The Pandemic Is Showing Us How Capitalism Is Amazing, and Inadequate
Why big business needs big government and vice versa.
By Neil Irwin, The New York Times (NYT)
Nov. 14, 2020
The bananas news cycle of November 2020 included a fascinating public spat that is essential for understanding modern capitalism.
After Pfizer announced highly successful preliminary results for its coronavirus vaccine, Trump administration officials said the good news reflected the success of their Operation Warp Speed program to accelerate vaccine development. Pfizer executives stressed the opposite, noting the company had developed the vaccine with its own resources, not government grants.
That was true, but not the whole story. Over the summer, Pfizer had reached a $1.95 billion “advance purchase” agreement with the United States government, ensuring it would be well compensated for eventually delivering 100 million doses of vaccine. In other words, though the government did not directly fund the drug development, it created the groundwork in which the pharmaceutical company could spend research dollars with abandon, knowing that success would be financially rewarded.
It may seem like a trivial case of a company and an administration each claiming credit for some happy news. But it speaks to a deeper reality the pandemic has revealed — both what is amazing about capitalism, and how the free market alone comes up short in solving enormous problems.
The nine months of the pandemic have shown that in a modern state, capitalism can save the day — but only when the government exercises its power to guide the economy and act as the ultimate absorber of risk. The lesson of Covid capitalism is that big business needs big government, and vice versa.
With astonishing nimbleness and speed, businesses in the United States and worldwide have accomplished remarkable feats — most notably the biotechnology and pharmaceutical companies trying to fight the virus. But the list includes other important achievements: keeping grocery store shelves stocked even as much of the capacity to process and distribute food was disrupted, and redeploying factories to make ventilators and personal protective equipment.
In many cities, when a sudden rainstorm arrives, street vendors of cheap umbrellas will appear as if out of nowhere, driven not by some central authority but responding to the invisible hand of the marketplace. If you substitute masks for umbrellas, and substitute apparel companies for street hawkers, you have a fair description of the magic of the marketplace in 2020.
But those private-sector achievements have been matched by efforts on a scale that only the public sector can manage — to channel resources to the places most in need and to protect the economy from huge risk.
Operation Warp Speed has used a mix of financial incentives to coax the private sector to invest in vaccine development on a scale and at a speed it couldn’t have on its own. Congress enacted legislation to support millions of small businesses, many of which would have closed otherwise, and funneled money to ordinary Americans to help prevent a collapse in spending. The Federal Reserve announced it would stand ready to buy hundreds of billions of dollars in bonds and other assets, ensuring that large companies would have access to capital even amid a market collapse.
Big business and big government both play vital roles in making the modern economy work. The pandemic has showed how these two can’t really be disentangled — they rely on each other more than partisans may care to acknowledge.
‘The food supply chain is breaking’
Seven months ago, although it now seems seven years ago, Tyson Foods placed a full-page advertisement in major newspapers with a dire warning.
“The food supply chain is breaking,” the chairman, John H. Tyson, wrote. “We have a responsibility to feed our country. It is as essential as health care.”
A series of coronavirus outbreaks in meatpacking facilities was leading to shutdowns and other disruptions. With some pork processing plants closed, millions of pigs on farms grew too big to be slaughtered and processed in the equipment used to produce the nation’s supplies of pork chops and sausages. Many were euthanized instead.
But the remarkable thing is that, despite Mr. Tyson’s warnings, the food supply chain mostly remained intact. There were occasional scattered shortages of pork or other meats, but mostly the market worked as it is supposed to.
Prices rose, as Economics 101 would predict. From March to June, the retail price of pork chops rose 21 percent, and the price of fresh whole chickens rose 9 percent. Higher prices led consumers to seek alternatives to the foods in short supply, and producers and supply chain managers worked overtime to ensure any shortages were short-lived. Restaurant suppliers reoriented their businesses to sell to home cooks at a time their normal customers were closed.
Although grocery stores had some empty shelves, there were no widespread food shortages. And while many food prices were higher than before the pandemic, they have since moderated. Pork chops are now only 7 percent above March levels, and fresh whole chickens are up 3 percent.
“People assume you press a button and things show up, that when you go to a grocery store food magically appears,” said Nada Sanders, a professor of supply chain management at Northeastern University. “It’s much more complicated. There has been a sense of absolute urgency in making sure products are there.”
People involved in the food supply chain don’t mess around; they are aware that humanity depends on them for sustenance. But the effort wasn’t confined to food.
“How many distilleries do we know that stopped producing their high-margin items like vodka, and began converting to produce hand sanitizer, which is a low-margin item?” Professor Sanders said. “There was a reshuffling of supply chains across the economy to respond urgently to what consumers wanted and needed.”
The metaphorical umbrellas arrived when Americans needed them most. But nowhere is that more apparent than in the remarkable mobilization to find treatments and vaccines for Covid-19.
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