– The First Year of The Plague. Where Do We Stand?, March 3d 2021

On Available as well in French, German, Spanish, Greek and Polish.

Europe and the West have not been able to deliver so far, in contrast to the Chinese, who have been better on this front.

Paul Jorion

Lockdown im Februar 2021. Es gilt weiterhin eine Maskenpflicht.

picture alliance / Daniel Kubirski

The Covid-19 pandemic started over a year ago. Time now for an assessment of how our Western governments reacted to what we more realistically called a plague rather than a crisis in the not so distant past.

By now the figures are grim : 2.5 million deaths overall, 800,000 in Europe and an average loss of 10 years of life for each victim. On top of losses in the range of 20% for GDP, employment and purchasing power in the population.

As soon as the pandemic had become a national issue, the challenge for every government on the globe was to minimise both the human and the economic cost in as short a time as was feasible.

Surprisingly, six months were needed before the catastrophe we were facing got set in those terms. For about half a year, European governments each improvised a response in the context of very thin European-level guidance, the immediate measures taken revealing high levels of unpreparedness, each country essentially responding according to its national spirit. While it has now been shown that the most effective measure to have taken at the start would have been a mass distribution of masks, countries faced with local shortages reacted in a widely discrepant manner: German authorities advised their people to cover their face with whatever cloth was at hand, while the French Health Ministry announced that “the efficacy of masks has not been demonstrated”, oblivious or so it seems of the political price that would be paid once that trickery was to become blatant.

Unlike in 2008, European authorities remained mute in 2020. The globalisation of finance had made the notion of a self-centred national response in 2008 a non-starter. Being first in line during the financial crisis, the United States took the lead in the response. In 2020 the existing power balance between nations led to the stronger among them to try and roughen up the weaker in the race to grab masks and hydro-alcoholic gel. The US government-led abduction of mask shipments at several airports will remain a historical low-point in international relations.

The best response to the pandemic has undoubtedly been the Chinese one, as it resulted in fewer deaths and minimal economic loss. That it was not replicated in Europe is not so much due to an ideological opposition to the Chinese model, as a practical impossibility after decades of having dismantled planification tools and devolved quick-response initiatives at every level in the private sector. In the circumstances, however, both supply and demand chains were stunned. In the initial days, China, the main supplier of masks for the rest of the world, came to a standstill. Soon after the affluent middle class started working from home, demand froze for the goods and services offered by the childcare and catering industries, starving them, literally speaking.

Unfortunately, while states of old could still keep their cool when disaster struck, a state modelled on a corporation reacts the way that a firm does in a crisis, each man rushing to the exit for himself!

Paradoxical, no doubt, in the mind of many is the fact that when re-examining possible approaches, in terms of minimising human and economic cost, the Chinese strategy of eradication of the virus entails an implicitly higher valuation of individual life than the blundering Western stop-and-go policies.

While the editorials of dailies still wonder whether the social fabric can be rebuilt from the old mould, scientific papers assessing the Western response to the plague read like a litany of socialist propaganda. The reason is straightforward in fact, but being universally overlooked deserves to be laid bare.

It requires though going back to the basics. The welfare state relies on growth, ie growth of Gross Domestic Product (GDP). But what is GDP? A yearly total of added value within the nation, ie the sum of all profits. Two types of economic actors make profit: firms selling goods or services at a price higher than what it has cost to make it or provide it, and merchants acquiring a good or a service and reselling it at a price higher than when purchased.

Goods and services need to be both supplied and demanded. Purchasing power needs to be present in the population so that demand may materialise. What is, however, generally overlooked is that for that to be the case, a substantial part of the profits made by providers and merchants needs to find its way to consumers’ wallets – a concept which, as a rule, they find unpalatable. When business is impaired to the degree it is now, it is left to government to make sure that profits transmogrify into purchasing power. About this, the American National Bureau of Economic Research has the following to say: “During a pandemic, it may be more fruitful to mitigate economic hardship through social insurance”, while the Oxford Review of Economic Policy gives the following verdict: “The pandemic has shown that business needs government, as well as government needs business. […] ‘Building back better’ requires a clearer conception of what exactly it is they want to build — and it is unlikely to be a corporate sector that generates profits on the back of environmental degradation, rising inequality, or social exclusion. […] Good business can drive profits; profits do not necessarily drive good business.” Indeed: a crook selling thin air contributes handsomely to economic growth, but that is the last thing we need now.

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