Tuesday, October 27, 2020
Home COVID-19 The unavoidable errors of a 'State' controlled Covid response

The unavoidable errors of a ‘State’ controlled Covid response

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A FASCINATING academic paper has just been brought to my attention. It was published two months ago in The Review of Austrian Economics. The author is Mark Pennington, Professor of Public Policy and Political Economy at King’s College, London. It is a critique of – indeed an account of the dangers of – the ‘unprecedented levels of government activism’ made ‘both in an attempt to control the virus and in attempts to curtail the economic damage arising from these policy measures’.

Pennington points to governments across the world in effect closing down their economic systems in response to the health threat posed by Covid-19. Several, he adds, have committed themselves to further interventionist policy measures – such as paying the wages of private-sector employees – that have ‘rarely if ever been seen before’. It has all happened so suddenly we need a pause for thought.

Pennington’s paper provides just that.

His argument is while some government action may be warranted in such a case, on precautionary or preventative principle, ‘the complexities involved of trying to address the multiplicity of the socio-economic dimensions at stake’ means it is unlikely to be either effective or timely. His thesis is underpinned, unusually for a British academic today, by Hayek’s critique of economic planning (long since forgotten by the Conservative Party). Centralised government action always had – and more so in the context of unified global action – huge scope for systemic error. Not that Matt Hancock would understand that.

If you strip away the academic jargon I am pretty sure the author is detailing and confirming what many of us already know: that the Government’s Covid cure is proving very much worse than the disease, and that it was bound to be. This is because State interventions of this magnitude prove incapable of benefiting either from trial and error or even from the presence of counterfactuals, where and when they exist, which in this case they do in the form of Sweden. Free markets, free choice and the mechanisms they have for self-correction have been flattened by authoritarian and centralised government and state command of resources and planning. Those last are my words.

There is worse though to follow. The inevitable failure to learn from this event has dire implications for post-pandemic political economies.

Pennington writes: ‘If historical experience of crises, whether wars or natural disasters, is any guide to the post-pandemic political economy, this period seems likely to be characterised by increasing calls for more government activism and control . . . On the one hand, these calls may be driven by demands for preventive measures to avoid anything like the present crisis happening again. On the other hand, states that have assumed significant control over resource allocation during the pandemic may be reluctant to relinquish their powers and may be encouraged to retain them by those who envisage significantly expanding the role of government in the economy.’ 

Another way of putting it in my humble English is the political phenomenon of doubling down on a failed policy, enjoying power, and fearing to relinquish control not least in case your head will be on the chopping block. In a private business you could not afford to do this. The shareholders in the end would have something to say. But as we learnt from Orwell’s Animal Farm political leaders can all too easily shift the blame to deflect criticism and ensure compliance, while continuing in their bullying and their conceit.

This in conclusion, is what Pennington warns of – ‘the conceit of post-pandemic risk planning’. The Hayekian perspective, he says, suggests that ‘scientific management’ (by government) of future risks is unlikely to be successful, whether it be climate or pandemics. 

‘In the final analysis, “what cannot be known, cannot be planned for” (Hayek 1988) so there are grounds to be wary of granting authority to political agencies that justify their assumption of new powers on the basis of highly uncertain and perhaps unknowable likelihoods of future risks. Moreover, insofar as authority is granted to public bodies rather than, for example, leaving these decisions to private insurance markets, then an important implication from the Hayekian analysis is that this authority should be fractured and should where possible avoid reliance on global governance schemes. Should the wrong risks be chosen by big players in a global governance structure, the negative consequences will be felt globally. In a more fractured regime, on the other hand, unless all decision-making units perceive risks in the same way then the greater heterogeneity of decisions may reduce, though it may not eliminate, the possibility of system-wide failures of risk management.’

Pennington’s paper is a challenge to the view that only the state has the capacity to engage in the ‘transformational’ measures that might be required to ‘jolt’ society out of crisis events. He fears that post-pandemic these pressures will intensify; and they must be resisted. Following ‘in the wake of the massive interventions in financial markets by monetary authorities in the 12 years since the crisis of 2008’, adds further instability. Furthermore he says such measures would ‘generate an additional source of systemic risk and may further undermine the background foundations of competition and private contracting, in favour of a regime where discretionary political and bureaucratic power by “big players” exercises a growing and unpredictable element in the calculations that private agents must make.’

I cannot do justice to his long, complex and important paper; I hope others may do better. But let me finish with a warning he has for advocates of ‘command and control’ (my words again) type state solutions:  

‘ . . . state-dominated “transformations” thwart the emergence of counterfactuals and knowledge of opportunity costs by limiting competition. As with pandemic response, the scale of the expenditures or the scope of the regulations concerned, and the lack of profit and loss signals attached to them, may block the communication of which “bits” of expenditure or regulation are adding value.’

In simple English I think that means when much needed market based or independent solutions could be found they don’t stand a chance. Not just enterprise is blocked but knowledge is too.

I note that the Institute of Economic Affairs (IEA) focused a webinar around Professor Pennington’s work in May. 

But did his fundamental and crucial critique of Government Covid policy feature anywhere at this week’s Conservative Party conference? I don’t think so. You can read his full treatise here. It needs further airing.

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Kathy Gyngellhttps://www.conservativewoman.co.uk/the-editors/
Kathy is Editor of The Conservative Woman. She is @KathyConWom on Parler.

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