‘Never let a good crisis go to waste’ – activists, academics and politicians from the left are channelling their inner Churchill to promote a post-pandemic world characterised by a bigger, bossier state and broader social objectives for businesses. But their visions of a new role for the state and the private sector would undermine prosperity and poison public perceptions of capitalism.
In a new paper for the Adam Smith Institute – Capitalism after Covid –ASI Fellow Matthew Lesh argues that the litany of state failures during the Covid pandemic undermines the case for expanding the role of government in the economy. From China’s initial cover-up to the slow rollout of mass testing, centralised bureaucracies have proven themselves inadequate. In the UK’s case, Public Health England’s mission creep towards lifestyle regulation swallowed ever greater proportions of its budget at the expense of infectious disease control. Its monopoly on diagnostic testing proved slow, unresponsive and reluctant to utilise the expertise of the private sector.
Businesses, meanwhile, adapted quickly to changing circumstances, in many cases practically overnight as millions of office workers were confined to their homes. Gyms offered remote classes, video conferencing technologies kept us connected to our friends and unprecedented supply chain shocks were weathered because of globalisation, not in spite of it. As the World Bank put it, ‘trade can insulate a country imposing a stringent lockdown from the pandemic shock, as its foreign inputs are less disrupted than its domestic ones’.
None of this seems to have deterred ‘Disaster Corporatists’ from making the case that we must usher in a new era of stakeholder capitalism in order to ‘Build Back Better’. They confuse the success of temporary measures to freeze the economy – having the state acting as an insurer of last resort – with the idea that we need a more activist (or in the words of economist Mariana Mazzucato ‘entrepreneurial’) state in normal times. The problems with pursuing this approach are clear: subsidy entrepreneurs, zombie companies and lacklustre economic growth. When politicians take a more active role in picking winners and losers, they force firms to compete on the basis of beefing up their lobbying operations, rather than delivering value to consumers.
You end up with situations like OneWeb, a then-bankrupt satellite company in which the UK government invested £400m thanks to last minute lobbying from senior ministers. The initial goal was to repurpose OneWeb’s future satellites for navigation purposes, but the decision baffled experts who pointed out that the firm operated low Earth orbit satellites unsuitable for such a task. The decision was described at the time as ‘nationalism trumping solid industrial policy’ and pithily summarised by space policy expert Dr Bleddyn Bowen as ‘yes, we’ve bought the wrong satellites’.
It’s not just governments that risk overstepping their proper role in the wake of Covid. A brand of ‘woke capitalism’ has emerged, in which businesses are increasingly concerned with addressing (or at least appearing to address) wider social objectives in their activities – from the recent inclusive M&Ms rebrand to Dutch airline KLM telling their customers to fly less for environmental reasons. On the face of it, this phenomenon seems relatively benign. If such strategies are sometimes bad for businesses’ bottom line and alienate shareholders, market forces will weed out the bad calls whilst rewarding firms that convince consumers they’re making a difference. More broadly, businesses can be valuable players in the fight for positive social change.
But there remains valid cause for concern. The inexorable rise of corporate social responsibility culture has not occurred in a vacuum: the threat of impending regulation – a recent example being the FCA’s new rules on climate-related disclosures – has undoubtedly made many businesses jump before they were pushed.
There’s also a wider question of whether people take value-driven marketing at face value. Helen Lewis describes an iron law of woke capitalism: ‘brands will gravitate toward low-cost, high-noise signals as a substitute for genuine reform, to ensure their survival’. Consumers who see these hollow signals as hypocritical – think rainbow badges in London whilst operating in Saudi Arabia – are likely to take a dim view of businesses who engage in such behaviour and private enterprise more broadly. And all of this misses the fundamental point that profit itself is socially responsible, demonstrating the satisfaction of our wants and needs whilst generating taxes that pay for public services.
Covid has given new impetus to those who would remake government and capitalism, but it’s vital that we learn the right lessons. Rather than risk a slow slide into corporatism, we should let governments and businesses focus on their respective strengths. Building back better must involve letting businesses focus on creating wealth, whilst governments restrict their remit to effective redistribution, high quality public services and addressing social issues in a market-friendly manner.
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