A Crisis Shows the Value of Big Government and Big Business

(Bloomberg Opinion) -- Americans tend to like their institutions small. On the political right, many are distrustful of big government, preferring private initiatives, competitive markets and localism. On the left, there is deep suspicion of the power of large corporations. And Americans of all stripes tend to lionize individuals who take on the system -- the plucky entrepreneur who outmaneuvers hidebound industrial giants, the grassroots activists who force the system to change and so on. Economists who study the importance of institutions have all too often been brushed aside by those who are in love with markets.

But the Covid-19 pandemic may give Americans a new appreciation for the importance of big organizations. Both big government and big business have the ability to mobilize resources on a vast scale that small upstarts or grassroots initiatives can never match. And both big government and big business possess deep reservoirs of human capital that would be far less effective in atomized form.

Consider the crucial importance of government in fighting a pandemic. From the Centers for Disease Control’s failure regarding testing to the Food and Drug Administration’s perverse regulations, it has become clear that a competent, well-staffed, efficient bureaucracy is key to a nation’s ability to meet major threats. The slow erosion of the civil service -- championed by right-wing activists for whom government is always the problem -- may be coming back to bite the country in its time of need.

The CDC and the FDA aren’t typically targets in the nation's political crossfire and they aren’t the kind of participatory democracy that the U.S. traditional celebrates. They are gray, stolid, un-sexy institutions full of dedicated, unelected lifetime bureaucrats. But they are absolutely essential to the nation.

Meanwhile, the pandemic may make Americans yearn for more big government institutions. The enormous relief program could be the precursor of a big government push to fight climate change. And the need for universal free coronavirus testing and treatment will probably strengthen the case for a national health-insurance system.

But at the same time, coronavirus might increase Americans’ confidence in another much-maligned institution: big business.

Pharmaceutical and biotech companies are now scrambling to develop treatments and vaccines. Household names such as Johnson & Johnson and GlaxoSmithKline are on the front line of the fight, along with exotic-sounding companies such as Regeneron Pharmaceuticals and Gilead Sciences,  large companies in their own right that have existed for decades. All have vast reservoirs of scientific expertise, huge libraries of data, enormous expensive laboratories and expertise in navigating complex regulatory processes.

Coronavirus testing, too, has depended crucially on corporate efficiency and scale. It was only when big  companies such as Abbott Laboratories, Roche and Thermo Fisher Scientific got FDA approval to manufacture and distribute tests in mid-March that the U.S. stopped being an international laggard on this front.

Supplies such as personal-protection equipment for medical workers are also crucial. In late March, shortages of these materials held back testing, partly because supply chains for some of these materials had been offshored before the crisis. Some Americans have made valiant efforts to produce masks via Dunkirk-style ad-hoc projects, but these will never meet the demand. In recent weeks, large companies such as Ford, General Motors and 3M have been retooling their vast production lines to make essential items such as face shields, as well as ventilators for the severely ill.

And as my Bloomberg Opinion colleague Tyler Cowen points out, big businesses have also proven essential in allowing Americans to carry on some semblance of their daily lives in the face of widespread business shutdowns. Amazon.com and other e-commerce companies have given millions of Americans a way to get household necessities and medical supplies without going outside and risking exposure to the virus. Their huge logistics and warehousing systems have been strained to the utmost by the pandemic, but deliveries continue. Meanwhile, food-delivery companies and online grocery-shopping services such as Instacart are helping Americans stay in their homes.

In other words, Americans are being forcefully reminded of the importance and the vast capabilities of big institutions. From the CDC’s expert epidemiologists and data-collection resources to Amazon’s logistics systems and Johnson & Johnson’s labs, big bureaucracies and big companies have irreplaceable reservoirs of knowledge and effectiveness that startups, small businesses, independent individuals, activists and grassroots projects utterly lack.

These institutions can’t simply be slapped together when the need arises; they must be nurtured and built up over decades. Often, that process is decidedly unromantic. Regulatory agencies can overstep their bounds, big businesses can hurt people for profit. All such abuses need to be curbed and big institutions do require constant monitoring. But they must not be smashed, or the nation will find itself lost and flailing in the next crisis.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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