Business & Economics

Out of the Pandemic Mud

A combination of government and private markets has helped to get our country unstuck from the mire of the COVID-19 pandemic—and this provides important lessons for future challenges

Together, government and private markets are getting America unstuck from the COVID-19 pandemic mud. Image Credit: James Warwick/Getty Images

Imagine yourself mired in a field of mud, unable to make forward progress. Now imagine that everyone you knew, plus all businesses you patronize, plus your children’s school was in this same field with you. Sounds a bit like the experience of the COVID-19 pandemic, doesn’t it? But as our national experience with COVID has shown, when faced with pressing social and economic challenges, the powerful forces of government policy and the energy of private markets can be used as tools to pull ourselves out of a quagmire.

However, every tool is most effective in a specific setting. What has COVID taught us about each tool’s relative strengths, and how can we balance these tools to leverage their strengths for future challenges?

How To Use the Government

Think of the government as a powerful bulldozer—one that can help get a big truck out of that field of mud. The key strengths of government policy are size and scale, making it most useful for a big push on a well-defined target. Government excels in size because it is able to muster large financial and administrative resources, and in scale by affecting a high percentage of the population at once.

Early COVID-19 information campaigns from the U.S. Centers for Disease Control and Prevention (CDC) illustrate good use of the tools of government to push forward a single, high-impact target. Over a week before the first COVID cases were reported in the U.S., the CDC used its advantages of national scale and its preexisting network of public health agencies to publish information on COVID as genetic information became publicly available. In fact, research of individual movement at the pandemic onset shows that much of the impetus to stay at home came from individual reactions to current information on the virus and infection rates. Using mobility data from cellphone locations, researchers across many studies found dramatic drops in individual travel from home during the second week of March 2020, well ahead of any official state or local shutdown orders.

Centralizing information dissemination through the CDC also centralized costs of gathering and synthesizing this information. Since bulleted lists of infection risks or handwashing recommendations don’t need to be tailored to local conditions, national distribution was more cost-efficient than tasking individual agencies with reinventing the wheel.

Armed with information, individuals could now turn to the challenges of moving forward safely out of the pandemic mud. However, at the individual level, these challenges were multifaceted. The importance of in-person work varied among industries, and large businesses had advantages of scale in making policy, while small ones had advantages in flexibility. Age, race and ethnicity, combined with factors such as health conditions and job type, created a wide range of individual risk profiles. Instead of a single, clear target, these challenges might be represented by a bunch of passenger cars stuck in that mud. Or maybe a mix of cars, bicycles and people on foot—what a mess.

Bringing in a bulldozer here may help somewhat, but it would also be clumsy, and it might cause damage. This was illustrated in the politically fraught government policies restricting economic activity to “essential” businesses. As we’ve seen through now two-plus years’ worth of supply chain disruptions, the economy is supported—and can be upended—by a myriad of forces, from delayed semiconductor computer chips slowing consumer electronic production, to a shortage of minimum wage workers forcing reduced hours and closures of basic retail establishments. Any short list of “essential” industries is guaranteed to leave out important components—not to mention that owners and employees of gyms, shopping malls and restaurants beg to differ that their livelihoods are “nonessential” to support their families.

Additionally, the $5 trillion in government stimulus payments boosted demand for goods and services while simultaneously removing workers from already strained supply chains, hindering economic recovery. Once implemented, these payments couldn’t be scaled back and came with additional costs of administrative bureaucracy and potential fraud. Getting legislative aid levels wrong is clumsy because of the opportunity cost of these funds (i.e., the next best use of a resource), which could have been saved or directed more efficiently at a single target. That’s where private markets come in.

How To Use Private Markets

Private markets are best suited for a mess of local, individual “stuck-in-the-mud” problems that need to be solved flexibly and efficiently. Markets are exactly suited to solve multifaceted problems because every transaction in a private market is engineered to solve an individual’s problem and make each participant better off. From a taco truck to advanced web services, the buyer and seller come together because the buyer is made better off through his purchase—it fills his tummy or hosts his website—and the seller grows his business. Both sides win.

Besides simultaneously addressing multiple problems, markets are fast and flexible. Particularly for large organizations, infection risk is not a formless external threat, but compounds within the workplace itself, leading to lost productivity and profit. Employers such as Facebook, Google, Twitter, Amazon and major universities were among the first to impose work-from-home policies—more than a week before any local stay-at-home orders. Sick leave policies also sprouted up before federal mandates from industry leaders such as Apple and Instacart, as well major restaurant chains like Olive Garden, LongHorn Steakhouse and McDonald’s. Each organization’s response could be flexible, taking account of the benefits from in-person activity weighed against the financial risk to the organization from increased infection and quarantine. For example, office workers were sent home with their computers, but the plant maintenance staff remained in-person and masked.

Markets are also effective at directly addressing the core problem. No matter how much cash the bulldozer pushes into consumers’ pockets, it doesn’t change the fact that everyone is still stuck in a field of mud; the basic dangers of infection through daily interaction didn’t change. On the other hand, any private market solution that mitigated infection risk would be rewarded in the marketplace. Helped by the early information push, strong social norms for health and safety protocols meant that good policies to protect customers and employees was also good business, much how “socially responsible” or “green” products command a premium price.

Even better than health and safety protocols was the ability of private markets to innovate pandemic problems away. What pulled us out of the mud more swiftly, flexibly and efficiently than the ubiquitous Zoom, which surpassed 300 million users by month two of the pandemic? The power of the entrepreneur took the food and grocery delivery services of GrubHub, DoorDash and Instacart to over 50 million people. Other innovations introduced remote ordering across the retail spectrum and shifted entertainment to streaming services exploding with new content. Investment in supply chains surged over 60 percent following 2020, producing innovations along many dimensions. E-commerce operations exploded, led by user-friendly platforms such as ShipBob and Radial, automated and remote payment systems streamlined operations, remotely operated warehouse equipment was safer and faster and new inventory systems, such as the Attabotics retrieval system inspired by ant colonies, now allowed one person to accomplish the work previously done by four or five workers. Private markets are made of many individual actors—businesses and consumers—and each is simultaneously motivated to solve pieces of a multifaceted problem. These actors mobilize quickly because doing so improves the bottom line for everyone.

Looking to the Future, Leveraging Our Strengths

We can leverage the strengths of each tool if the government uses its big push selectively, to clear barriers to private market progress and innovation. A great example of this balance between the two can be seen in the landmark development of COVID-19 vaccines.

If there was any well-defined target of high economic benefit during the pandemic, it was vaccines. Vaccines would prevent deaths, allow normal activities to resume and restore full economic activity. However, this target was also of the “large truck” type—extremely hard to budge. In private markets, vaccine development started as soon as China publicly published the viral genetic sequence, with over 100 vaccine trials underway in less than four months. To help scale up this innovation, the federal government gave a big financial push, with over $20 billion allocated to vaccine development through Operation Warp Speed by March 2021, including over $13 billion to the development and manufacture of the Pfizer, Moderna and Johnson & Johnson vaccines plus $1.5 billion for production of components such as vials and syringes.

However, an equally influential government push was not financial aid, but instead clearing away barriers to private market progress through the Emergency Use Authorization program for vaccine candidates. With the Emergency Use Authorization, the usual 5-10 years of bureaucratic red tape to get to Food and Drug Administration approval was slashed to less than a year. Drug developers were able to submit portions of their applications as they proceeded with testing, dispensing with administrative waiting delays, and final clinical trials were permitted to begin as soon as sufficient safety data became available, streamlining the most arduous and complex parts of the trial process.

The results speak for themselves: By the end of February 2021, just a year after the first reported U.S. infection, the Food and Drug Administration had not one, but three effective vaccines operating under Emergency Use Authorization. Two weeks later, over 100 million vaccine doses had been administered nationally. Researchers estimate that the first five months of the vaccine campaign saved nearly 140,000 lives in deaths avoided, or between $625 billion and $1.4 trillion in the value of statistical lives saved. Compare those numbers to anything the government could muster with a purely financial push: The beneficial impact of government action to remove onerous barriers for private markets was far greater than any financial aid. And these numbers don’t even consider the global spillover benefits from these U.S.-developed vaccines.

As we contemplate future challenges on the horizon, from immediate threats like monkeypox to more long-term and far-reaching problems such as accelerating healthcare costs, let’s consider how we can leverage the strengths of both sectors. By using the heavy lifting of government action to selectively clear away regulatory obstacles, we can unleash private market innovation to lead us to an even better tomorrow.

Read the new Mercatus research paper “Pandemic Problem Solvers: Private Markets and the Public Sector” by Tina Marsh Dalton and Grace Lyons here.

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