Society after Coronavirus essay #3: the Growth of Government

This is the third in a series of essays exploring the economic, social and cultural effects upon the daily lives of persons living in the United States, western Europe and more broadly around the world, as we emerge from the global Covid-19 lockdown pandemic.

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By Matthew Parish

As countries across the globe emerge from Coronavirus lockdown, the true extent of economic devastation they have wrought upon themselves is only just beginning to be understood. Large parts of the economy have already been nationalised in western Europe, although barely anyone has noticed. One of the most prominent examples is the British railways, themselves privatised barely thirty years ago. For the last two months the government has paid the railways to remain open and running at near-full capacity, although they have had no passengers and therefore no private revenues.

This is not merely stealthy nationalisation; it is overt nationalisation. The terms upon which loans or subsidies are made to private organisations, as with all subsidies, are that the government may terminate or recall them if ambiguously described structural conditions are not met. The net result is a dominating influence by the government over the subsidised industry because, having overstretched itself with the subsidy, the industry cannot afford to operate without the government’s continued subsidy and therefore it must do what the government tells it to. Governments acquire tremendous lobbying powers with subsidised industries, including going as far as appointing or replacing directors on pain of withdrawal of subsidies.

Economists call this industrial policy: the use of government subsidies to direct national industry. Those subsidies are eventually paid for by the industry itself, or by the broader taxpayer: as with all government spending, it is recouped by taxation. It is the cornerstone of a government-controlled economy. The government does not need to own the shares in a company in order that the company has been nationalised. If the shareholders stand the prospect of losing all their value in the company upon its becoming insolvent once subsidies are withdrawn, shareholders will willingly vote in the way the government asks them to.

The distinguishing feature of Covid-19 is that we have seen so many businesses nationalised in this way in so short a time and without significant public debate. Businesses of all kinds have been loaned government funds to survive. They have been paid to keep their employees at home and not working. Airlines have received subsidies not to operate. Bus services have been subsidised for continuing to run. The creeping hand of the state has emerged in every corner of the economy. The only people who do not work for the government now, in some way, shape or form, are employees of supermarkets and food supply chain. Providing the only remaining social staple remaining largely free of government regulation, as all other social staples were brought to a halt by lockdown strictures, the sale of food to consume at home is about the only area of market activity in which the government has not explicitly intervened. If you are a furloughed employee, you work for the government: the government is paying you to stay at home.

So we are all socialists now. It does not matter what purported political hue a government may be; the colour of its flag is deepest red. This is perhaps one of the most surprising consequences of the remarkably unified global response to Covid-19: the degree to which governments have taken over directing the economy. And once governments start directing the economy, like pulling on a tempting draught they may find it more difficult than they imagine to stop. At the time of writing in late May 2020, governments are busy setting the rules for every aspect of a gradualised return to a semi-market based economy. It is worth observing just how abandoned the guiding principle of the market economy has recently become: that individual consumers and other economic actors should take the decisions appropriate to safeguard their welfare, rather than those decisions being taken by government regulators. Just as governments in March 2020 dictated a total closure of private businesses and proscription of individuals’ civil liberties, rather than leaving it to the businesses and individuals themselves to decide how dangerous Coronavirus is, now governments are again deciding to what extent private businesses can re-open rather than leaving it to the market to decide.

Everyone knows that Coronavirus is an astonishingly contagious, potentially fatal disease albeit one that is not fatal in the greater majority of cases. There can be no complaint that the public lack data about just how dangerous the disease is or how many people it has killed; this is virtually the only information published by the international media in any detail. There is no doubt that people are capable of internalising their rational fears in the decisions they take in response, and businesses are capable of internalising the risks the disease presents to them. The few businesses permitted to remain open have voluntarily introduced self-distancing by way of placing marks on the floor showing where customers are allowed to stand; and customers have, for the most part, voluntarily complied with it. Therefore it is not entirely clear why we are not allowing the market now to manage the process of unlocking our societies. Nevertheless government, having got into the business of regulating private activity in the face of a health crisis, seems determined to remain there.

Governments across the world are currently busy preparing pages of regulations and guidance about exactly when and how we can or cannot use airports, aeroplanes, bars, cafes, restaurants, public spaces, railways, international borders and all manner of other things. These regulations are being drafted with a minimum of oversight or public scrutiny. The British government has recently announced that she will be reducing the social distancing space in at least some contexts from 2m to 1.5m. What is the scientific or statistical basis for doing this, or has it just been made up? Airport arrivals, across Europe, are being subject to quarantines for periods of 14 days. Why 14 days; why not 7 and why not 21? Is there any scientific basis for this, for example a study showing that the optimal period of quarantine, balancing healthcare and other private concerns, is 14 days? None has been produced.

No attempt has been made to explain why it is government that is drafting these regulations, rather than the representatives of businesses who will be required to comply with and enforce them; or indeed groups of private citizens themselves. The speed with which we have uncomplainingly ceded our personal liberties to government dictate during a period of perceived crisis is concerning. Why have the public not formed committees to argue against and resist what government is doing? Do we genuinely believe that the government – often a small unit of government, right at the top of each country’s governing structure – are better at making decisions about the people’s welfare than the people themselves? None of this new and often sophisticated governmental regulation is subject to significant democratic oversight, because national parliaments have been suspended or at best are semi-functional. Parliamentarians themselves are scared, and they are therefore staying away from the democratic process. This should be cause on its own to render us sceptical of what our governments may be doing.

After a period in the last decade of governments standing in abeyance, government is back in force and doing what it does with most abundance: regulating its citizens’ lives. The machinery of government is now devoted to producing regulations that in all likelihood will persist and become ever more extensive, informing us how we may go about what was once unrestrained private market activity in every aspect of our lives. After government has finished regulating airports, airlines, railways, how to sit on park benches, how long to exercise for and where to stand in the street, it will inevitably proceed to the newly-opened pubs, bars, cafes and restaurants: where to sit, where to stand, how much to drink and how to use a beer garden; where to stand (or sit) in one’s synagogue, church or mosque; and so on and so forth. Do not think there will not be guidance or regulation upon the most intimate of activities. At the current time, physical intimacies are effectively forbidden between all but those one lives with. This will have to change, or the human race may stop having babies; but do not be surprised if a government regulator appears in the interim, to tell us how to kiss or have sex while staying alert.

At some point, groups of businesses, private people and civic society are going to have to step in and stop what’s going on. People will have to reclaim control over their own lives. However it is not yet clear when this will take place. At the current time we have sleepwalked into government control over every aspect of our lives, eradicating centuries of hard-earned democratic liberties in which the emphasis has been upon people taking control of their own lives and finding their own solutions to worldly dangers. It is not clear why we have suddenly globally decided, in an era of a modern pandemic that is deadly but not nearly as deadly as prior pandemics (at the current time the global number of deaths is estimated as 325,000, in contrast with a minimum of 50 million people dying of Spanish ‘flu between 1918 and 1921 in a world with one quarter of the population), that we must now abrogate these liberties to government in such great volumes. This will be one of the most fundamental questions about the Covid-19 epidemic for historians to ponder upon.

It should be all the more concerning to us that in governments’ reactions to the pandemic, there has been such little debate between those governments and such uniformity of reaction. In the absence of substantial scientific consensus upon the proper reaction to the spread of Covid-19, never mind economists’ consensus, it is hard to escape the conclusion that with a few noticeable exceptions such as Sweden (no lockdown; low death rates) governments have just blindly one followed the other. It is now possible to look back with a little perspective upon the chaotic events of mid-March 2020. Governments sequentially announced total bans upon private economic activity and upon freedom of the person, in extremely short order. It is difficult to comprehend why each government would impose materially identical measures in each country, save that they were each afraid of being caught out by their governmental peers in other countries. That cannot be a good reason for governments to legislate for the expiry of our national liberties. It is the logic of Chinese whispers.

Just because governments are growing, having nationalised our private enterprises and indeed in substantial part our lives, this does not entail that government will become more left-wing in the sense of increasingly prone to redistribute wealth from the rich to the poor. Government regulation does not inevitably assist the poor; it is possible for taxation to be regressive. VAT is a regressive tax (people’s consumption of VATable goods does not increase linearly with increases in income or wealth), and we can expect VAT to increase as government seeks to pay its way out of the massive exercise in borrowing that has accompanied the enormous subsidies paid into countries’ businesses. Given the costs to government of the Coronavirus lockdown, and the inevitable balancing exercise in government treasuries that must follow, a global era of austerity must surely follow and austerity is seldom progressive. This is why impending democratic elections in western nations may swing to the right. Heavy government intervention takes a substantial toll upon the economy, and left-wing redistributive measures will not be appealing to an electorate that wants to see their commercial and private freedoms reintroduced at the earliest possible juncture.

Western nations find themselves at an important crossroads, between accepting future sweeping government control of their economies or rolling back upon over-zealous regulation that is already beginning to appear from all corners of government in the form of Covid-19 regulations upon commercial and private activity. We should not forget that the reason private market economies prevailed over the Soviet Union in the Cold War was because command economies, in which government regulation is used to make decisions to balance competing social pressures such as wealth versus healthcare, proved to be more grossly less efficient than market mechanisms.

We may be about to be required to learn this lesson all over again. Whatever the appropriate medium-term policy response is to Coronavirus, it is probably best set by private people who have to pay the burdens of restrictions upon their lives, rather than by governments. In any event we will all have to pay a lot extra tax to reverse the government subsidies provided so far. That in itself will damage our economies and our standards of living. We should not make the situation even worse by acquiescing in a permanent loss of power to the government regulators. Alas, governments seldom give up power easily, and we may have to struggle to reclaim those liberties. Fighting for one’s liberty was always thus.

Matthew Parish is an international lawyer and scholar of international relations based in Geneva, Switzerland. He is an Honorary Professor at the University of Leicester; was elected as a Young Global Leader of the World Economic Forum; and has been named as one of the three hundred most influential people in Switzerland. An expert in UN reform, he is the author of several books and over three hundred articles. www.matthewparish.com

The views expressed in this article do not necessarily reflect those of TransConflict.

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