Outside the Box: Why government is the solution, not the problem, for a weary and worried post-pandemic world

“ Every nation faces a basic choice: Follow the North Korean economic model or the South Korean one. ”

My wife and I visited the Antarctic in early February. We were probably on one of the last boats to get there before COVID-19 shut down the global cruise industry. Today, thousands of cruise ships lie idle. Few people cross borders. Trade has become unreliable. Countries are clamoring for self-reliance. In this setting, the conventional wisdom is that the era of globalization is over and the world is entering an era of deglobalization. 

Beware of conventional wisdom. During this extended period of lockdown the world is experiencing, physical travel is indeed rare. Yet being shut in has opened our minds; we’re spending more time in the digital universe than ever, and this digital world is borderless. 

Life online has made people aware that we live on a small planet, where most corners are within reach. For example, in 2018, 134 million Chinese traveled overseas. By 2030, perhaps 300 million to 400 million will do so. Even for a seasoned global traveler like me, it’s striking that I have never lived in a houseboat in Kerala, visited Venice or trekked the Grand Canyon. Consider it done in the next five years. I will not be alone.

Similarly, when COVID-19 becomes a memory, as it surely will, countries will retreat from the impulse to be self-reliant. Ricardo’s law of comparative advantage still holds true: countries that try to produce everything themselves grow more slowly. In the end, every nation faces a basic choice: Follow the North Korean economic model or the South Korean one. North Korea closed its borders (and is relatively self-reliant). South Korea opened its borders. In 1960, both economies were about the same size. Today, South Korea’s economy is 48 times larger — a development story that is the envy of most developing countries. 

The economic evidence of the past 40 years makes it clear what the real choice is. Just compare the two most populous countries, China and India (which also had the two largest economies of the world from the year 1 to 1820). In 1980, when Deng Xiaoping opened up the Chinese economy, both economies were about the same size. (China’s GDP then was $191 billion, while India’s GDP was $186 billion.) Now, China’s economy is five times larger. It’s curious that a communist party state has veered closer to the South Korean model than the world’s largest democracy. 

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Some of this is due to the fact that there has been a strong political movement in the Indian body politic to protect Indian industries from global competition. This is a strange response. Indians are among the most competitive people in the world. Indeed, in the most competitive nation, the U.S., the ethnic group with the highest per-capita income is the Indian community. Two of the world’s largest corporations, Alphabet and Microsoft, are run by Indians, not Chinese. When India finally decides to join the mainstream of globalization, the Indian economy could grow as fast as the East Asian miracle stories, including the most recent example of Vietnam.  

“ Countries need to globalize intelligently and thoughtfully. ”

Yet the East Asian experience also teaches us that countries need to globalize intelligently and thoughtfully. Not all the barricades to trade can be brought down immediately. Some industries will need temporary protection. The key word here is “temporary.” At the same time, in one form or another, each East Asian economy has its own “industrial policy.” This doesn’t mean that bureaucrats choose the winners or losers. It means the state helps the winners thrive and phases out the losers.

The U.S., despite its vehement denials, has a similar industrial policy. When the Reagan administration arm-twisted the Japanese to reduce car exports to the U.S., this was an example of industrial policy in action. Sadly, it wasn’t a thoughtful one.

The most dangerous mindset the Reagan administration left behind was that markets know best. As Reagan famously said in his 1981 inaugural address: “Government is not the solution to our problem, government is the problem.” What followed was several decades of defunding, delegitimization and demoralization of U.S. federal agencies. These structural weaknesses have been exposed in agencies such as the FDA and CDC during the Trump administration’s management of the COVID-19 pandemic.

What the U.S. needs now is an intelligent and thoughtful president who recognizes that today, “Government is not the problem, it is the solution.” Yet for government to be the solution, it must be an independent, neutral actor, serving the larger interests of a society, and not be captured by the industries or sectors it is regulating. For the U.S. this would be a massive and difficult undertaking, made more difficult by the fact that the congressional oversight committees watching these agencies are also bending to narrow industrial interests, not the larger public interests.

In the period immediately after COVID-19 is finally brought to a halt, there will be a lot of global confusion as countries struggle to manage the short-term impulses of fear and keeping borders closed against the long-term impulse to open up and jump-start their economies. No market forces are equipped to manage the careful navigation that will be required. Intelligent and thoughtful government is the only answer. 

In this regard, East Asian societies are a model for the rest of the world. Virtually, every East Asian government knows that their economies will not revive their earlier dynamism unless they open up again. So they will — carefully, delicately and selectively. Pragmatism will rule the day. No Western leader has yet dared to say publicly that the West can learn from the East, but heads of state in the U.S. and Europe can and should. When countries learn from each other’s experiences, borders will open again, people and ideas will travel freely, and the pace of globalization will accelerate again.

Kishore Mahbubani is the author of Has China Won? The Chinese Challenge to American Primacy (Public Affairs, 2020). He is a distinguished fellow at the National University of Singapore’s Asia Research Institute. A former Singaporean diplomat, Mahbubani was president of the United Nations Security Council between January 2001 and May 2002.

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