Mariana Mazzucato and Giulio Quaggiotto show why countries that embraced a proactive state have fared better against COVID-19

Mariana Mazzucato and Giulio Quaggiotto show why countries that embraced a proactive state have fared better against COVID-19

By Mariana Mazzucato & Giulio Quaggiotto

Decades of privatization, outsourcing, and budget cuts in the name of “efficiency” have significantly hampered many governments’ responses to the COVID-19 crisis. At the same time, successful responses by other governments have shown that investments in core public-sector capabilities make all the difference in times of emergency. The countries that have handled the crisis well are those where the state maintains a productive relationship with value creators in society, by investing in critical capacities and designing private-sector contracts to serve the public interest.

From the United States and the United Kingdom to Europe, Japan, and South Africa, governments are investing billions – and, in some cases, trillions – of dollars to shore up national economies. Yet, if there is one thing we learned from the 2008 financial crisis, it is that quality matters at least as much as quantity. If the money falls on empty, weak, or poorly managed structures, it will have little effect, and may simply be sucked into the financial sector. Too many lives are at stake to repeat past errors.

Unfortunately, for the last half-century, the prevailing political message in many countries has been that governments cannot – and therefore should not – actually govern. Politicians, business leaders, and pundits have long relied on a management creed that focuses obsessively on static measures of efficiency to justify spending cuts, privatization, and outsourcing.

As a result, governments now have fewer options for responding to the crisis, which may be why some are now desperately clinging to the unrealistic hope of technological panaceas such as artificial intelligence or contact-tracing apps. With less investment in public capacity has come a loss of institutional memory (as the UK’s government has discovered) and increased dependence on private consulting firms, which have raked in billions. Not surprisingly, morale among public-sector employees has plunged in recent years.

Consider two core government responsibilities during the COVID-19 crisis: public health and the digital realm. In 2018 alone, the UK government outsourced health contracts worth £9.2 billion ($11.2 billion), putting 84% of beds in care homes in the hands of private-sector operators (including private equity firms). Making matters worse, since 2015, the UK’s National Health Service has endured £1 billion in budget cuts.

Outsourcing by itself is not the problem. But the outsourcing of critical state capacities clearly is, especially when the resulting public-private “partnerships” are not designed to serve the public interest. Ironically, some governments have outsourced so eagerly that they have undermined their own ability to structure outsourcing contracts. After a 12-year effort to spur the private sector to develop low-cost ventilators, the US government is now learning that outsourcing is not a reliable way to ensure emergency access to medical equipment.

Meanwhile, Vietnam’s successful approach to COVID-19 has emerged as a striking contrast to the US and UK responses. Among other things, the Vietnamese government was able to amass low-cost testing kits very quickly, because it already had the capacity to mobilize academia, the army, the private sector, and civil society around a common mission. Rather than simply outsourcing with few questions asked, it used public research and development funding and procurement to drive innovation. The resulting public-private collaboration enabled rapid commercialization of kits, which are now being exported to Europe and beyond.

New Zealand is another success story, and not by coincidence. After initially adopting the outsourcing mantra in the 1980s, the New Zealand government changed course, embracing a “spirit of service” and an “ethic of care” across its public services, and becoming the first country in the world to adopt a wellbeing budget. Owing to this vision of public management, the government adopted a “health first, economy second” approach to the current crisis. Rather than seeking herd immunity, it committed early to preventing infection.

Similar lessons apply to data and digital technology, domains in which governments’ performance has varied widely. In Pakistan, citizens were able to apply for emergency cash transfers (made available to an impressive 12 million households) directly from their mobile phones, whereas Italians have had to print out self-evaluations to show that they are complying with lockdown rules.

To be sure, South Asian governments have benefited from the institutional memory built up during the 2002-03 SARS epidemic, which also altered public attitudes about privacy. But many of these countries also have invested in their core data capabilities, which have been particularly effective when facilitating decentralized action. South Korea, for example, adopted an aggressive high-tech tracking approach, and published real-time data on mask stocks and pharmacy locations, allowing start-ups and ordinary citizens to create add-on services to ensure more effective and safe distribution.

The contrasts between the US and UK, on the one hand, and Vietnam, South Korea, and New Zealand, on the other, offer important lessons. Far from retreating into the role of fixer of market failures and outsourcer of services, governments should invest in their own critical faculties. The pandemic has laid bare the need for more state productive capacity, government procurement capabilities, symbiotic public-private collaborations, digital infrastructure, and clear privacy and security protocols.

Such a mission-driven approach to public administration should not be confused with top-down decision-making. Rather, it should be viewed as the best way to ensure dynamism, by nurturing fruitful relationships between innovators and tapping into the value of distributed intelligence. Governments that have long abdicated their duties to the private sector now need to catch up, which will require them to rethink intellectual-property regimes and their approach to R&D and public investment and procurement more generally.

Why, to take one real-world example, should a low-cost ventilator that has been approved by regulators in Japan not be readily accepted by other countries? Clearly, in addition to a renewed role for national governments, we need an international clearing house for grassroots and citizen-led solutions.

In any crisis – financial, public-health, or climate-related – a lack of choice drastically limits the public sector’s room to maneuver. After years of pursuing a misguided governance model, policymakers around the world surely are lamenting the lack of in-house know-how and resources to deploy the digital tools needed to save lives. Effective governance, it turns out, cannot be conjured up at will.


Mariana Mazzucato is Professor of the Economics of Innovation and Public Value and Director of the UCL Institute for Innovation & Public Purpose (IIPP). She is the author of The Value of Everything: Making and Taking in the Global Economy.  Giulio Quaggiotto, a former head of the Regional Innovation Center in the Asia Pacific at the United Nations Development Programme, works at the Mohammed Bin Rashid Center for Government Innovation. Copyright: Project Syndicate, 2020, and published here with permission.

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62 Comments

It is far too early to quantify in a holistic way the long term socio-economic outcomes of the different approaches governments have taken based on their ability and decisions. Even if you narrow your view to case loads and deaths.

I'm quite confident it will not be a government laboratory that will eventually deliver a vaccine, so I look forward to a future piece about how the particularities of governance in the particular country that was fastest in developing a vaccine, cultivated a culture of innovation and dynamism that created a vaccine in record time. And a follow up conclusion that an agile private sector with room to move provides us with long term solutions to global problems.

Suggest you read the first author's book "The Entrepreneurial State" that shows that every piece of major tech in the iPhone was developed in a government lab. Might shake your confidence that "it will not be a government laboratory that will eventually deliver a vaccine."

Very good point. It is only very recently that even in the USA (the most aggressively "private is best!" market) the share of research funded privately passed 50%.

If governments are so good at development then one might expect that the countries with the biggest governments must have an amazing track record of inventing things like vaccines. Surely almost no vaccines could be made in anti government America or from any privately funded source.

So what does the historical actually show?

As above, >50% of that research funding in the USA has been public funding since WW2. That's what it shows.

Yes, that's a point, but out of the top ten vaccine manufacturers in the world none are governments:

https://blog.technavio.com/blog/top-10-vaccine-manufacturers

It's been ' an agile private sector' which has bourght this species to the brink of extinction.

Mind you, governments have all done that too, until they were steathily gutted.

Extinction???

You meant to suggest we are down to our last breeding pair of people on the earth?

I am looking at my wife across the room in a new light.

The future is dependent on you Ralph. Don't cock it up :)

"I'm quite confident it will not be a government laboratory that will eventually deliver a vaccine, so I look forward to a future piece about how the particularities of governance in the particular country that was fastest in developing a vaccine, cultivated a culture of innovation and dynamism that created a vaccine in record time."

Lolwut? Are you really trying to pull out some sort of 'capitalism saved us with a vaccine' narrative here? The early vaccination development attempts couldn't even get funding because the private sector didn't want to take the risk. Your version could not be more opposite to what is actually happening. There is a massive amount of government funding flowing into these projects. Maybe get the facts next time before you make up a bullsh*t ideological story.

Well you've gone and illustrated my point beautifully. Even if the private sector creates a vaccine with public funds, what exactly did the government do in that equation? Provide intellectual capital? High quality premises? No, just the money. Literally begging a private corporation to come up with a solution that a government is not designed to technically solve. So, well done. Yes, the government has deep pockets thanks to the extortionate social interaction we call taxation. And again and again, government is dependent on the entrepreneurial spirit of the free market, and also its taxable productivity. But yea ideology blahblah

Holy f-k that is some hardcore delusional nonsense. It's not a private sector project if the public sector pays for it moron.

We're not discussing who pays for it, but who will manufacture it. Focus. You're arguing my point that it won't be in a government lab, by saying government funds are involved. They're not mutually exclusive points. As Milton Friedman said once: "I'm on your side, but you aren't."

Strictly speaking, down to the core, Japan and Korea are not the democratic countries understood by the West.

As I said before, the western style "democratic" system is only a output of tech advancement and it is very historic dependent.

The "democratic" system is quick deteriorating to race to the bottom game for political parties, and a tool for the super rich behind the curtains to rule.

All countries need a means of communication between top (the govt) and bottom (the workers). Need it for happiness and need it for efficient communication. Someone pointed out the govt of Singapore since WW2 has been much the same as the govt of China but it works far better in Singapore since it is a small place - its govt can see the impact of their policies on their way to work and return home. Mao's great leap forward was just about the worst disaster to ever hit a population in terms of deaths and misery but some historians have put it down to a failure to communicate between the starving peasant and Mao (who would want to give him bad news!).
You may be right with our modern democracies becoming ever less socially mobile - we are getting wealthy elites. Some have said the same about China - I don't know but look at America with presidents Bush father and son, the Kennedy family and even Bill & Hilary Clinton.
I am sure you are right about 'historic dependent' - after the most dramatic revolutions France went from the Sun King to Emperor Napoleon, Russia from the divine right of the Tsars to Stalin and now Putin and China from divinely appointed emperors to Mao and its latest president for life. For democracy look to India, the UK and even my families PNG with its tribal society; they have a concept of local democracy embedded in their culture even when the govt becomes authoritarian.

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I don't think this is very well argued. She doesn't support many of her statements with any evidence or argumentation, rather she just says it is so.

1. For example; "Decades of privatization, outsourcing, and budget cuts in the name of “efficiency” have significantly hampered many governments’ responses to the COVID-19 crisis"

She doesn't give any proof this is true. She also doesn't bother to mention that the opposite of efficiency is inefficiency. Inefficiency in government means wasting more tax payers dollars than necessary, so why would that be a noble goal?

2. I also suspect "investment in public capacity" is code for what NZ Rail used to be, a shining light for wastage and a huge hole in which vast quantities of tax payers dollars went to die.

3. “state productive capacity”, this would seem to be an oxymoron.
Government is an expensive redistribution machine that creates no real wealth of its own. We tolerate it for higher social benefits but I pure productive terms it is a heavy weight slowing down everything from building houses to exporting milk.

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Well put. The UK may have privatised but the govt kept on spending more every year.

She probably assumed the readership was keeping up to speed on the Corona-virus cases vs deaths per country. I'll help:

https://coronavirus.jhu.edu/map.html

The vast majority of private/elite 'winners' are actually parasitic, too.

The difference with Govts is that they can act to the benefit of whole societies, whrereas privatisation can't, and demonstrably doesn't. The privates act on their own behalf, indeed they're statutorily (now that's a laugh) bound to do so.

Govts *can act that way, that is their role. There are lots of historical examples where that didn't actually happen of course. And examples of selfishness appear equally in governments and private enterprise.

I don't see how private enterprise is parasitic except in quite narrow circumstances, which I might also suggest, are most often brought about by shockingly bad government regulations. Land banking for example. Shoot the parasitic land banker they cry, but the situation only exists because of the random line on a map created by a council under its regulations.

Otherwise exercising my freedom to successfully help people build their houses is not an accurate description of parasite. Not according to the Oxford dictionary in any event. Under your proposal the more competent I am the more parasitic I must be.

I've been on a Council. I've struggled with Ribbon Development, cost thereof. I've seen the 'I want to turn farmland into urban sections and I want to profit from it, but I want the Council (read: others) to fund the infrastructure (ncluding the pressure-driven subsequent infrastructure, like where little Johnny needs street-lights to get home from Scouts).

I can tell you that Council thought of everyone's wellbeing. I can tell you that developers, with zero exceptions, did not.

"Council thought of everyone's wellbeing". Yet, they still let the developments go ahead and clipped the ticket.

Some of the healthcare privatisation in the UK has been highly successful and some has been a disaster. It's not helpful to generalise across the board (as this article has). Example, on the NHS ward I was responsible for, cleaning services had been privatised. This was a disaster. The cleaners were lazy and hid in the patients bedrooms, sitting on their beds, having nice long chats on their phones. I received numerous complaints but the complaints were almost impossible to respond to. It was nigh on impossible to have a constructive conversation with the "cleaning manager" who barely spoke English (none of them) and who denied there was a problem. However, when I needed major surgery, i had the choice between a private hospital and an NHS one. I went with the private hospital who had an excellent surgeon. My surgery at the private hospital actually cost the UK tax payer slightly less, so effective, so well managed, so efficient and pleasant an experience was the private hospital, I didn't even need to stay overnight. There was a physio pulling me out of bed within a few hours of surgery and I was expertly managed and discharged by end of day. The hospital was spotless and the staff, food, resources were excellent. Had i been at the NHS hospital I would have had a longer stay, and been very lucky to see a physio. The NHS is often shambolic and the chaos makes the whole thing more expensive.

Anyway, it doesn't always work like this, but it *can* follow that private care can offer excellent service and value for money. And on the other hand, sometimes private services are a disaster. Peacemeal privatisation in the NHS is a disaster and causes even more inefficiency. If you manage a ward and you can't take responsibility for the hygiene of the ward, you're stuffed.

Support that gingerninja. I ran a department for a DHB. Then my own company. (albeit on goverment money)
We ran rings around the civil servants, better service, higher quality, saw more people by far and much cheaper for the taxpayer.

Support that gingerninja. I ran a department for a DHB. Then my own company. (albeit on goverment money)
We ran rings around the civil servants, better service, higher quality, saw more people by far and much cheaper for the taxpayer.

And yet the council still created the land banking.

And I don't believe for a moment council thought of everybody's wellbeing, outside of your single individual story. Which might be true. I suggest that for every story of Council thoughtfulness there is an opposite story of Council thoughtlessness and waste without accountability. So anecdotal evidence is, in the end, only anecdotal.

It is a game. The council puts together rules and requirements taking into account everyone's wellbeing and of course expanding the role of council. Then the developer puts up the shoddiest piece of crap development that they can get away with, secure in the absolute certainty council red tape has eliminated most of the competition. Then the council puts up more rules to deal with the amount of shoddily developed housing. And so the next developer can jack up prices even further, because less competition exists and make money by finding new corners to cut.

Yes, it's a silly game, that's for sure.

The huge difference between a Council and developer is that the Council (and government) makes the rules of the silly game.

"She doesn't support many of her statements with any evidence"

Says the guy who literally riddles every comment with evidence-free ideological nonsense

Thanks for being my fanboy.

They don't need to, an author that can consistently derive the same conclusion from a wide and ever changing variety of diverse data points is a welcome addition to any political think tank. Their job is to arrive at the conclusion set, no matter what changes occur in the data.

In the end it's the argument that matters. If the point or argument is so obviously wrong then simply state how it's wrong.

People resort to character attacks when they have no argument and can't refute the point.

Just doing my bit every day to remind you you're a clueless muppet

It's like I own a Shih Tzu.

"" the prevailing political message in many countries has been that governments cannot – and therefore should not – actually govern"" so she approves of North Korea and Pol Pot - govts that knew how to enforce their whims.

A fatuous strawman argument.

Fair enough. Still I'd like her to provide examples; my guess is her 'not govern' means governments she doesn't like. Do we say NZ doesn't govern because we have no harbourside stadium? Depends how much you like rugby.

She doesn't even define terms, so it's difficult to take her statements seriously.

"" the UK government outsourced health contracts worth £9.2 billion ($11.2 billion), putting 84% of beds in care homes in the hands of private-sector operators"" she thinks this is bad but in NZ it was the private sector that reacted quicker than the govt and almost certainly saved many lives and caused our shutdown to be shorter than other developed countries. It is a mistake to simplify to 'private' = bad; 'public' = good.

That's because her model doesn't include anywhere for competence. In her article 'wastage' cam be renamed 'capacity' or 'capability'.

The NHS is already the world's 5th largest employer and the author is having a whinge about some out sourcing. Big can never be big enough.

From Google ""Total health spending in England was around £129 billion in 2018/19 and is expected to rise to nearly £134 billion by 2019/20, taking inflation into account"" so where is her missing billion?
""At the moment, UK public health spending is the equivalent of about 7% of GDP, similar to what it was back in 2010 and higher than in previous years. Back in 1955, it was worth about 3% of GDP.""

FACTS FACTS shhh you spoil a good i love jacinda soundbite

Surely the lesson learned from NZ's response is that not having multiple chambers of govt made it easier to act fast. And not having a written constitution meant the govt could act decisively and worry about civil rights later. It has changed my mind - I'm now against extra levels of govt and also against a written constitution [just imagine all the special interest groups that would fill it with kerfuffle. And note how if the Treaty of Waitangi was enforced rigidly we could have no immigration from other than Crown countries (the UK? or the non-republican commonwealth?) without Maori approval]. lets leave well alone.

"govt could act decisively and worry about civil rights later." That's a frightening sentence if I've ever seen one.

You are right. I wonder what was in my mind? But there are times when fast action means abandoning long held traditions - when the Titantic hits an iceberg we don't have time to check passports to discover if they really are women and children getting into the boats first. At least we were in level-3 and 4 without having a long debate about the right to close roads to protect Maori communities and I'm not too sure about the legality of the rest homes restricting entry before our govt started acting. I think Civil rights in NZ are common law ie tradition as modified by case law - fairly basic 'my home is my castle' and habeus Corpus stuff.

You forgot to mention that the Titanic only had enough lifeboats for half of the passengers because it was "unsinkable". Our ship was vulnerable well before any iceberg was struck

I agree, federalised government wasn't a benefit in this instance.

Our big government ignored MoH advice to close the borders in early March, dithered, and racked up a $200 B bill. It's easy to roll out big government when the people paying for it aren't even born yet.

https://www.health.govt.nz/system/files/documents/publications/final_rep...

Predictable comment from predictable source.

Ultimately, though, both controlled economies, uncontrolled economies and everything in between, consume. And regardless of the format chosen, that is the major issue. All the rest boils down to a scrap over - as Cohen so elegantly put it - who will serve and who will eat.

Competence also matters.

6 minutes for the auto comment PDK. You are getting efficient!

The argument seems to be that if the government were bigger (more capability) then it would have done better.

Competence is an interesting animal.

One take, and well worth the read, id Nevil Shute's Slide Rule. It takes us through his time as a calculations engineer working under Barnes Wallis on the R100 airship. The comparison with R101 is thought-provoking. Alone, it would bear Ralph's comment out.

But leadership is about the wellbeing of a whole society, in continuum. That is far broader than 'in the interests of shareholders' - which in it's most ridiculous form was South pine, Amalgamated Broom and all the Corp Corps of that wee blip (where were you then, Ralph? One of the jumpers-in?)

Both forms can be incompetent, both competent, and there can be checks and balances for both. But in public-accountability terms, govt is the better form hands-down. And we saw the arrogance when the private profiteers pushed democracy aside (because it was holding up their rape of the biosphere, when you get down to it) in Canterbury. They sure as hell didn't do that for the greater good.

A few thoughts.

Why should anybodies private affairs be publicly accountable?

Who appoints these judges of peoples private lives, who grants them their rights and who are they accountable too?

That competence matters can clearly be seen by its opposite, incompetence. If you don't prioritise one you get the other.

My suggestion is that, in historic terms to champion more government it to champion more incompetence. If you worked in council then its likely you know that's true from personal experience. Christchurch Council is piling on wastage and incompetence at record rates right now and it has led to city water shortages and massive budget over runs on the town hall.

The difference between private incompetence and public incompetence is most that in public incompetence somebody else pays the bill.

And the beauty of private versus public is that the former has a built-in Dissolution mechanism at least in the SME space: cock things up and the show goes bankrupt, is bought and folded into a more competent outfit, or has to switch products/pricing/people to a better configuration in order to survive.

Large private, however, tends to the same sorry fate as Large Gubmint: ossification, inefficiency, inwards-focused - and is rightly characterised as 'zombie'. Organisation theorists have observed and labelled these similarities for a century now..... The only way to counter the large-private problem is some form of trust-busting: if only there was an equivalent for Gubmint........

It is certainly true that larger an organisation is the more inefficient it becomes.

But even large private enterprises can go bankrupt through incompetence. To rest government incompetence is often very painful and expensive.

An example of big government CDC floundering while nimble private enterprise does the business.
"Founder of a small Berlin-based company, the ponytailed 54-year-old first raced to help German researchers come up with a diagnostic test and then spurred his company to produce and ship more than 1.4 million tests by the end of February for the World Health Organization.
By contrast, over the same critical period, U.S. efforts to distribute tests ground nearly to a halt, and the country’s inability to produce them left public health officials with limited means to determine where and how fast the virus was spreading.
https://www.washingtonpost.com/business/2020/03/16/cdc-who-coronavirus-t...

Not helped by Trump's undermining of the US agencies' ability to respond.

Great article. I think all boils down to the fact that competition creates an illusion of efficiency, however collaboration makes not just efficient but also resilient systems.

How do you explain government wastage?