Thursday , July 16 2020
Home / Alberto Mingardi /Mariana Mazzucato on Covid-19 and “small” government

Mariana Mazzucato on Covid-19 and “small” government

Summary:
Why does your government suck in coping with COVID-19? Mariana Mazzucato and Giulio Quaggiotto have the answer: “decades of privatization, outsourcing, and budget cuts”. Mazzucato is a master at cherry-picking. She chooses the UK as the villain of her story, where public spending is around 40% of GDP. Now, “austerity” is typically more talked about than practiced, but I guess you could argue that the UK practiced it to an extent, as public spending was 44% of GDP in 2011 and subsequently decreased to the current level. Total healthcare expenditure was 9.8% of GDP in 2018, which is above the OECD average (8.8%). Of this, 7.5% is government spending. Mazzucato cites a document by a charity, the King’s Fund, about healthcare spending cuts, which quantifies them at “£1

Topics:
Alberto Mingardi considers the following as important: , , , , , ,

This could be interesting, too:

Scott Sumner writes What we know about COVID-19

Scott Sumner writes Could it have been much worse?

Michael Maharrey writes Fun on Friday: Who Is That Masked Man?

SchiffGold writes Gold Surges Past ,800: SchiffGold Friday Gold Wrap Podcast July 10

Why does your government suck in coping with COVID-19? Mariana Mazzucato and Giulio Quaggiotto have the answer: “decades of privatization, outsourcing, and budget cuts”.

Mazzucato is a master at cherry-picking. She chooses the UK as the villain of her story, where public spending is around 40% of GDP. Now, “austerity” is typically more talked about than practiced, but I guess you could argue that the UK practiced it to an extent, as public spending was 44% of GDP in 2011 and subsequently decreased to the current level. Total healthcare expenditure was 9.8% of GDP in 2018, which is above the OECD average (8.8%). Of this, 7.5% is government spending. Mazzucato cites a document by a charity, the King’s Fund, about healthcare spending cuts, which quantifies them at “£1 billion of real-terms per head cuts to the public health grant”. The document that Mazzucato cites shows concern for “a major impact on local services – such as sexual health clinics, stop smoking support and children’s health visitors – which play a key role in improving and maintaining the population’s health”. Now, these are arguably very important services, which can have an impact on people’s health: but, perhaps with the exception of support to smoking quitters, I do not see how they relate with Covid19. The Institute for Fiscal Studies has an oldish note (2017) on the state of health financing in the UK. From that, it seems that the word “cut” really meant “increase below-average growth” in the past. When it comes to talks of austerity, cuts on the precedent year’s budget are often confused with cuts to the expected raise in the cost of a certain service.

So, the UK is the bad, “small government”, guy.

Who are the good, “big government” guys? In Mazzucato and Quaggiotto’s narrative, Pakistan, Vietnam, and New Zealand. I’m no expert on any of these countries, and they are very heterogeneous. Pakistan’s public spending seems to be 11.71% of GDP, Vietnam’s is 30% of GDP, New Zealand is 37%. GDP per capita in the UK is $42.962 in New Zealand $42.330, in Vietnam, $ 2.566, Pakistan $ 1.482. I am aware that public spending as a percentage of GDP is not necessarily a good indicator for the magnitude of government intervention in an economy, but, more generally speaking, I’d argue that these countries are not very easily compared (think about life expectancy: 67 years in Pakistan, 75 in Vietnam, 81 in New Zealand and the UK).

If anything, the good Vietnamese and Pakistanian response would suggest, prima facie, that governments can do very good in spite of being small, and I mean small by necessity. If GDP per capita is $1.500, you cannot have high public spending.

One may wonder why the Vietnamese response can be considered successful. Mazzucato and Quaggiotto write:

Vietnam’s successful approach to COVID-19 has emerged as a striking contrast to the US and UK responses. Among other things, the Vietnamese government was able to amass low-cost testing kits very quickly, because it already had the capacity to mobilize academia, the army, the private sector, and civil society around a common mission. Rather than simply outsourcing with few questions asked, it used public research and development funding and procurement to drive innovation. The resulting public-private collaboration enabled rapid commercialization of kits, which are now being exported to Europe and beyond.

This is standard Mazzucato. Shining words and great parsimony of details. How were academia, the army, the private sector, and civil society mobilized? Who did what? What incentives were put in place, how was spending channeled through? We are asked for a leap of faith: it was “the State”.

When it comes to New Zealand, Mazzucato and Quaggiotto explain:

After initially adopting the outsourcing mantra in the 1980s, the New Zealand government changed course, embracing a “spirit of service” and an “ethic of care” across its public services, and becoming the first country in the world to adopt a wellbeing budget. Owing to this vision of public management, the government adopted a “health first, economy second” approach to the current crisis. Rather than seeking herd immunity, it committed early to preventing infection.

So, it seems that a successful approach is the product of a “health first, economy second” attitude. I would like to remind Professor Mazzucato that she is an adviser to a government, the Italian one, that prides itself on having implemented the strictest lockdown outside of China. So, we definitely put health first, and the economy definitely second. Yet Italy has 1/10 of the COVID-19 deaths in the world, and, in the case you wonder, we do not have 1/10 of the world population.

In their column, Mazzucato and Quaggiotto make a couple of interesting points, that have nothing to do with the size of government.

First, in questioning IPR enforcement all over the world, they wonder why “should a low-cost ventilator that has been approved by regulators in Japan not be readily accepted by other countries? Clearly, in addition to a renewed role for national governments, we need an international clearinghouse for grassroots and citizen-led solutions.”

I do not really understand what an international clearinghouse for grassroots solutions is supposed to be. Safety regulations are certainly a difficult matter, but the question they raise is a good one. Are regulators learning from each other? Aren’t standards, at least among OECD countries, sufficiently homogenous as to grant some sort of fast track to devices or drugs that have been approved by other OECD country regulators, in a situation of an emergency such as the present one?

Second, in praising the Pakistani effort they note:

In Pakistan, citizens were able to apply for emergency cash transfers (made available to an impressive 12 million households) directly from their mobile phones, whereas Italians have had to print out self-evaluations to show that they are complying with lockdown rules.

Well, that correlates inversely with the size of government. You can spend a lot of money and make a mess of an emergency situation such as this. The other mentioned examples, like South Korea and “South Asian governments” (Professor Mazzucato does not dare to enlist “big government” Singapore and Taiwan by the name), are likewise cases of leaner, smaller governments than we have in the West, that in these circumstances performed better.

Now, it is certainly simplistic, and most certainly wrong, that the effectiveness of the COVID-19 response depends exclusively on the size of governments. The pandemic is a biological phenomenon and many other institutional and cultural factors besides government action are playing a role. But that was Mazzucato and Quaggiotto’s call. In this regard, I find rather perplexing that their plea to big government ends up praising rather frugal states.

Alberto Mingardi
Mingardi, one of the rising stars of European libertarianism, is the founder and Director General of the Italian free-market think tank, Instituto Bruno Leoni. His areas of interest include the history of economic thought and antitrust and healthcare systems. He is particularly well known for popularizing the work of past scholars under-appreciated by today’s libertarians. Currently an adjunct scholar at the Cato Institute, Mingardi has also worked with the Heritage Foundation, the Atlas Economic Research Foundation, the Acton Institute, and the Centre for a New Europe.

Leave a Reply

Your email address will not be published. Required fields are marked *