(Bloomberg Opinion) -- To many of us living through this age of mass lockdowns, the coronavirus pandemic feels like a break from the past — something entirely unprecedented. But historians know there’s nothing new under the sun. That’s why historian and Bloomberg Opinion columnist Stephen Mihm recently gathered a panel of scholars to discuss history’s lessons for the coronavirus pandemic, with a particular focus on what can be learned from wars and other mass mobilizations. Business and military historian Mark Wilson (University of North Carolina at Charlotte), economist Mark Harrison (University of Warwick), and political scientist Rosella Cappella Zielinski (Boston University) share their thoughts below.
SM: Many people have likened the battle against the pandemic to a wartime effort. How has the United States mobilized to fight wars in the past, and what does it tell us about how to handle the current crisis?
MW: In World War II, the United States pursued several strategies. For the goods that could be made relatively quickly and easily, it was enough to expand existing production lines of expert manufacturers and then supplement them by having these products simultaneously produced by rival firms, using special low-cost licensing deals. This was done in the United States for B-17 bomber production as well as for smaller items.
For things that are going to take longer and may still be needed some months from now — ventilators come to mind — it could be worth looking into more radical “conversions,” with companies doing serious retooling of existing production lines. This is of course one of the best-remembered World War II methods, with refrigerator manufacturers turning to machine-gun production, for example.
Even more important in the United States, and perhaps worth considering today, was the model of having the government pay for and own entirely new factories, which typically were run by expert private firms. Those took months to build, obviously, but they made sense because there was a strong possibility that they would be needed when they were finished: a facility capable of mass-producing vaccines, for example.
SM: But if private companies are going to play such a key role, how you do handle corporate profits? There’s going to be a public-relations problem if some companies are viewed as getting rich off this disaster.
RCZ: During both world wars, the United States instituted an excess profit tax that prevented any one company from excessively profiting from what was a collective good. That not only provided the government with needed revenue but also provided a sense of “fairness” that these companies were not profiteering from something so dire and necessary.
MW: Those controls had been demanded by veterans, labor unions, politicians and the public. That was a different time, politically; we shall see if crisis profiteering becomes a major political issue in the coming weeks, and if so, whether various nations impose new windfall-profits controls.
MH: Similar arrangements applied in the U.K. in World War II. But profit-seeking can be a productive stimulus, and will bring about the conversions we need much more quickly and efficiently than government apparatuses that have no background or experience. But I’ll be disappointed if business elites themselves don’t see a duty to society somewhere in this. After all, the popular perception remains that they were bailed out at the expense of homeowners and wage earners in the last financial crisis.
SM: Well, if not business, what role can government play?
MW: It’s stunning to me that Washington in recent days seems to have suggested that individual states should each try to acquire key items on their own. This reminds me of the opening months of the U.S. Civil War, in 1861, when the various states competed against one another in a chaotic scramble for scarce essential goods such as weapons and blankets.
But there’s hope. By 1862, the Union had learned that it was better to use a top national coordinating authority, such as the acquisition bureaus of the U.S. Army. In the 20th century, and certainly during World War II, it was assumed from the start that you wanted national-level coordination, which led to the creation of the War Production Board and other agencies.
RCZ: For me, the lesson of World War I that may be apt here lies in shipping and insurance. The shipping industry, concentrated in Britain, was in a fix due to extreme wartime uncertainty. Why didn’t shipping and global business grind to a halt? The answer lies in the insurance industry and the absorption of risk by the government. Initially, Lloyd’s of London provided necessary insurance to keep global logistics moving, but that was not going to be enough. The British government, working with Lloyd’s, eventually absorbed all war risk and this was successful. Shipping did not grind to a halt and goods were shipped around the globe, at least where trade routes were open.
MH: This chimes with Mark Wilson’s point about “GOCO” — government-owned, company-operated facilities. In World War II the federal government insured war suppliers against the risk that the war would end and the government would no longer need to buy war supplies by building billions of dollars’ worth of factories for war production and leasing them to companies. The British government did the same sort of thing. In both countries the war effort ended up as a public-private partnership. But the British economy went much further down to the road to a command economy based on government procurement and licensing than in the U.S. People got used to it and it took us years longer to escape from wartime arrangements after the war. I was born after the war and I still have my children’s ration book.
RCZ: That’s spot-on. The U.S. has always rebuffed anything that resembles a command economy during wartime and has instead preferred a bottom-up mobilization. Businesses have an opportunity here to take the lead and shape the response to the pandemic.
SM: True enough, though as Mark Wilson points out, there’s certainly precedent for government involvement, in World War II. What’s up with the amnesia about how the federal government has mobilized in the past?
MW: To some extent, of course, the apparent weakness of the coordinated national response can be seen as a natural consequence of developments in American politics and economics in recent decades. Conservatives have had some success in promoting a new federalism, with more authority to the states; a bipartisan neoliberalism has favored privatization. But to be honest, I figured that even a hollowed-out version of the “deep state” would take it for granted that you want some powerful national acquisition and logistics authorities in time of deep crisis.
MH: Don’t forget most nations saw World War II coming and even nations who appeased Hitler spent years thinking about the contingency of war and actively laying down reserve industrial capacities. By comparison, the industrial requirements of World War I were mostly unforeseen. And that’s like today: we’re at a standing start. The countries that were most ready for this were Asian nations scarred by the 2003 SARS outbreak. We didn’t have that benefit.
SM: And now we’re behind the curve. Okay, we’ve been talking about this from the perspective of the nation-state. Tell me: What guidance does history offer when it comes to coordinating an international response?
RCZ: As we think of global supply chains today, the worst outcome I can think of would be competitive bidding amongst countries of needed medical supplies leading to higher prices as well as a poor distribution of goods as the countries that need something the most won’t have access to them. The wartime model that comes to mind in such an unprecedented time is World War I. During World War I, the Allies all faced shortages of wheat. Instead of working together and coordinating their needs, they placed their orders separately, in the same markets. To no one’s surprise, that resulted in higher prices and further shortages. It was not until almost two years into the war in 1916 did such extreme shortages force the Allies to work together. The Allies ended up sharing information, coordinating purchases and even created an agency — the Wheat Executive — that made sure all member countries worked together. I would hope that it doesn’t take two years for countries around the world to come together to coordinate purchases of needed medical supplies, equipment, vaccines or treatments. We need countries to appoint bureaucrats to work together on this.
MH: Fair enough. But there are two kinds of coordination. One is coordination at the strategic level and the other is coordinated procurement where there’s only one buyer — a condition economists call a monopsony. In my opinion, we definitely need strategic coordination, so that if the government is planning on a course of action that requires X testing kits and Y ventilators, others understand this. But might a competitive scramble be productive, at least in the short run? Isn’t that what is driving conversion right now?
RCZ: Great question. Two thoughts. First, in the wheat example during World War I, it took two years of bureaucratic experimentation to come to such a collective effort as various Allied countries looked after their own needs first. It wasn’t until extreme wheat shortages in 1915–1916 did the need for such a coordination effort arise and forced countries to work together. They either had to hang together or hang separately. Indeed, they chose to hang together and basically act as a monopsony.
Second, during World War I, procurement coordination really predated strategic coordination. I think the reason is that elected officials realized that if they were unable to feed their people, get their basic needs met, they would have been kicked out of office regardless of how the war was going. When the United States entered the war in 1917 they basically told the Allies, “If you are going to purchase wartime goods from us, you need to further get your procurement house in order.” What results is further procurement coordination across all goods.
But to your more pressing question: Is it better to engage in competitive bidding in the short run, as that seems to be our immediate need? I am not sure; it depends on how long this is going to last. Moreover, it also depends on how costly we anticipate this being. Countries can work to keep costs down by acting as a monopsony.
MW: I’m going to stick up for coordination over competition here, but Mark Harrison’s good question does make me think about ways in which central authorities can use kinds of competition in fast-moving crash projects, to hedge against the failure of one path. So, in thinking about the race to make vaccines in 2020–’21, we might remember U.S. efforts to develop ballistic missiles in the late 1950s. In that case, there was no single bet on one design or system; instead, each of the military services had their own development authority, working on one or more different missiles. This meant that even if a couple of efforts failed, another might work; it also seems to have led to some productive competition (albeit for horrifying ends) and sharing, among producers. For example, when the Navy succeeded in figuring out solid-propellant rockets, the Air Force quickly moved to adopt that superior technology.
MH: These are great examples of where coordination paid off and where rivalry could be of use. Here’s one reason I am a little skeptical today: I don’t see either the U.S. federal government or the British government today as having a great capacity for coordination. That capacity can be built, but do we have time? The U.S. administration does not seem to have a vision to coordinate. The British government until recently has been consumed by Brexit. We do not have the contingency plans that were in the bottom drawer and ready to be put into law in 1939.
When a government has limited capacity, it needs to focus. The absolute first priority should be to articulate a vision of how the battle against the coronavirus will be best waged: how social distancing and testing will interact with infection to produce a demand for medical care that we can meet as a society, how the medical workers will be protected, and how we can assure them and their families of our gratitude. Then, throw money at it, because if the vision is feasible and realistic, money can do much of the rest.
SM: How do we use the power of the purse to fight the economic fallout of this pandemic?
RCZ: I have studied 200 years of war finance, and I can say with confidence that monetary policy and tax cuts cannot fix this. We need a fiscal response of the size and nature that resembles the New Deal. The United States still has borrowing privileges due to the nature of the dollar — we can borrow money cheaply — and I can think of no better time than this crisis to exercise that privilege to rebuild the American economy in such a way that takes into account the environment and reduces inequality.
SM: What about the long run? What if we get through the worst of this, but we continue to confront sporadic outbreaks that leave parts of the economy paralyzed? Didn’t that happen in the Great Depression?
MW: Right. In the mid-1930s, the worst was over, but unemployment remained high, and times hard. This ended up being a time of significant gains for U.S. progressives, who enacted Social Security, the Wagner Act (boosting unions), a federal minimum wage, etc. There were lots of gaps and imperfections here, not least of which was the failure to curtail white supremacy, but overall the continuing struggles post-crisis seemed to allow for a politics favoring more solidarity. A different case to consider might be the early Cold War era, an age of anxiety for many across the world, one when U.S. progressives often found themselves on the defensive. I think it’s very hard to predict how an extended state of semi-paralysis would play out, in economics and politics of the 2020s.
RCZ: The lesson of wartime demobilization is not to rush a return to normalcy. My concern is that elected officials and citizens will be so relieved the crisis has abated and fear continuing such transfer payments that they will be brought to an abrupt halt. As a result, an economic contraction would restart.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg Opinion.
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