Thursday12 March 2020 ★ FINANCIAL TIMES 9

Opinion

O

ne need not be of the left to

interpretthecenturysofar

as a vindication of the

state. After free enterprise

clinched the cold war, gov-

ernmentallbutapologisedforitselfdur-

ing the 1990s, even with a Democrat

suchasBillClintonasUSpresident.

Since then, we have seen, in order, the

heroism of first-responders on Septem-

ber 11 2001, therecapitalisation of

banks in 2008, and now, as coronavirus

goesaboutitsdirework,thenecessityof

public expertise, public infrastructure,

brutepubliccoercion.Onlyachurloran

ideologue,theirAynRandnovelsfrayed

through overuse, could pretend any one

of these shocks was amenable to a mar-

ketsolution.

It is impossible to know if, or how, the

virus will affect the result of this year’s

US presidential election. Jokers who

liken Donald Trump to the insouciant

mayor inJaws, spurning experts to keep

the economy rolling, forget that he sur-

vived to run Amity Island in the film’s

sequel.Thepresidentisnotyetdonefor,

even if the virus puts his ailing boom

intooutrightreverse.

Perversely, it is easier to guess at the

longer-range consequences of the crisis.

9/11 and the 2008 crash led to not just

the growth of government (today’s

engorged Washington,a city that was

shrinking in 2000, ttests to that) buta

also to a culture change: a new public

tolerance of intrusions. Once-novel air-

port queues and credit barriers quickly

becamethecommonsenseoftheday.

In all likelihood, coronavirus will

bring about a similar tilt in the balance

between the public and private realms.

The terms of political discourse have

moved unmistakably in favour of gov-

ernment over just a few weeks. We are

living through a reputational comeback

for what conservatives have disdained

asthe“administrativestate”.

The legitimacy of government

remains contested in the US as in few

western democracies. Denied “a

monopoly on the legitimate use of vio-

lence” by the second amendment, it

does not even meet Max Weber’s terse

definition of a state. When government

doesexpand,itisoftenasanimprovised

response to trauma. The depression led

to the New Deal, 9/11 to the reversal of

any post-1989 peace dividend, and the

financial crisis to new layers of banking

oversight. War powers that accrued in

the American civil war and the world

wars were repurposed as the legal basis

for welfare. Perhaps only Lyndon John-

son’s war on poverty sprang from one

president’sinnerdrive—forgedinahar-

rowing boyhood — rather than from an

external shock. Even that played out

againstthebloodandfireofurbanriots.

Whether coronavirus will be one of

thesetransformativecrises,wedon’tyet

know. But it is already elevating ques-

tions that can be lamentably secondary

in normal times: about the lack of statu-

tory paid leave, the holes in the health-

care system and, dangerously for Mr

Trump, the deliberate weakening of the

federal bureaucracy’s invisible techno-

crats. His crusade against unelected

know-it-alls made some political sense

when voters felt broadly safe and pros-

perous.BetweennowandNovember,he

pursuesitathisownpoliticalrisk.

In his cheeky new book,10% Less

Democracy, the economist Garett Jones

makes a counter-zeitgeist case for more

“epistocracy”, or rule by the knowledge-

able. Recent weeks have rather made

the case for him, and altered that zeit-

geist. The president now cannot win re-

election without resorting to what his

party otherwise scorns as Big Govern-

ment. As well as the obvious battery of

public health measures, he is toying

with a fiscal stimulus of the kind Repub-

licans viewed as wanton profligacy

underhispredecessorBarackObama.

He is doomed if he does not do these

things. But he is also doomed if he does

them badly. Overnight, competence

matters. Populism has always traded on

the sweet notion that gut instinct, as

opposed to expertise, constitutes a kind

of higher wisdom. This year provides a

far less hospitable atmosphere for such

hokum than 2016. There is electoral

self-harm in the administration’s indif-

ferenceto,well,administration.

The pity of it is that conservatives had

shrewd things to say about government

before the slide into paranoia. Public

choice theory broke through in the

1970s for good reason: bureaucracies,

once founded, do have an interest in

their own aggrandisement. Nor is any

mortal capable of perfect objectivity.

The most scrupulous public servant will

harbour unconscious biases. It is just

that a thing need not be pristine to be

better than the alternative. And the

alternativetotheadministrativestate,if

it could even be defined, does not bear

thinkingabout.Eventsareremindingus

as much. If there are no atheists in fox-

holes,noraretherelibertarians.

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Terms of political discourse

have moved unmistakably

in favour of government

over just a few weeks

The administrative state is poised for a comeback

vary depending on where those stake-

holdershappentohavebeenborn?

That would be immoral. It is a virtue,

not a vice, of global companies that they

build relationships of mutual advantage

that do not respect borders. Globalisa-

tionbindsourfortunestogether.

That these bonds makes us collec-

tivelyricherisclear,giventhatthecoun-

tries which have embraced global trade,

along with education and investment,

are the most prosperous. The rise of glo-

balisation since 1990 coincides with

more than a billion people rising out of

extreme poverty. Neither governments

nor companies should turn their back

onthatlegacybecauseofcoronavirus.

Even in the current crisis, globalisa-

tion can make the world safer. That

national economies are fused by the

connective tissue of global companies

means each country has a selfish inter-

est in helping others. That is a source of

stability that anti-globalist rhetoric can

onlyservetodilute.

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and floods is demonstrated repeatedly.

Thenextcrisismightstartanywhere.

This is not to deny the value of bring-

ing production closer to demand. In the

garment industry, responding quickly

to changing tastes and advances in tech-

nology make a strong case for “near-

shoring” production. Levi’s isdeploying

fully automated technology or finish-f

ing or “distressing” its jeans with lasers.

This90-secondprocess,completednear

the final market, used to take a worker

inalow-costcountryhalfanhour.

ButcompaniessuchasLevi’sarenear-

shoring to give customers what they

want, not to reduce the risks of interna-

tional trade. Nor are they practising

good global citizenship by “bringing

jobs home”. What is home? Big, modern

companies have customers, employees,

andshareholdersallovertheworld.

That global companies are not crea-

tures of any one country is a point of

attack for globalisation’s critics. But if

we believe that companies have respon-

sibilities to all their stakeholders, do we

really want those responsibilities to

of Harvard Business School points out,

big customers saw the risks and shifted

someoftheirsourcingtoTaiwan.

What they did not do was turn to

domestic chip production. That would

have been a mistake. Microchips are the

perfect example of how local specialis-

ation, spread across the world, creates

better products than is possible in any

one place. The best chip manufacturing

equipment comes from Holland; the

strongest chip designs from the US; the

bestfoundriesareinTaiwan;andsoon.

Nor can companies, with profits at

stake, indulge in Mr Navarro’s fallacy

that all threats originate abroad. The

UK’s domestic coal supplies did not pro-

tect it during the 1980s miners’ strikes.

America’s vulnerability to hurricanes

pull up the economic drawbridge. What

is more surprising is that the Trump

administration is not alone. The virus

has revealed the hidden costs and frag-

ility of global supply chains, triggering a

“backlash”toglobalisation.

Happily, the backlash so far is only

among politicians and pundits. Yes,

some supply chains were shortening

long before the virus hit, and this crisis

will lead to changes in others. But com-

panies still see the advantages of global

trade, consumers still benefit from it,

anditstillmakestheworldasaferplace.

Economically, coronavirus sits along-

side the Fukushima earthquake and

nuclear accident, US-China trade con-

flicts, and other recent global disrup-

tions.Whattheyhaveincommonisthat

they demonstrate the dangers of highly

concentrated, just-in-time supply

chains—notinternationalones.

For too long, companies arranged

their operations with only cost in mind,

says Per Hong, a supply chain consult-

ant atKearney. Yet crises “underline

the need for companies to design their

supply chains around risk competitive-

ness” rather than cost alone. The com-

panies he works with are not localising

supply, but mitigating risk with regional

diversification. “It is the exact opposite

of unwinding the global nature of our

supplychains,”hesays.

Fukushima demonstrated how much

of the global microchipsupply chain

passedthroughJapan,withmanylower-

tier suppliers clustered near the earth-

quake. But afterwards, as Willy Shih

T

here is no longer any doubt-

ing the seriousness ofthe

coronavirus crisis. But we

need to be clear about what

kind of crisis this is. It has

the potential to do worldwide economic

and human harm. But it is not the result

of a flaw in the organisation of the world

economy, in the way people, goods and

money flow across the globe. It is a

globalcrisis,notacrisisofglobalisation.

The distinction is important, because

if politicians and business leaders take

the wrong lessons from this crisis, the

worldwillbelesspreparedforthenext.

It is not surprising that, when

Covid-19 still looked like a Chinese

rather than a global problem, US com-

merce secretary Wilbur Ross said that

the virus, regrettable though it was,

would“help accelerate” thereturn of

jobs to North America. If you see the

worldeconomyasazero-sumgame,one

country’slossmustbeanother’sgain.

For US president Donald Trump’s

trade adviser, Peter Navarro, the virus

shows “we cannot necessarily depend

on other countries, even close allies, to

supply us with needed items”. The best

response to any threat, on his view, is to

Coronavirus

is not a crisis

of globalisation

It is a virtue, not a vice,

of global companies that

they build relationships

that fail to respect borders

AMERICA

Janan

Ganesh

G

etting economic policy

right in turbulent times is

fiendishly hard. Those con-

trollinginterest rates and

taxes irst need to under-f

stand the shock: is coronavirus a hit to

demand, to supply, or both? Then they

must predict human responses: how

and when will consumers and busi-

nessesreact?

Yet there is another difficulty, equally

important, that few sitting in central

banks or finance ministries contem-

plate: the problem of missing data. A

vast unmeasured economy nfluencesi

the markets we measure accurately.

Typicallyseen as a poor-country prob-

lem , this missing economy looks very

likely to grow over the coming decade.

As it does, official economic data and

the policies that result from it are likely

to becomeworse.

The economymissing from our

statisticsis variously tagged as “under-

ground”, “hidden”, “shadow” or “grey”.

None of these labels are very helpful

descriptors: much of what we fail to

capturetakes place at street level, is

vibrant, colourful, self-regulated and

wellorganised.

Some of it is illicit, but most simply

exists outside taxation and government

rules — the street vendors, hawkers,

unregistered pop-up shops and infor-

mal markets that thrive around the

world,forexample.Thiskindofactivity

creates jobs, spending, income and out-

put, which should all be counted in

national gross domestic product but

oftengoesunmeasured.

Recognising their failure, statistical

agencies chip away at the problem.

Some attack data gaps directly,

comparing self-reported tax returns

with the results of audits to gauge the

extent to which sales might be hidden

across an economy. Others use demand

for currency and electricity as an

indirect measure, reasoning that

the need for power and cash should

track the size of informal markets. The

latest attempts use satellite images to

track light emissions as a clue to the

number of unreported factories and

markets.

When figures on the unmeasured

economy emerge, they are perplexing.

It is massive: across 158 countries, the

IMF recently put it at almost 32 per cent

of measured GDP. In emerging and

developingcountriestheshareishigher.

Recent work by local statisticians uts itp

at52percentinIndia,forexample.

In the Democratic Republic of Congo

decent statistics are scant (the last cen-

sus was in 1984) and the unmeasured

economy may be 80 per cent of official

GDP. Because all this unreported activ-

ity bypasses tax and can be unproduc-

tive, it is seen as a drain. The advice

from bodiessuch as the IMF and the

OECD is to tamp it down, fill the fiscal

coffersandboostoutput.

Travelling in places where people live

under acute stress has shown me how

misplaced the mainstream view of

informality can be. Refugee camps tend

to have a handful of registered compa-

nies that international aid agencies deal

with. Among these, thousands of

pop-up shops jostleto provide a choice

of goods and jobs to people under

duress.

Kinshasa is the same story on a much

larger scale: a sprawling mega-village of

10m people, the vast majority working

informally. During recentprotests in

Santiago, an informal market sprang up

to provide essentials including water,

food and nappies. Unmeasured markets

often respond first when timesbecome

tough and are a safety net when govern-

mentsfail.

The rich world has much to do before

dishing out advice. Italy, a G7 member,

misses one-quarter of its economy,

according to IMF estimates. Only Aus-

tria, Switzerland and the US measure

wellenoughthatthemissingeconomyis

below10percentofGDP.

Things could get worse. The over-65s

often pick up informal jobs when

they retire. As this cohort swells,

the unmeasured economy will rise.

Technology, too, is a challenge: the

sharing economy — outfits including

Airbnb — is proving hard to track.

Online networks make informal trade

easier: a social economy of unregistered

takeaways, markets and lending clubs

conductedthroughFacebookisrising.

Unless statisticians catch up, the

result will be bad policy. If measures of

GDP miss the true picture, then the

rules on debt-to-GDP ratios are going to

bewrong,too.

If informal groups are a source of

innovation — an idea that many studies

bear out — then tax breaks and subsi-

dies directed at small and medium-

sized enterprises need rerouting in their

direction.

If the unmeasured economy is large

enough to affect business cycles, as US

Federal Reserve economists have

shown, then interest-raterises and cuts

could be mistimed. Accurate policy

rests on having access to a full picture of

the way people work, earn and spend.

Until we have one, economics can only

bumpalongblindly.

The writer is an economist and the author

of ‘ExtremeEconomies’

A vast, unmeasured

economy exists alongside,

and influences, the markets

we measure accurately

Bumping along blindly is a bad alternative to gathering decent data

Richard

Davies

T

he hope of coronavirus con-

tainmentis giving way to

the strategy of delay. The

disease has reached every

continent bar Antarctica.

Italy, Europe’s worst-affected country,

hasa nationwidequarantine.

Covid-19,forwhichthereisnovaccine

or cure, presents a defining challenge

for any government, whose first duty is

toprotectcitizens.Transparencywillbe

critical if health services become over-

whelmed: the UK is fortunate in having

a public health response led byexperts

who fferedclear,timelyadvice—acon-o

trasttothechaosunfoldingintheUS.

In northern Italy, intensive care beds

are already filling up fast. Healthcare

may be rationed. If so, ethicists say, the

public should be made aware of the rea-

soning behind difficult choices, such as

who will be given intensive care beds

and ventilators in the event of a short-

age. “How will resources be allocated

when demand hits surge and capacity is

limited?” asks Hugh Whittall, director

of the London-based Nuffield Council

on Bioethics, which has led consulta-

tions that have previously fed into an-p

demic planning. “It’s important that the

principles for constructing that guid-

ance are transparent, public and clearly

set out, and that the government pre-

paresthegroundforwhatmightcome.”

The discomfiting idea that some peo-

ple belong at the front of the healthcare

queue is already codified. The US Cent-

ersforDiseaseControl,forexample,pri-

oritises access to limited stocks of pan-

demic flu vaccine by splitting the popu-

lation intofive tiers. Tier 1 occupants

include military personnel deployed

overseas, frontline healthcare workers,

those in the emergency services and law

enforcement, pandemic vaccine manu-

facturers, pharmacists, pregnant

women and children aged 35 months

and under. In a severe pandemic, mor-

tuary staff and energy infrastructure

personnel (tier 2) are favoured over

bankersandtransportworkers(tier3).

Healthy adults aged under 65, if not

included in a higher professional tier,

rank the lowest. Interestingly, priorities

can change according to the profile of a

disease: over-65s are tier 2 in a low

severity pandemic but drop to tier 4 in a

high-severityscenario.

Once illness strikes, that picture

changes. Sick workers are unlikely to

recover in time to assist in the first wave

ofanepidemic. ccupationalusefulnessO

becomes secondary to clinical need, but

healthcareworkersarestillprioritised.

Maxwell Smith, a bioethicist at West-

ern University in Ontario who has writ-

ten widely on pandemic ethics, believes

the 2003 Sars outbreak focused think-

ing onwho should be prioritisedfor life-

saving treatment. Decisions should be

madeinatrustworthy,inclusiveandfair

manner o have legitimacy: “If we’re nott

going to have people upset and protest-

ing, this needs to be done in advance,”

he said. “If we wait until we’re scram-

bling for ventilators, the odds are that

we won’t be able to go through that rea-

soneddecision-makingprocess.”

The broad utilitarian aim of saving

the most lives isdifficult to judge n ai

severe pandemic. The usual “sickest

first”approachcanseeventilatorsbeing

assignedtothosetooilltosurvive.“First

come, first served” might also be jetti-

soned; efficient use of scarce resources

is itself an ethical imperative, meaning

spaces might o to those most likely tog

recover. A “fair innings” argument

favours younger patients but— Cov-

id-19, unlike flu, leaves babies and

youngchildrenrelativelyunscathed.

If the pool of equally needy patients

far exceeds capacity, Mr Smith said, lot-

teriesare an option.Novartisran a lot-

tery o choose the first compassionate-t

use recipients of its $2.1m experimental

gene therapy Zolgensma. Even in

extremis, this is hard on those with los-

ing tickets. It is wiser to improve the

odds now: handwashing and self-isola-

tion can spread the healthcare burden

andbuytimeforavaccine.Ultimately,it

givesmoreofusachanceofwinning.

Thewriterisasciencecommentator

Hard choices

lie ahead

on healthcare

priorities

The discomfiting idea

that some people belong

at the front of the queue

is already codified

SCIENCE

Anjana

Ahuja

BUSINESS

Robert

Armstrong

MARCH 12 2020 Section:Features Time: 3/202011/ - 18:18 User:alistair.hayes Page Name:COMMENT USA, Part,Page,Edition:USA , 9, 1