The pandemic revealed the limits of red-in-tooth-and-claw capitalism.
The pandemic has taught us many lessons. One of the most important is that in the absence of sensible price signals and carefully designed incentives, markets fail us.
There are two ways in which capitalist markets go wrong. The first is when a harm (environmental pollution, for instance) is very broadly distributed, so that no particular individual is specifically affected (at least in the short run), yet the benefits are concentrated for a select few. Those few can lobby for a relaxation of limits without necessarily raising objections, as the negatives are so widely diffused. As Rebecca Henderson points out in her excellent book Reimagining Capitalism in a World on Fire, an effective way to counteract this kind of market failure is by instituting taxes or other mechanisms that find their way into pricing, in order to appropriately balance both sets of interests.
The second way capitalism can be misdirected is when the provision of a benefit that would be good for the majority produces no particular economic reward for anyone. Many social problems fall into this category: affordable housing, public education, the discovery of new cures relying on old off-patent medicines, pandemic preparedness, and so on.
Against this backdrop, it is intriguing to speculate about how we will manage infrastructure vital to a well-functioning economy once we move on to whatever comes post-pandemic. The prevailing ideology is that markets will solve these problems. But, as is now abundantly clear, markets are incapable. We are long overdue a rebalancing of interests.
One warning sign that rebalancing is necessary is that vast amounts of publicly critical infrastructure is in private hands. Take water. Affordable, clean water is essential to a well-functioning community – yet the public entities responsible for this public good frequently sell water operations to private interests. The results are often higher prices to consumers, poor service, and not necessarily the investment needed for aging, inefficient systems. The same challenges are occurring with roads, prisons, energy provision, schools, policing and a bevy of other activities intended to support the public good.
A second sign is that some elements of ‘infrastructure’ that we didn’t realize were going to be enormously important started off as private-sector initiatives. Consider online mapping apps. Without anyone’s ill intentions, the technology has become central to the most basic operations of life – whether it is getting from A to B in a car or arranging dinner delivery. And yet, what is the recourse when the private company running an essential service gets it wrong? Apparently, none. In one rather horrifying incident reported by ABC News, a woman’s house was torn down without permits. The demolition company allegedly blamed incorrect information provided by a mapping app, which it used without cross-checking.
Finally, when private actors essentially exercise monopoly control over a product or service that citizens depend upon, the consequences can be highly negative. Without countervailing forces such as regulation or the threat of prosecution, it is all too easy to force those in need to pay exorbitantly. The pharmaceutical sector offers any number of examples of critical treatments (which one could argue represent as important a public good as bridges or roads) whose invention costs have long since been paid off, but whose prices skyrocket nonetheless.
The poster child for such behavior is drug company Mylan. In 2007, it acquired rights to the EpiPen device, which delivers doses of anti-shock drug epinephrine. This life-saving drug is long past its patent-protected days – unlike the injectors. Mylan brought in annual price increases (starting in August, of course, when parents of allergic children stock up for back-to-school) that saw the EpiPen’s price rise from under $100 to $608.61 by 2016. And this is not an isolated incident – a study found that from 2010 to 2015, more than 300 off-patent drugs sold in the US saw price increases of 100% or more.
Markets can and do work, but they require a framework to act for the good of the many, not the few. Extreme capitalism has fallen foul of the virus. It should be finished here.
Rita Gunther McGrath is professor of management at Columbia Business School and an educator in Duke CE’s Building Strategic Agility online course.