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Why We Need Economic Planning

The coronavirus pandemic has demonstrated that the market is no longer fit for purpose. It's time for an economic model based on the public good, not private profit. We need economic planning.

It appears not only that there are no atheists in foxholes, as the saying goes, but also no neoliberals.

The Covid-19 pandemic has turned lifelong cheerleaders of the private sector into ardent statists overnight nationalising this and commandeering that to stem the spread of infection.

Four decades of the application of the laissez-faire principle by governments of all flavours that the private sector knows best, is most nimble, most innovative, most efficient, and that the role of government is to get out of the way of the allocative marvel of the free market is being tossed out the window, even if none of these freshly converted dirigistes have had the time or inclination to offer any mea maxima culpa.

The new and very sudden embrace of a more muscular state direction of multiple sectors of the economy, represents an instinctive but not explicit application of the Left’s historic critique of the market: that if something is beneficial but not profitable, or even insufficiently profitable, it will not be produced, and that if something is harmful but still profitable, it will continue to be produced. The pandemic is offering a glimpse of an economy based on the satisfaction of human needs, not the accumulation of money.

The market is not so much immoral, but amoral. We do not say that the owners of companies are evil, but rather that they are prisoners of a system that does not allow them to serve the common good if they cannot make money and go out of business.

The left makes this argument — that the market’s amorality makes it a very poor allocator of resources — at all times. But in a period of national emergency or war, when time is of the essence, this amorality of the market, this leaden-footed indifference, is recognised even by the Right, indeed by all governments, as a hindrance to what they need done.

Responding to Crisis

Healthcare is the most obvious of these needs, its availability or lack the difference between life and death in a pandemic. Clinicians and researchers for their part have been warning about the lack of market incentives for private pharmaceutical companies to research coronavirus therapeutics since the previous coronavirus outbreaks of SARS and MERS. In the US, the land of private healthcare, it is now more widely than ever acknowledged how public healthcare is obviously necessary to avoid fear of the cost of being tested or treated. Care rationed on the basis of anything other than need makes it brutally explicit that unless everyone has protection against the virus, no one does. And in countries that do have public health systems, the creep of privatisation and funding cuts since the 1980s resulting in woefully insufficient numbers of beds and trained staff is a mortal mistake that is now being reversed by the state as quickly as possible.

With Spain’s public hospitals being almost as overwhelmed by cases as those of Italy, the centre-left government has taken into public control all of its private healthcare providers, their hospitals and other facilities. France’s centrist finance minister Bruno Le Maire has said that the government has no compunction about taking any large firms into state ownership in order to avoid economic collapse. “I will not hesitate to use any means at my disposal to protect large French enterprises,” he told reporters. “This can be through capital injections or stake purchases. I can even use the term nationalisation if necessary.” Italy is to renationalise its bankrupt former national air carrier Alitalia. The conservative German economy minister Peter Altmaier has said Berlin may nationalise strategically important companies that have been bludgeoned by financial headwinds.

Nationalisation may be the most aggressive form of government coordination of production, but such economic shepherding takes many other forms. As of the time of writing, the UK is only asking large manufacturers such as Rolls Royce, JMB and Unipart, amongst others, to switch to making ventilators, not directing them to do so. Nevertheless, even such a request is also an acknowledgement that the market only responds to profit not need. Even Donald Trump’s White House has invoked the Defense Production Act, a Korean War-era piece of legislation, to force GM to produce ventilators at a shuttered factory in Ohio on the government’s terms after polite negotiation failed.

In the United States, President Trump has ordered General Motors to start producing ventilators. (Credit: Getty Images)

Moreover, while entreaties at first glance appears to be merely a patriotic appeal to the firms to do their part, insiders in the Trump administration have privately acknowledged that the requests made by government on both sides of the Atlantic represent implicit pressure being applied: if firms do not volunteer to retool their factories to produce the required medical equipment, the government will simply commandeer them, as well their CEOs know.

The Defense Production Act (DPA), which has roots in the War Powers Act of World War Two, gives the American president very broad powers to control industrial production of anything “essential to national defense.” There is an escalating scale of intervention in the market that the act allows, from permitting government contracts to prioritise delivery of goods that are running low, through loan guarantees or subsidies to critical industries, to protections against anti-trust actions for firms engaged in cooperation or planning with each other. This last component of the law is noteworthy: even if large firms were broken up as many anti-trust advocates wish, so long as the resulting smaller firms still operated according to the profit demands of the market, there is no guarantee that they would produce according to need either. In fact, it recognises that cooperation between enterprises is actually something to be desired, rather than prevented, so long as this cooperation is in service of need rather than profit. At the upper end of the scale of intervention, the DPA delivers to the government “allocation authority”—the right to purchase before anyone else, and ultimately to nationalise firms or create from whole cloth new state enterprises.

The reason for all this state intervention is thus, plainly, that the market left to its own devices may not produce what we need right now where we need it. And even if for some categories of commodity, market actors might respond eventually to new demand, there simply is no time to wait.

As even the free-marketeer president of France, Emmanuel Macron, said in an address to the nation, regarding the utility of having a public healthcare system so that no infected person be fearful of being tested or treated, thus potentially endangering others: “Our welfare state is not a cost but an indispensable resource, there are goods and services that must be placed beyond the market.”

Democratic New York City mayor Bill de Blasio wrote an editorial in USA Today demanding: “It’s time for a radical step. Just as the federal government did in World War I, World War II and other extraordinary moments, the Trump administration should nationalise the production and distribution of the medical supplies the American people need.”

In the case of conservatives such as Trump and Johnson, or for that matter centrists such as Macron, we should be careful not to assume that “we are all socialists now”, as a recent piece in the Daily Telegraph declared. Their instincts are to preserve the market, and they see such interventions as a last resort. Even though Trump has invoked the DPA, he remains insistent that its use will be reserved for the “worst case scenario” and has said he does not want to compel any company to make face masks or other equipment. Others in his administration are looking upon in horror at the creeping socialism of the pandemic response and trying to push back against pressure to order companies to manufacture goods. They view the White House role as facilitator rather than director of production.

It is not just the state that is making the call to directly distribute essential items. In Seattle, a health sector union local, SEIU Healthcare 1199NW noticed that department store giant Target was selling N-95 masks to the public even as hospitals in the American region so far hardest hit by the pandemic suffer from insufficient supplies and demanded that they re-direct them to the medical system. The company quickly pulled them from sale and diverted them to hospitals after the union reached out to Governor Jay Inslee. Target later apologised, saying that what appears to be a blatant act of profiteering was just an error. Perhaps it was just an error. Or perhaps it was just that they got caught.

But even if there is some recognition of the amoral dawdling inefficiency of the market to provide what is needed, this doesn’t mean elites have entirely cured themselves of neoliberalism. The aim of all the emerging emergency planning and conscious coordination is to rescue the system, to return things to the “normalcy” of a market economy as soon as the crisis is over. The question for the Left is whether we can keep the genie out of the bottle.

A 21st Century Plan

The post-war history of state-led industrialisation and development in east Asia – often accompanied by intense repression of workers – has left that region with some of the most impressive capacity to act outside the market in the face of the current pandemic. So while there are many aspects of China’s response to the crisis that we should rightly criticise, the construction of new hospitals in Wuhan in mere days was a 21st century marvel. A refusal to ride roughshod over workers’ rights and safety to do so, as labour rights activists are reporting happened there, is not what is preventing its replication in the West, Instead it is what remains of neoliberalism, or as philosopher Mark Fisher put it, the reflexive impotence of ‘capitalist realism’, the sheer inability to believe that it can be done: “They know things are bad, but more than that, they know they can’t do anything about it.” Such dramatic expansion of healthcare capacity is absolutely doable within days here as well, this time with appropriate workers protections and generous danger pay.

There are a few other caveats to the apparent demise of neoliberalism we should heed.

Some 60 manufacturers have responded to Boris Johnson’s request for 20,000 ventilators to be produced in two weeks. Hotel chain Best Western has told Number 10 that it can transform its buildings into temporary hospitals should additional bed space be needed, and is willing to begin doing so immediately. And French luxury giant LVMH, rapidly retooled factories that normally pump out perfumes to manufacturing hand sanitiser free of charge—in just 72 hours. Great stuff. Heroic even.

But let’s remember to read the fine print. Best Western and other hotel chains have seen a collapse in bookings and a rush of cancellations. It is in their interest to provide this service only so long as what the government pays them in recompense meets or exceeds what they would otherwise have earned. It should be stressed that this is not because hoteliers are mean penny-pinchers, but rather that in a market system, they cannot exist without profit. The same goes for LVMH.

French perfume company LVMH has begun mass producing sanitiser in the wake of the coronavirus crisis. (Credit: Getty Images)

They may be retooling rapidly and for free, but if the entirety of their production was to be performed for free, they would be out of business in days. A company that owns the design files for a patented valve that hospitals were running out of told a pair of Italian volunteers that it would not send them the files so that they could use their 3D printer to manufacture copies. Again, this is not so much a moral failing on the part of the company, but an imperative of business that they cannot escape.

So the question is whether in the face of pressing extra-market requirements, governments will have the wherewithal to confidently orchestrate the economy wherever it is needed rather than reluctantly and only on an ad hoc basis where the most extreme cases of production irrationality appear.

We see already that while France’s Macron has intervened in and against the market to buttress small and medium sized businesses that otherwise would immediately go bankrupt amidst the lockdown by suspending payment of rent and utility bills, and other jurisdictions are promising delays or suspensions of mortgage payments, this same level of intervention in many places has not been offered to renters. Economic planning must be in service of all, not the protection of some. Furthermore, if such planning were implemented, the extent of intervention along the supply chain of housing and utilities is profound: suspension of rent in turn requires suspension of mortgages; suspension of mortgages means nationalisation of financial losses; suspension of utilities means suspension of the obligations of their own suppliers and suppliers’ suppliers. Through lockdowns, social distancing, and curfews, we are in effect imposing upon ourselves the equivalent financial disruption to that of a true global general strike. Few seem to recognise how suddenly the state becomes administrator of everything. Are we ready for this?

Second, decommodification—or removal of a good or service from the bounds of market relations—is merely a necessary rather than a sufficient condition for the achievement of rational allocation. Nationalisation is not socialism on its own. Otherwise, we could say that the Royal Navy and the Pentagon are socialist. When banks around the world  were nationalised or part-nationalised in the wake of the 2007-2008 economic crisis, in effect there was a nationalisation of the losses, while the profits remained privatised. The goal of the US and other states was to help global finance tide over a particularly rough patch, not alter the system. When markets could no longer reliably price financial assets and repricing would have been catastrophic for the financial system, the state stepped in buying up assets and taking over management of distressed institutions. Planning worked when prices didn’t but with a view to “getting the prices right” again. 

Peter Gowan at the People’s Policy Project notes that in fact, bank nationalisation is extremely common due to the regularity of financial crisis, having since the 1980s also occurred in Norway, Sweden, Finland, Mexico, Israel and Belgium. In effect, in good times, banks make enormous profits while in bad times, the rest of us absorb the losses, only for those firms to subsequently be privatised as quickly as possible. Those responsible for the last crash for the most part held on to their bonuses, their mansions and their yachts. Well, this time around, state ownership must be made permanent in order to service the public good and to ensure long-term stability of the financial system. Finance must be transformed into a public utility.

So this time around, decommodification must occur in the service of all. Concretely, this could mean that any company or sector that is bailed out would only be done so in return for a permanent equity stake. There must be a quid pro quo for any assistance. Options include placing worker representatives on company boards, an immediate ban on executive bonuses, state input into investment decisions, unionisation of the workforce and a sharp reduction in the pay gap between executives and workers. Public support must come with benefits for the public, in particular those that start to transform and democratise the economy.

Third, while nationalisation in general means taking into the state ownership, nationalisation may also mean nationalism, or taking into public hands in the interest of those within the nation, not necessarily in the interest of all regardless of nation. The Trump administration has attempted to buy out a German company developing a potential coronavirus vaccine to gain exclusive US access. China has banned a leading manufacturer of the N-95 masks, from shipping its masks outside the country. France has taken over medical suppliers, but intending the fruits of the nationalisation to be for France alone. 

Companies that over recent decades have set up manufacturing facilities overseas to take advantage of cheaper labour costs are now seeing supply chains frozen or broken. German economy minister Peter Altmaier wants to deliver supports to pharmaceutical firms to rebuild production facilities in Europe in order to localise supply chains. He said he imagines “a common European project for medicine production.” A pharmaceutical firm publicly owned by the state-aid-phobic European Union? Now that would be a sight to see. But as with the EU’s freedom of movement within the bloc and its murderous Fortress Europe policies for anyone outside the bloc, ensuring that Germans or even Europeans have greater access to anti-Covid therapeutics.

Moreover, political leaders are complaining that when they purchase medical equipment, firms are price-gouging. The governor of New York is furious that his state is now paying $4 per N-95 mask where normally they would sell for 80 cents. But it’s one thing to nationalise or regulate to prevent such profiteering if the firm is a domestic one, but there is nothing that can be done if the supplier is from overseas.

Thus we have to ensure that once any firm taken into public hands, especially any related to pharmaceuticals or medical equipment, its goods or services must be allocated internationally on the basis of need not nationality. This is not only a matter of justice, but, as we have seen, because pathogens do not need passports, servicing on the basis of need independent of country is in everyone’s interest.

Fourth, there is a temptation in any emergency to jump immediately from nationalisation to militarisation. A widely read essay published by the MIT Press Reader by Joshua Gans, a commerce scholar with the University of Toronto’s Rotman School of Management, called not just a war footing but placing the military in charge of healthcare capacity expansion along the lines of World War II: “Entire economies were shifted over to military production. This was done by abandoning market processes of resource allocation and moving to a planned economy.”

In many countries, the coronavirus pandemic has resulted in an increased military presence in civil society. (Credit: Getty Images)

The danger here is that militarisation of production can, as with our concerns over China’s record construction of hospitals, railroad workers rights and civil liberties. Under Israel’s annexationist prime minister who somehow manages to cling to power despite his indictment on corruption charges, Benjamin Netanyahu, the country is to use anti-terrorist surveillance technology used by domestic security service Shin Bet, including real-time mobile phone monitoring to identify quarantine violations and track patient movements and contacts. 

At a time when much of the world has been placed under some form of lockdown or curfew, and the most successful efforts of infection suppression in Asia have been performed by similarly extensive citizen surveillance technologies, we need more than ever to be vigilant against the deterioration of our rights and freedoms. And even if social distancing is required to flatten the curve of the spread of infection, the galloping advance of state control over citizen movement even in the most democratic countries in recent days will be hard for governments to give up when the emergency is over. The surveillance state may be a planned state, but is not necessarily a free and democratic one.

More Than an Emergency Measure

Lastly, upon exiting the pandemic crisis, we must recognise that economic planning is not only for emergencies, but instead see how the emergency just shows how planning provides superior, more rational allocation to the market in general.

We can see this most clearly with oil and gas companies should they be bailed out or taken into public ownership due to the collapse of demand. We would now have the opportunity to more rapidly reorient these companies toward a zero-carbon economy that we would if these firms were left in the private sector and for the same reason as with airlines: decisions work faster than incentives. Oil extraction and processing in the short term could be decarbonised via electrification without any defiance from shareholders, and in the medium term steadily sunsetted for combustion purposes in line with the timelines required to avoid dangerous global warming, while natural gas firms can be refitted to be hydrogen and carbon-neutral synthetic natural gas for transport sectors that are hard to electrify.

Prior to the pandemic, there was already an urgent need, seen even beyond the Left, for an economic stimulus package in the form of a Green New Deal or Green Industrial Revolution that would see the public-sector-led build out of a colossal volume of new clean energy infrastructure. When all this is over, and please let it be sooner than the months or even year that projections suggest, we will need economic stimulus from governments more than ever. It should come in the form of a serious, planned reorientation of production away from today’s fossil fuel-based economy. We cannot allow bailouts or nationalisation to occur across these sectors without an understanding that once the emergency has passed, there is another, slow-building planet-wide emergency that likewise demands economic planning at the centre of our response. And in addition to a Green New Deal, it may also be time to turn the financial sector into a public service.

The rapid lurch toward various forms of economic planning in recent days by governments of all flavours may signal something of a move away from There-Is-No-Alternative neoliberalism of the past four decades. But for those of us who support a more free and equal society, economic planning on its own is no reason to cheer, as much as we recognise its necessity. A great many perilous traps remain.

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About the Author

Leigh Phillips is a journalist and science writer. He is the author of Austerity Ecology (Zero, 2015) and co-author of The People's Republic of Walmart (Verso, 2018).

Michal Rozworski is a trade union researcher based in Canada. He holds graduate degrees in economics and philosophy and is the co-author of the book People's Republic of Walmart (Verso, 2018).