Disaster protectionism and self-sufficiency populism are bad for Europe and the world
Screenshot via ECIPE
In his report Covid-19 and the Danger of Self-sufficiency: How Europe’s Pandemic Resilience was Helped by an Open Economy for market-liberal think-tank ECIPE, liberal intellectual Johan Norberg is writing about protectionist communication and arguments in the European Union during the current pandemic.
Norberg starts by writing about left-wing intellectual Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism where she argues that economic liberals have used disasters to ram through unpopular economic reforms. Norberg writes that it is true that emergencies tend to change the policy direction of a country, but it is far more common that crises lead to the exact opposite of what Klein proposed - public spending and government power tend to expand in response to a crisis, a terrorist attack, war, economic depressions – and pandemics.
Thereby, Norberg uses the term “disaster protectionism” to describe the current development in the EU as when the decision was made to shut EU:s external borders in March 2020 to keep the virus out as Europe had become the global epicentre of the disease. Norberg writes that trade dropped like a stone affecting the supply of food, labour, and hand sanitisers across the continent during a shorter period.
For example, major EU economies France and Germany banned the export of personal protective equipment, and as a result of these restrictions, internal EU trade of the medical goods needed to treat Covid-19 went down by 13 per cent between March and April of 2020, a reduction that was especially damaging for oxygen therapy equipment, which fell by 42 per cent.
After the European Commission stepped in, controls were lifted, but other forms of export restrictions were re-created at the EU level, prohibiting exports unless a license was obtained while companies producing medical supplies were wrapped in extra red tape just when the speed of supply was a matter of life and death.
Norberg writes that the pandemic spurred strong calls for bringing manufacturing back home and politicians saying things such as “the fact that most of this production is based in Asia is worrying” by the German Chancellor Angela Merkel in April 2020 while the EU:s Commissioner for health, Stella Kyriakides, expressed “we need to ensure that we reduce our dependency on other countries.”
This happened while important vaccines were developed through global research collaboration and the flow of data. But the EU succumbed to vaccine nationalism, raising the prospect of banning exports of vaccines produced within the union, even momentarily threatening a hard border between Ireland and Northern Ireland.
According to Norberg, when international cooperation was needed the most, Europe undermined its reputation as a champion of open markets and the rule of law in international affairs. Leading to, for example poor countries that had opened up their economies to the EU questioning whether the EU is a reliable supplier of essential medical equipment in the future.
As Norberg writes, in times of crises, societies often react with a fight-or-flight instinct and we pick fights with some and make scapegoats of others – immigrants, neighbouring countries, or pharmaceutical companies. Such behaviours take place while a complex and global economy, where necessary resources to solve societal problems are spread across the world.
Self-sufficiency populism
Norberg writes that many of the protectionist measures during 2020 were immediately self-defeating because it is impossible to shut out a world that one is an integral part of. Partly because supply chains are not really chains, but complex webs of production and exchange, where a single medical product has many inputs that cross external borders, sometimes several times.
For example, when Romanian ventilator hoses were classified as a “medical device”, their export to Switzerland was initially banned, threatening the production of Swiss ventilators that EU hospitals waited for and leaving Romania with hoses that are completely useless on their own.
Another example is when on 5 March 2020, French authorities confiscated Mölnlycke’s entire supply of surgical masks in Lyon. This stopped one million masks purchased by Italians and one million by Spanish customers while the masks were produced in Asia, and Lyon was just a distribution centre, so Mölnlycke quickly rerouted supplies via Belgium and used air freight to get them to the worst affected parts of Europe. As Norberg puts it -the end result was increased costs and delayed access to critical protective gear.
According to Norberg, self-sufficiency is not possible for a rich, industrialised economy partly because the very basis of, for example Sweden’s economy is that even local transportation and agriculture, requires the import of fuel, seeds and mineral fertilizer.
Also, one difficulty is that no government knows where the next crisis will come from. For example, in the summer of 2018, during major forest fires in Sweden, many Swedes complained that the country had too few fire trucks and water bombers. While in 2020, the new coronavirus created a shortage of important supplies, and Swedes complained that we had too few face masks.
Norberg compares this case with the global economy. For example, instead of every country having expensive water bombers that almost never take off, the EU has decided to pool and therefore expand their resources so water bombers could fly from Italy to Sweden to deal with the forest fires in 2018:
International trade functions in the same way. We produce what we need where it’s possible to do it better and cheaper, so that we can get more of it when we need it. Of course, we could subsidize a face mask industry in Europe that churns out 10 cent masks, but having such excess capacity when there is no pandemic would be incredibly costly – and not just through the subsidy.
The new disaster protectionism is based on the assumption that local production is the safer option but as Norberg pwrites it - even the most cursory glance at human history shows that it is not risk-free to rely on local supplies either. Because before the era of modern infrastructure and international trade, bad weather could mean that an entire region starved. Epidemics, wars, depressions or extreme weather events tend to strike regions that are close geographically and integrated economically and culturally.
When Europe went into lockdown, Asian factories had started opening up and could export essential products. Norberg writes that had European countries have been completely dependent on local supply chains, Europe would have been more vulnerable – not less.
Globalisation worked
Norberg writes that it was globalisation that “saved Europe” and not protectionism. Those in Brussels who make big claims about the need to reduce dependency should be careful what they wish for. Europe has a big trade surplus in pharmaceuticals and resilience is built through diversification, not the concentration of supply chains.
For example, EU countries could buy 40 percent of its test kits from outside the union and while imports of face masks from other EU members increased by 45 percent, imports from the rest of the world surged by 769 percent. And if Europe wants to minimise the risk of that happening in the future, it surely doesn’t help if we get the reputation of being an unreliable trading partner that would treat them badly.
During the pandemic, the world’s food industry has faced a perfect storm of sudden restrictions, shipping disturbances, labour shortages (especially migrant workers), and more. Yet, by around-the-clock production, switching suppliers, changing production methods and rerouting distribution, the global food industry managed to overhaul and rebuild global supply chains in just a few weeks. According to Norberg, this worked because the food market isn’t planned and centralized but depends on local level knowledge, flexibility and global trade.
Finally, Norberg writes that “in mobility lies our strength” since in Europe there are countless of regulations and local standards that are meant to keep people safe, but which slows down the adaptation when things suddenly change. For example, hospitals lack PPEs even though some companies have warehouses filled with unsold stock, since WHO and government guidelines restrict the marketing of new products. Thereby, as Norberg writes it, if we want to encourage swift adjustments, the EU should get rid of import tariffs and export restrictions by enterimg trade agreements with more countries, to diversify our potential supplies.
The best policy for resilience is one that encourages specialisation and innovation and, when the emergency hit, allow for people to improvise in search for solutions. For that to happen, Europe needs more openness and decentralised economic structures.
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