity. Liberals are in favor of a small but efficient government that fulfils its core tasks, which include the protection of private property and the rule of law—which are essential for the market economy, and which therefore also has a scope for short-term debt and monetary easing in times of crisis. Nobody knew better than Ludwig von Mises, one of the sharpest critics of the modern welfare state, that this cannot be done on the basis of exclusively market economic principles. In his book Bureaucracy he writes as follows.

“In public administration, there is no connection between revenue and expenditure. The public services are spending money only.” This is unavoidable, however, because “in public administration there is no market price for achievement. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.” Mises countered all those who call for the less wasteful methods of the private sector to be applied to the public sector: such persons “misconstrue the features peculiar to public administration. They are not aware of the fundamental difference between government and profit-seeking private enterprise. What they call deficiencies and faults of the management of administrative agencies are necessary properties. A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation; it has to solve problems which are unknown to business management.”

The advantages of the liberal state model are clear, even in times of crisis.

Mises was well-acquainted—not least from his own professional experience—with all the shortcomings and challenges of state administration, but he did not deduce from this that it should be abolished. Instead, he called for it to be limited to core state tasks, and he sharply criticized state obstruction of the free market economy, for example through state interventionism.

The advantages of the liberal state model are clear, even in times of crisis. The liberal state creates trust between citizens and authorities, and it enables trust among citizens. Without trust, the economy cannot function. Above all, a small and efficient government is transparent and thus less susceptible to corruption. A solid federalism is helpful in this respect. Social assistance, for example, which is organized at the state or municipal level—by collecting the necessary taxes there and then paying them out as social assistance—creates trust, partly because the more localized population knows more about the recipients of social assistance.

Especially in times of crisis, well-established organizational mechanisms within societies and trust in state authorities are advantageous. A centralized, paternalistic government, on the other hand, which is far less transparent but all the more susceptible to corruption, causes mistrust. This can be even more disastrous in times of crisis. Protecting the population against infectious diseases and epidemics is a typical governmental task. An epidemic must be centrally controlled. A small government without heavy debt is far better equipped to cope with this task. In fact, this is precisely where the problem of all European states lies: they are not so well equipped to perform this task because they are enormously weakened economically and vulnerable because of a high level of debt resulting from welfare state activity.

We can see that the survival of the free market economy and the regaining of a small government, without a high public spending ratio, which therefore also has reserves for times of crisis, is essential for our society and the preservation of our prosperity. This was the case before the Coronavirus crisis, and it will continue to be the case afterwards.

Translated from German by Thomas and Kira Howes.

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