A recent commentary in The Wall Street Journal (WSJ) uses the pandemic to make a case for abandoning government intervention in the free market, supposedly because “government policy fails much more frequently” than free enterprise to solve problems effectively. The authors state that the pandemic resulted from failed government policy — either because China’s government failed to prevent the Covid-19 virus’ escape from Wuhan, or because governments around the world have been incapable of preventing its spread. Their argument very disingenuously concludes that it was the free market which curtailed the virus by providing the world with vaccines.
The article fails to acknowledge that Big Pharma companies have benefitted from huge government intervention. In reality, public sector spending into vaccine research has been a long-term investment, and one global study estimated that pandemic-triggered vaccine investment reached US$109 billion (RM456 billion) in 2020. For example, AstraZeneca, Johnson & Johnson, Moderna and Sanofi are estimated to have received more than US$2.7 billion from the US government to cover human trial expenses alone.
Additionally, governments provided private vaccine makers with a guaranteed buyer by being the main market for vaccines — and not the average consumer, although the patents are owned by private companies. This is not typical free market behaviour. If governments failed, it is because they allowed public money to be used by large companies, which then refused to make the vaccines a global public good but employed them in the pursuit of private profits.
The pandemic has confirmed that free market principles — long criticised for creating inequalities and externalities — break down when applied to challenges of a global or protracted nature; and this is a dire failure when the price is paid in lives lost or harmed.
The flawed argument presented by free marketeers must be seen clearly for what it is, so that developing regions like Asean do not weaken the indispensable role of government in promoting the people’s best interests.
Free-market advocates espouse the idea that the market assigns scarce resources where they can be most effective. As circumstances change — whether due to changing consumer tastes, a disruption to supply, or even global shocks such as the pandemic or climate change — the free market would supposedly be better at allocating resources than any economic planner.
Yet, the world’s most important resource right now — the vaccine — has not been allocated equitably despite the crying need for its distribution to be globally-coordinated. High-income nations have adopted advance-purchasing agreements for Western-approved vaccines, a practice described as “vaccine hoarding” or “vaccine nationalism”, with the majority of high-income nations securing at least 350% of their required doses.
There was even a scandal surrounding “vaccine colonialism”, given that vaccine-producing companies refused to share their technology (partly funded by public money) with countries like India, on the grounds that it would stifle their vaccine-producing capacity in the long term.
The outcome of applying typical free-market principles to an atypical scenario is that low- and middle-income nations have struggled to get sufficient dosages to safeguard their most vulnerable citizens. This affects us all: letting Covid-19 fester in the poorer countries increases the odds of new vaccine-resistant variants that have the capacity to annul current vaccination efforts. One study predicts that a scenario where only rich countries are adequately vaccinated will cost the global economy US$1.23 trillion in lost GDP.
As for the market response rate, one need only look at Thailand and Indonesia, which are still struggling to control the pandemic. They lack the public healthcare facilities of richer countries and the industrial capacity to produce essential healthcare products such as ventilators. A year and a half into the pandemic, hospitals across Asean, from Vietnam and Myanmar to Malaysia, remain overwhelmed by daily record-breaking numbers of cases. The free market has not solved their challenges. The only measure slowing the death rate is Asean governments stepping in to scale up treatment, testing and vaccinations.
This is not to say that the market has not been able to perform in the face of the pandemic. But even in the richer countries, the benefits of market performance have accumulated among a wealthy minority. Global inequalities continue to deepen: US-based billionaires’ net worth increased by more than US$1 trillion over 2020 and 2021, while closer to home, Asia’s total billionaire population grew 12% over 2020. On the other hand, about 89 million people in the region are estimated to have slid back into poverty with 140 million jobs being lost.
Unfortunately, market failures such as the misallocation of the vaccine are the status quo. Where market failures do exist, they have been addressed by narrow policies meant to guide the free market to make more suitable decisions. But their outcomes are not sufficient for socially just solutions.
In some cases, market failures such as the cost of externalities are dismissed as the necessary corollary of doing business: there is a belief that taking government action to respond to externalities would do more harm than good. For example, Southeast Asia has been regularly plagued by large-scale air pollution (haze) since 1972, which has caused adverse health and economic impacts across the region. Yet, after decades of constant objections and complaints against the industrial-scale burning of rainforests in Indonesia, the profits from oil palm and pulpwood production have outweighed any significant policies or reforms to curb such activities.
Society needs to reassert its control over the market and the private sector, to ensure that they are oriented towards the public good. The pandemic should remind us that there is a need to adhere to the social contract. If the social contract is broken or unmet, social cohesion will break down — as seen in the recent unrest in Thailand and Myanmar.
Businesses play an essential role in this and are granted a “licence to operate”: an understanding that society creates the conditions in which businesses are allowed to make private profit. When business violates that contract, whether by ignoring externalities, or not working towards what society critically needs in a crisis, or concentrating profits in the hands of a few, societies need to change the business environment to ensure the private sector acts responsibly. Take the recent attempt to degazette the Kuala Langat North Forest Reserve (KLNFR) for property developers in Malaysia. Had civil society groups not voiced their opinions, the 8,000-year-old forest would have been demolished and various indigenous communities dislodged.
In practice, businesses can be persuaded to implement this by moving away from the idea of “shareholder value” towards true “stakeholder value”. So long as shareholder value is in place with its diverse perverse outcomes, there is no mechanism for companies to decide to make something in the public interest at a reasonable price. A more balanced approach, balancing the interests of workers, local communities, consumers and broader society would allow for a private sector that is more responsive to the public interest.
As Asean continues to develop and the region is increasingly being viewed as a high-end manufacturing centre, efforts should be taken to re-focus on “strategic manufacturing”: building self-sufficiency in important products to ensure that societies can function during global shocks. Most discussions on promoting local manufacturing tend to fall into one of two categories: either classic industry (steel, cars, textiles) or support for some geopolitical agenda (5G, airplanes). What the pandemic reveals is that countries need to make self-sufficiency an economic priority to include critical goods and services such as access to water and sanitation, food staples, vaccines and ventilators.
Changes in these areas will lead to a more robust economy, building societies that are less exposed to shocks and are more resilient. This can be delivered by the market, but only if it is guided — and not by the free hand of vested interests — by strong policies from the institutions of the state, for which there is no substitute.
Chandran Nair is the founder and CEO of Global Institute for Tomorrow. This article is part of a series on key areas in which Asean, as part of a regional and global system, needs to consider transforming itself if it is to learn from the pandemic, identify future opportunities and achieve social change for the better.