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 On November 14, 2020, Neil Irwin of the New York Times write a piece about capitalism and the pandemic arguing how the capitalist system both works within a pandemic and needs government action as well.


https://www.nytimes.com/2020/11/14/upshot/coronavirus-capitalism-vaccine.html?campaign_id=29&emc=edit_up_20201116&instance_id=24151&nl=the-upshot&regi_id=15895369&segment_id=44604&te=1&user_id=8a8710e84fff940945beb27c1ab4daf8



Irwin’s argument is that big business (corporations) and big government (primarily federal) need each other for their to be successful.  In particular, he focuses on the role of the federal government as a “risk absorber” as he calls it. Here, Irwin is channeling the argument made by Paul Krugman (who was quoting Peter Fisher, (an undersecretary from Treasury in 2002) that the “federal government is an insurance company with an army”. Ther government is the one entity that can take on big and uninsurable risks, like a global pandemic and global terrorism (i.e. 9/11).


What does Irwin think that business does well?  The marketplace and he confounds the argument by talking about the success of both small and large businesses and their response to changing conditions.  He quotes the example of the small merchant who has umbrellas during a rainstorm and the large drug companies making major new and rapid breakthroughs in vaccines for Covid-19. He also talks about the deep expertise of the drug companies and the inability of the government to replicate this expertise quickly.  We see Irwin seemingly relying on a Hayekian type argument that signals to the private sector can be quickly translated into actions on resource allocation.


At the same time, there is acknowledgment that ,besides risk management, the federal government does two other things well in the economic process: 1) grant legal protections via patent protection and 2) finance basic research in chemistry and biology that the companies don't invest in.  This part of the argument relies on a Mariana Mazzucato type argument that the government does lots of basics that allow markets to work (https://marianamazzucato.com). 


Where would an institutional economist position be in this argument. Our colleague Warren Samuels would have argued that the legal system and economic system co-create each other. Is this the same argument that Iriwn is making? I think partially yes, but in part no.  Irwin doesn't recognize the full range of interdependence between the two systems.  The legal system allows for the creation of limited liability corporations for example which is essential to the activities and operations of these large pharmaceutical companies.  Maybe one can argue that this is not essential to his argument, but I think the way Irwin puts it makes it appear that the government's role is limited to the things enumerated by him. 


For example, the Pfizer $179 billion balance sheet is at least partially due to the fact that the government has a series of law and legal protections for investors, equity markets and limited liability. The argument seems to be framed as well free markets do pretty well overall but we need “government intervention” on certain key issues like patent protection and risk management. Otherwise the government needs to get out of the way. Pfizer has been able to accumulate a large balance sheet because of government legal protections.


I would say Irwin’s argument’s are better than much of what I see in the media, but still keeps the role of government to a specific set of boundaries rather than as fundamentally defining what the private sector is and how it operates. These arguments matter because they define how we think about policy and what we claim as a private versus a public role.


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