Can Government Intervention Help Economies Fight the COVID-19 Crisis? (Part 2)

Posted by: on Apr 13, 2020 | No Comments

Read the first article of this series here.

Can Government Intervention Help Economies Fight the COVID-19 Crisis?

Businesses have always felt stifled by government regulations. A little more in some countries and a little less in others. But government intervention has causes impediments to businesses being able to service demand. The same is happening amid the coronavirus crisis.

Forcing Companies to Make Essential Items

The Defense Production Act was invoked by President Trump on March 31 to combat the coronavirus crisis. This law of the wartime era allows the US government to direct private companies to manufacture certain equipment for the safety and well-being of the country. Now companies are being forced to manufacture essential medical supplies like masks and ventilators.

When governments force companies to do things, companies don’t innovate; they are less able to adjust to market demand… Unfortunately even though the President said he won’t order companies around, he later changed his mind. But he didn’t need to, because the private sector was already on it,” said renowned American consumer television personality and author John Stossel.

Why did the government need to invoke this Act? It should have instead given companies a free hand to service the demand for masks and ventilators. Companies like Ford, Tesla and General Motors had already started using their manufacturing facilities to produce ventilators. Distilleries across the US were using their alcohol supply to produce hand sanitizers to meet the escalating demand. Purell, a brand of Gojo Industries, was focusing its supply on hospitals and other establishments.

Businesses started producing essential commodities not for charity. But for the most powerful of motives – profits. This is the only motive that can consistently and adequately cater to demand. Profit motive is what delivers goods when governments fail. It was private companies that produced masks to fill the gap when governments failed to do so.

Meanwhile, the government came with arm-twisting tactics. Let’s take 3M for instance. The company was working hard to manufacture N95 masks. Instead of focusing on this, the company was made to cease exporting respirators to Canada and Latin America. What will happen if other countries retaliate by holding back their supplies when the US needs them? The country will face severe shortages, because let’s not forget that America is a net consumer.

Private companies were also quick to come up with fast testing kits for Covid-19. It’s an urgent need to test people and quarantine those who are infected. The bottleneck? Well, the FDA needs to approve these kits. And, like any other government body, the FDA is slow moving. After urging companies, laboratories and state health departments to move forward with emergency testing, the FDA has suddenly decided to put a stop on this critical equipment.

It’s Time to Give a Free Hand to Businesses

It’s not the politicians who are doing any concrete work on the ground. It’s people like truckers, mask companies and delivery personnel. Government intervention prevents these people from putting in their best to resolve a situation.

When governments don’t impose rules, companies adapt to fulfil their profit goals. And this is what is the need of the hour. For instance, supermarkets were opening early after being sanitized overnight, so that the elderly could buy groceries without fearing for their life. Profit motive of businesses will serve the needs of people and contribute to lifting the economy.

Massive job losses are taking place. In such times, the last thing governments should do is impede businesses. If businesses are allowed to grow and prosper, they will create new jobs. Face mask companies are hiring workers and closed restaurants are delivering food to people’s doorsteps amid lockdowns. Companies like Walmart, Amazon and Ace Hardware have increased their workforce to fill 474,000 openings to cater to coronavirus-induced demand. Facebook is giving cash grants and advertising credits to 30K small businesses to increase its customer base.

Companies are agile and can adapt to what is most needed in the economy. While the government pumps in trillions of dollars to support the economy, it must recognize that laws and acts cannot revive economies. Only businesses can.

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