25 March 2020

The private sector is key to vanquishing the virus – and winning the peace

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As the old saying goes, “never let a crisis go to waste”. And there’s certainly good evidence that some on the radical left see this pandemic as a chance to expand the scope and power of the central state. If this is indeed a war, then the hope is the aftermath might resemble a modern day version of the Attlee government.

Comparing the current situation to the Second World War has become something of a cliché, abetted by the Prime Minister’s well-known admiration for Winston Churchill.

In economic terms, the comparison is a pretty loose one. Today, in order to slow the spread of the virus, the Government is actively trying to depress the economy by imposing a lockdown and telling all but essential workers not to go into to work. In the war years the aim was the precise opposite: to get the economy roaring in order to have the resources to fight the war.

Still, in other ways the comparison is very apposite. As in the 1940s, the country is (more or less) united in an effort to defeat a common foe. And, just as then, the exigencies of the moment mean a Conservative prime minister is pursuing a series of fundamentally unconservative policies, including a huge increase in borrowing and severe restrictions on our civil and economic liberties

In a time of profound crisis it’s understandable that people turn to the government for a solution. And even those who are sceptical about the reach of the state can see the need for collective action in these circumstances. However, as my colleague Callum Price pointed out on Monday, government is not the only player here – the private sector also has a huge role to play.

This is where a comparison with the Second World War has some resonance. The Allies were particularly good at retooling private facilities to help with the war effort. One of the most famous examples was the production of Spitfires, which involved a good deal of improvisation.

As the now Chancellor Rishi Sunak, pointed out in a parliamentary debate in 2017 “production of Spitfires was distributed to bus depots, laundromats and all sorts of improvised mechanical workshops”. While it was government that was setting targets for production, it was private firms like Supermarine, De Haviland, Ford and Boeing who went to work and built the parts and machines which carried, sailed, and flew the Allies to victory.

Indeed, it was the strength and expertise of private sector firms that helped both Britain and the US to crank up war production far in excess of what the Axis powers or the Soviet Union were capable of. A good metric to demonstrate that disparity is spending on munitions per soldier: by 1943 the UK was spending $2,300 on munitions per soldier, the USA a massive $4,200, while the Soviet union and Nazi Germany were only spending $1,300 and $1,200 respectively.

This was not simply a matter of the government throwing money at the problem: both the Soviet Union and Nazi Germany devoted a far higher percentage of their GDP to the war effort than either the UK or USA did.

Likewise, as we take on coronavirus the private sector has a big role to play. Though swaths of the economy have been put into an induced coma for at least the next few months, many firms are still open and contributing to this contemporary war effort.

As 70 years ago, companies have shown ingenuity in shifting production to the demands of the moment. The likes of Gtech, Rolls Royce and Nissan are helping produce ventilators, much as Ferrari and Fiat have done in Italy; a women’s clothing manufacturer in Hong Kong has switched to making medical protective clothing; breweries and perfume firms like LVMH producing hand sanitiser and hydroalcoholic gel.

The Government has already committed to buying up every single ventilator that UK firms produce, and (if it hasn’t already done so) it should extend this guarantee to every single good we’ll need. This may well mean that in six months’ time we are producing many more ventilators, masks, or bottles of hand sanitiser than we need, but that’s a problem we would probably welcome after the shortages many have dealt with in recent weeks.

The fight ahead may be a long one. The chilling Imperial College report suggests as long as 18 months of on-off suppression measures might be necessary to stop the NHS being overwhelmed. If the crisis does last that long, the country and the economy will look very different. Many will have lost their jobs and the government will be much, much larger and more intrusive.

The question then will be how to win the peace. After World War 2 ended centrally planned economies were the order of the day. The UK retained much of that centralisation and extended it with widespread nationalisation, most famously of the health service. But other countries, particularly the USA and West Germany, took a much more market-focused approach. A few decade later the results were crystal clear. Britain had endured sustained decline and fallen behind most other major European countries.

As ever, there will be a chorus of collectivists who claim this crisis demonstrates the limits of the market and the case for expanding government. Yet the lessons of history are perfectly clear: in both war and peace, the private sector is integral to a thriving economy: that will be the case during this crisis, and we must not forget it once the coronavirus is eventually vanquished.

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Jethro Elsden is a Data Analyst at the Centre for Policy Studies.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.