Lessons about the role of the state and the meaning of freedom

We have been living with coronavirus around the world for about a year and a half now. In Europe, we were still moving in and out of lockdowns until recently. Politicians used restrictions to try and bring the pandemic under control and thus manage the situation. Social consensus crumbled. It is time to learn lessons about crisis management – lessons about the role of the state and about the meaning of freedom.

From individual companies to countries, crisis management is based on facts, following a top-down approach. This is currently the case, and rightly so. When dealing with a pandemic, crisis management efforts have to be assessed according to three different dimensions: prevention and containment, cost, and resolvability.

Prevention and containment

Scores can easily be awarded when it comes to prevention and containment. Apart from a small number of exceptions such as New Zealand and Singapore, countries have fallen short of expectations in this area. The picture that emerges is one of inadequate preparation, resulting in slow, indecisive, and inconsistent implementation of measures – despite the fact that a pandemic is one of the crisis scenarios that are routinely considered in nations including Switzerland.

Around the world, we have all had the painful experience of seeing that knowledge alone is of no help if the right practical decisions are not made. There is no point in simply developing and documenting the right scenarios; they need to be rehearsed and put into practice. The crisis management “muscle” needs to be trained. The greatest risk is to believe that the status quo can be maintained. Looking back, it is primarily Western countries – which operate the world’s most expensive healthcare systems – that need to ask themselves how they can prepare for pandemics and other crises in the future.

Cost

The costs of the pandemic – and of combating the health crisis – are wide-ranging. Above all, they go beyond the apparent opposites of economy versus health. First, the right and the ability to independently secure one’s economic advancement are inseparable characteristics of every free society. Second, public health is not just about respiratory diseases. It is still about ensuring maximum happiness for the maximum number of people. It is indisputable that this includes preventing the collapse of the healthcare system. However, I don’t want to dwell on these questions, which are ultimately ethical matters and cannot therefore be resolved at a purely political level. Instead, I want to focus on the costs that are perceptible from an economic perspective.

The desire to rescue and protect was one of the state’s first responses to the pandemic. Within a short space of time, support packages worth billions had been approved for businesses. “Black zeros” were no longer important. Government debt soared to new record levels during the pandemic. The debt of OECD nations is likely to have increased from USD?47 trillion in 2019 to more than USD?56 in 2020. The OECD is forecasting a further rise in debt to USD?61 trillion in 2021. The debt ratio of OECD countries rose by more than 15?percentage points in 2020, with a further increase of at least 4?percentage points expected this year.

The government support packages far exceed the support provided at the time of the financial crisis more than a decade ago. This is money that will need to be earned again by the citizens of these states in the coming years if we don’t want to further restrict the freedom to act of future generations. We know that it is economically efficient for states to smooth out short-term demand shocks – and this is how the healthcare measures taken to combat the pandemic can be interpreted. In the long term, this spending must also help to prepare society for the future. However, a planned economy and structure-preserving industrial policy are not more effective simply because they are disguised as a means of controlling the pandemic. “Building back better” is only possible through the market.

Resolvability

Practice has shown that restrictions and lockdowns simply “buy us time” but do not fully eradicate the pandemic. Vaccination appears to be the only approach that will have a lasting impact. What a triumph for science that we now have not only one but a whole series of highly effective vaccinations against COVID-19. In view of the complex nature of the challenge, no one would really have believed a year ago that millions of people around the world would today be receiving vaccines every day. Hence, one of the major affirmations and lessons from the pandemic is that it is not restrictions, but rather science and its power of innovation that are the key to resolving the corona situation.

It is also the belief in progress and the harnessing of innovation that have always driven significant advances in our world – making it a better place to live – and this will remain the case going forward. License costs for patents have no place on the critical path towards achieving the swiftest possible global vaccination coverage. Instead, the friction-free functioning of global production chains and the ability of states to act – which are unfortunately all too often hampered by “me first” restrictions – are what is needed to facilitate the final stages of vaccine distribution.

Conclusion

The lessons that must be learned are not all obvious. The state must and should protect and defend in times of crisis. It is precisely for this reason that free citizens transfer the monopolies of power to the state. However, the state should exercise the powers competently over a limited period of time. Nor should it limit freedom – which serves as a driver of discovery – through restrictions and bans. This is the major risk when it comes to facing the next challenge with the potential to become a crisis, i.e. the challenge of limiting and overcoming climate change.

Instead of pursuing technological approaches based on targeted subsidies, only the target should be defined and emphasis should be placed on the freedom and innovative power of research. While I fully support the transition to e-mobility, for example, I believe it would be a mistake for us not to also explore as a matter of urgency other solutions to take us from A to B using minimal resources. Ideological blinkers limit our view. And the search for a new human being with a new way of life will, in my opinion, only result in a limited amount of progress.

The state should focus on two main areas: enforcing property rights and permitting price signals. In other words, we must create a genuine CO2 market and provide the world’s inventors and entrepreneurs with credible assurances that they will be able to retain the fruits of their work!

I look forward to your comments, whether you agree or disagree with the ideas presented here.

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My name's Zeno Staub. I'm Chief Executive Officer at Vontobel – a globally operating investment manager. Professionally and privately, I'm a passionate reader, keeping a close eye on trends and debates in economics, politics and society.

Why is investing the new saving? What's the historical and future impact of globalization? And how can we use the power of freedom and knowledge to actively shape the future? Such questions inspire my activities on LinkedIn. Follow my profile to stay in touch.