All entries for March 2020

The War on COVID–19: Lessons from Wartime

Writing about web page https://www.bbc.co.uk/news/topics/c8nq32jw8r1t/boris-johnson

Many people have likened the war on COVID-19 to World War II. Those I've noted range from US Senators Bernie Sanders and Lindsey Graham to the head of Britain's Office of Budget Responsibility Robert Chote. Our own Boris Johnson says it is as if we have a wartime government.

I have some sympathy with this view. The time we are going through will be seen as an historical watershed, like the two world wars. The reason is that it is changing the way of life of every family worldwide, in a way quite unlike 9/11 or a financial panic. Moreover its effect will be persistent, at least for several years. Our world after COVID-19 will be more nervous, more prepared, and less globalized and interlinked for some time to come.

When historical novels are written about our time, every author will have choose the setting: before, during, or after the coronovirus epidemic?

Yesterday I was interviewed on this subject for a radio programme. Understandably, I think, the interview was spiked in favour of more practical and pressing concerns. Beforehand I made some notes, based on questions I was given. Below, I'll share my notes.

Was there any similarity in the challenges facing governments now and at the start of World War 2?

There are several similarities, although not a perfect fit. As in WW2, we face a clear enemy: a disease.

It is a surprise attack – even more than in WW2. In 1941 the Soviet Union suffered a surprise attack by Germany and the USA suffered a surprise attack by Japan, but still most people had seen a war building since the 1930s, so just about all governments had incorporated war into their thinking. This is not the case today: we are at a standing start.

Resistance requires resources to be mobilized urgently into the medical sector: people, equipment, power supplies and provisions.

At the same time the enemy is striking at our supply chains – it attacks economic cooperation and the division of labour. It is forcing us into isolation and self-sufficiency and isolated, self-sufficient people are very unproductive, so our economic capacity is falling. This is what bombing and invasion did in WW2, but the coronavirus is doing it much more efficiently. It is already among us and it is unseen.

There is fear and anxiety. Before WW2 many people feared a bombing apocalypse, which did not actually happen until 1945. A similar fear is present today.

Were there bailouts and nationalisations of businesses and industries disrupted by WW2? What about coronavirus?

World War II brought an explosion of demand. Rather than people losing their jobs, they were called up to serve in the military or in war production. Schools, shops, and pubs did not close but their staff of working or fighting age did. The war economy still required films and entertainment. As for business, most businesses repurposed their production for the war effort. The government paid for the building or converting of factories to war production. There was very little nationalisation. There were very limited bailouts (money for nothing) because the government was primarily spending money to pay people to do something else.

It is true that some small businesses lost out, but most people understood the needs of the war and complaints were muted. I have a letter of 1942 from the wholesale cocoa distributors to the London Chamber of Commerce. They complain that the government has taken over the distribution of chocolate. They no longer have a business. Milk wholesalers have been compensated: what about us? Will we not be needed again after the war?

So some suffered financially. Wealthy people took a hit. But everyone had a role. The war killed, injured, and bereaved millions, but no one was cast into destitution because everyone had a role and could find a job. Old people (fewer than now) benefited from a widening social safety net. After the war, British society was a lot more equal than before.

How did governments manage shortages and supply chain disruptions?

The main tools were licensing and rationing. These converted our market economy into a command economy. There were still markets and money and prices, but for the most part you could not spend money on anything without a government license. The most important exception was bread: through the war you could always buy as much bread as you wanted, so no one went undernourished. This made Britain different from many other countries at war.

But to buy steel or components, a business needed a license. To import materials, you needed a license. To borrow for investment, you needed a licence. You got this licence only if you were on the government’s priority list: important for the war effort. In this way the government could protect the essential industries and the inessential parts of the economy withered.

The problem was inflation – not price inflation, but priority inflation. At first, a few things were seen as crucial – priority A1. As the economy became more and more stretched many other things competed for top priority. When everything was top priority, the priority system stopped working, and government committees had to set limits even on top priorities. You’d think you could never have enough soldiers in a war, but in 1942 the government had to cap the armed forces at 5 million in order to keep enough workers in the war factories and other essential industries.

How was production of munitions (then, medical equipment now) ramped up, and how were people recruited for the war effort (then, for intensive care units etc. now)?

I read today that the government is hoping to find British manufacturers of a basic ventilator – 30,000 in two weeks. Here the standing start is important. For years before WW2, the governments of all the major powers were ordering new weapon designs and thinking about the industrial capacities that the next war would require. Nearly all the major aircraft types of WW2 were designed before the war broke out. Here we are in the middle of our war with a blank sheet of paper.

War preparations made it possible to boost war production to peak levels within one or two years of the outbreak. One or two years, not two weeks.

Market economies do have great flexibility. If the government throws enough money at it, I am absolutely sure that something will be achieved, although not necessarily on the timescale that is demanded, because of our unpreparedness.

My guess is that ECMO machines will be the tip of the iceberg. We have a £2 trillion economy. If we pay the top rate for ventilators, which is £50k, and buy 100,000, they will cost us only a fraction of a percent of national income. BUT in addition to producing them, you have to build the new infrastructure.

Again, I read that a bed in intensive care costs £15k a day – that’s staffing, maintenance, paying off the building. Keeping 100,000 of these beds open for a year would be a big slice of Britains’s GDP, maybe a quarter. And we are a rich country. No doubt we could do it for less by makeshift building and cutting back on training and standards.

And at the same time, we will be having a big recession: output might fall by 10, 20, or 30 percent, so the burden could be even greater. That’s more like Russia in 1942 than Britain or America.

Uncertainty: Did governments have to make things up on the fly?

To some extent. But most governments had spent a long time thinking about how the next war would go, and this helped. It was only 20 years from WW1 and every government had tried to learn the lessons. WW1 was much more improvised than World War II. In WW1 it took years to learn how to get out of the trenches and move on the battlefield. It took years to learn about the public-private partnership and the public finance necessary to ramp up production. So, in WW2 governments generally made fewer mistakes than in WW1.

That’s also probably why Japan, Taiwan, and Hong Kong are having a better time today. They had the experience of SARS in 2003, and they were determined to learn from it.

What were long term effects on how the government ran the economy? And on society?

I think we are going to see a lot more compulsion in a short time. Certainly, compulsion in terms of quarantine. Everyone needs to understand there’s no such thing as a public health measure that doesn’t end up infringing on someone’s rights. The clue is in the name: public, not private health.

Compulsion in rationing basic supplies? Maybe. But my instinct is that we will soon all be making do with less.

Compulsion in service? Medical service, like military service in a war, is going to be dangerous. I hope there may soon be a pool of young, willing volunteers who have survived exposure and been immunized by it.

The persistence of these regulatory changes may be for years after, but not for decades after. The war gave Britain a much larger state and food rationing and food subsidies lasted for years after. The war essentially created the basic elements of a national health service, formalized after the war. But the war did not create nationalized industries. It was postwar socialism, not the war, that led to nationalization. If you look at the share of the state in economic activity in neutral Sweden over the long run, it follows a similar course as in Britain. There were deeper forces at work than the war. The war just brought things a forward a bit.

The same may be happening now. Before we were struck by the plague, things were already changing. Austerity was already ending, the government was already set to throw money at the police, the health service, infrastructure and the regions. That had already begun; maybe now it will be reinforced. There’s visible pressure in society for government to do the right thing and be accountable for it.

I would like to live in a free society and in most settings, it seems to me, free markets will do the best job. But in the present setting I would support a little more of the clarity that comes from compulsory rules. How do I reconcile these things? You can think about compulsion in two ways. One is the Chinese way: do as the unelected party tells you or fear the consequences. But there is also a British way, which is different: when the elected government tells you it’s your turn to do the right thing. It’s your turn to serve in a hospital, or stay at home, or go out to buy the goods you need. There’s a line: don’t step out of it.

That’s how it worked in Britain in WW2. There were lots of rules, which most people accepted, and the few that didn’t were vigorously pursued, with the support of most people. It did continue for too long after the war; that’s something we should aim to avoid.

Mark Harrison : 18 Mar 2020 17:53 |  Tags: Coronavirus Economics Politics War |  Comments (6) |  Close comments |  Report a problem

Communist Luxury; or 'You complete idiot, do you think we all want to look the same?'

Writing about web page https://www.thebritishacademy.ac.uk/fellows/maxine-berg-FBA

Recently I was asked to say a few words at a conference held to celebrate the career of Maxine Berg, who is one of the world’s best early modern economic historians. I was on a panel about the links between economics and economic history. A theme of Maxine’s recent research in economic history has been luxury in the seventeenth and eighteenth centuries, and especially the production and consumption of luxury objects. I thought of contributing to the occasion by saying a few words about luxury objects in another setting and in a much more recent period: the Soviet Union under communist rule.

A thing can be more than a thing

First, what should economists learn from Maxine’s writing about luxury objects? We learn, first, that a thing is much more than a thing. When we acquire a thing, we do not just acquire the thing itself, or the use of it. We also gain access to the feelings that go with owning it or using it and these feelings can be powerful factors in our choices and our behaviour.

Maxine has written about the many feelings associated with luxury objects. From one angle, they evoke “the vices of luxurious excess”: gluttony and greed. From another angle, they bring us “modern comfort and convenience, enjoyment and sociability, taste, aesthetics and refinement.” From a third angle, they raise questions about “individual and national virtue, the canons of taste, definitions of the self.”

In economics we often refer to concepts of self-interest and of stable preferences as drivers of human behaviour. Increasingly, modern economists also ask questions about the identity of the self that is self-interested; that is, self-interest may not be primitive, but may be formed in association with our feelings of identity. The idea of self implies individual difference, and this leads naturally to the question of how we differentiate ourselves from others in society through the things we consume. The evolution of style and fashion shows that our preferences are not as fixed or stable as economic theory would once have liked them to be, and economists increasingly ask questions about how preferences are formed and what economic and social pressures might cause them to change. In all of these respects, the study of luxury objects suggests fascinating lines of inquiry.

There is more. If we spend a few minutes thinking about luxury objects under communism, we’ll find that they take us in a nearly straight line to the dark heart of the Soviet system of power.

As an exchange student and later a young scholar in Moscow during the Cold War, I saw among my Russian friends a longing for luxury (the Russian words were roskosh’ or uyutnost’) that would have been immediately familiar to Maxine and her team of collaborators, working on luxury in a much earlier period. The people in my own circle showed a yearning for something more than the basic standardized means of life. They sought out small luxuries that would provide some kind of individual difference or distinction. They were fascinated especially by foreign objects of luxury, which were rarely encountered other than at second-hand through the censored media and were therefore novel and unfamiliar by definition.

I was a foreigner: what foreign goods did the Soviet people around me seem to aspire to? Denim jeans, leather goods, cosmetics, handbags, electronic goods, and also images of foreign life including Western-branded plastic carrier bags. Invited to dinner, more than once I bought a bottle of wine or vodka at the local liquor store and carried it to the apartment of my hosts in some plastic bag that had found its way from England into my luggage. When I arrived, the bottle would be accepted with a conventional thank you. The bag it came in would be snatched out of my hands, smoothed carefully, folded with precision, and placed to one side for future use on special occasions. Such things were so much more than "just things."

Approved luxury

The Soviet social order was designed and managed by a power-building party elite who believed that power lay in the production of things – especially motors, planes, tanks, and guns. These were things, too, but, like luxury objects, they were also more than just things. Like luxury objects, rockets and tanks were also valued for their capacity to evoke feelings. Unlike luxury objects, however, the feelings were of national pride and power on one side, and fear and submission on the other.

This vision of society was not just for the elite. It was for the masses too. The masses were supposed to be included into this vision of a powerful modern nation through pride in the Soviet state and party, reinforced by gratitude to the ruling party for the provision of standardized, affordable, basic household goods and services.

Within that somewhat Spartan vision, luxury did play a role. More precisely, there were two kinds of luxury, one approved and permitted, the other censured and restricted to the greatest degree possible.

Approved luxuries were goods that would encourage hard-working families to aspire to a simple, healthy, educated way of life topped off with the elements of modernity: a cooker (later a fridge, washing machine, and vacuum cleaner), soap and basic cosmetics, books and a display bookcase, pictures and family photographs, a telephone, a radio (later TV), a samovar (later an electrovar), patterned china, patterned wallpaper, household ornaments, a bicycle (later a motor car) – all Soviet made, allowing limited scope for distinctions of taste and elegantnost’ – another Russian word but interestingly one with an obvious foreign origin.

Such things were not just things; they were supposed to make you feel proud, especially given that (as everyone knew from the novels of Dickens) working families in the capitalist West lived in poverty and children went barefoot.

These notions of luxury went back to the 1930s when the Stalin regime began to design the legitimate aspirations of young, skilled, highly productive workers – the Stakhanovites. You work hard and fulfil or overfulfil the quota, so you get a bonus – but what’s the point if there’s nothing to spend it on? The 1930s answer was: spend it on permitted luxury. That was then, but it was followed by the war and a 20-year pause of living standards, so permitted Soviet luxury was not remotely widespread until the 1960s.

The approved luxuries were priced to be within the budget of a skilled worker household, but from in the 1950s even through the 1980s they remained in chronically short supply. Worst in that regard were apartments, cars, and phones, for which waiting lists ran to years or decades; a second-hand car could cost you much more than a new one, regardless of condition.

The effect of chronic shortages was that, if you met your friend in the street and saw they had acquired something desirable or pretty or unusual, you did not ask: — Where did you buy that? That was not even a question, because you already knew it could not be bought. So instead you asked, with a lowered voice: — How did you get hold of that?

And the answer to that question was that your friend got hold it either through “special distribution,” which allowed them to exercise the privileges of party membership or key-worker status, or else they had worked their connections to some semi-legal or even criminal under-the-counter network.

Forbidden luxury

From another world, there were also forbidden luxuries. Foreign literature, clothes, cosmetics, and electronic goods were available only to people with privileged access, or with private connections to foreigners, which were discouraged.

This might make you wonder how the forbidden luxuries were different from the permitted ones. The answer is that the permitted luxuries were on sale to domestic residents in government outlets – in principle. (Just not in practice, the shelves being bare for the ordinary shopper.) The forbidden luxuries were not available in that way, even in principle.

In rare cases a few forbidden luxuries could be found on sale in the so-called “currency stores.” These stores were not open to the public. Ordinary people could not see them and did not know they were there. Their street doors were unmarked and their windows were curtained. No one was admitted who could not show papers proving their right to hold foreign currency. On sale inside, along with caviar, cameras, furs, and the best vodka, could sometimes be found the works of Akhmatova, Pasternak, and other "edgy" authors, whose works were printed and published in the Soviet Union but sold only to the export market. Because I was a Westerner with foreign currency in my pociet, I could go in and buy them; occasionally my friends would ask me -- beg me -- to get hold of copies for them, which I did gladly.

Another way in which the forbidden luxuries were different from the approved ones is that you were not supposed to show interest in them or accept them, even if offered.

The forbidden luxuries were proscribed because they were so much more than just things. They too evoked feelings, but these were feelings that the party and state stigmatised as disruptive and dangerous: desire to escape the limitations of Soviet life, admiration of foreign technologies, and interest in Western ideas of free choice (which the Soviet press would call "so-called 'freedom'"). For this reason, the loyal citizen was expected to spurn them. When this did not happen, the KGB would regularly pull in people who praised Western consumer goods or the quality of foreign cars (not for a beating, but at least for a ticking off).

Everyone belonged to the mass

This was how the ruling party controlled Soviet identity: everyone could aspire to Soviet luxury, but only if it was the same luxury for all. In luxury, people could find distinctions, but only within the narrow limits permitted by the ruling party. Beneath that, everyone belonged to the mass.

In conversation with a female acquaintance, I once remarked: — Sitting on the Moscow subway, I like it that I can look around and not know who’s rich or poor. People dress the same. My friend replied, or rather she shouted back at me: — YOU DON’T UNDERSTAND! YOU COMPLETE IDIOT, DO YOU THINK WE ALL WANT TO LOOK THE SAME? THE UNIFORMITY THAT YOU LIKE IS FORCED UPON US. WE HAVE NO CHOICE.

From this I understood that beneath the surface of uniformity, there was a deep inequality that was hidden from the naïve observer. There was inequality of choice. Even more, there was inequality of power. The aspirations of millions were restricted by the self-interested decisions of a tiny, power-building elite. It’s something I think about when I come across complaints that today’s formerly communist societies used to be so much more equal than they are today.

Anyway, the point of this story is to confirm what Maxine Berg has already proved to us with such talent and energy, that the origins of modern luxury and the attributes of luxury objects are fascinating and well worthy of the attention of both economists and economic historians.

Mark Harrison : 13 Mar 2020 08:00 |  Tags: Communism Economics History Luxury |  Comments (0) |  Close comments |  Report a problem