Latest posts

A question of war and peace

Published in The New Zealand Herald (Auckland), 14 April 2020

The world is at war. The enemy may be a tiny virus, but this string of ribonucleic acid has the effect of a large military force.

UN Secretary General António Guterres called the coronavirus outbreak “the biggest challenge for the world since World War Two”. French President Emanuel Macron declared war on the virus. Upon his release from the hospital, UK Prime Minister Boris Johnson talked up the “national battle against coronavirus” in Churchillian language.

Equating the Covid-19 crisis to war is not just political rhetoric. As in wars, governments have seized immense powers to fight the virus. They can order companies to produce medical devices. They can confiscate materials, shut down businesses, close borders, detain travellers and impose curfews.

In some respects, today’s state power goes even further than in a real war. Funeral ceremonies, religious services and even some international travel during wars are still allowed, but not anymore. In Western democracies, the curtailment of civil liberties has never been more draconian than in this coronavirus crisis. It is a total war.

The extent of economic destruction caused by the war against Covid-19 will also be war-like. This year, the world economy is heading for a recession unlike any seen since 1929. Unemployment and national debt will rise to levels not seen for generations. Millions of families around the world are facing financial hardship and poverty.

It is therefore right on many levels to draw parallels between major wars and the response to the pandemic. The threat situation is comparable. So are the damages. In both cases, the state can only win through mass mobilisation and drastic intervention. And even if, as a liberal, you are against such interventions, you can justify them in such exceptional situations.

As the epidemiological curves in New Zealand, Australia and other countries flatten out, we must think about the post-coronavirus period. Since we have understood the Covid-19 crisis as a form of war, we should also consider the economic era ahead of us as a post-war period (even if the epidemiological crisis will not be over for a year or two). This approach will yield important clues about the economic order we need to put the devastation caused by the virus behind us.

It makes it worthwhile to revisit the aftermath of World War II, which holds an important lesson for our post-Covid world.

In his first autobiography My Early Life (1930), Winston Churchill observed that “those who can win a war well can rarely make a good peace, and those who could make a good peace would never have won the war.” It was a profound insight – and almost prophetic.

As British wartime Prime Minister since May 1940, Churchill played a major part in the victory over Nazi Germany. His rhetoric had tempered the will of the people. It had united the nation behind the common goal of winning the war. Collective suffering, collective persistence and collective action were the spirit. He made Britain’s darkest hour his finest hour – another Churchillian phrase that found its way into common parlance.

After winning the war, Churchill was the clear favourite to win the parliamentary elections just a few months later. But the parliamentary elections of July 1945 ended in a dramatic defeat for Churchill’s Tories. In a landslide, Labour leader Clement Attlee took power. But why?

Attlee capitalised on the feeling that all the efforts of the war would only have been worthwhile if in the end, a better and fairer UK had been achieved. In the same way Britain had won the war, now peace was to be won. If even Hitler’s Germany could be defeated by collective action, why should it not be possible to build a whole new country and a new society?

Entire industries were nationalised. Coal, iron and steel, aviation and railways, telecommunications and shipbuilding, gas and electricity supplies, and even the long-established Bank of England: they were all brought into state ownership. Britain’s new economic order expanded the welfare state and created the National Health Service. Countless regulations and controls accompanied it.

As Andrew Marr put it in his History of Modern Britain, “people from almost all parts of the political spectrum thought central planning essential.” The growth of the British state was the legacy of the war. It was an attempt to control the recovery by means of the war economy.

However, as Britain painfully experienced over the next three decades, the introduction of a command and control economy ended in economic disaster. The country had to introduce the Three-Day Week in 1973/74 to save electricity. Then, in 1976, it needed a bailout from the IMF. The economic malaise culminated in 1978/79 in the “Winter of Discontent”, which became the trigger for Margaret Thatcher’s election victory.

Britain demonstrated how not to pursue post-war recovery. For sure, war-like powers are necessary to win wars. That is where they belong. But they are detrimental to organise the peace.

It is not without a certain irony that the great loser of World War II, of all countries, provided the counterexample of a successful recovery policy: West Germany.

The total war had ended in total defeat. German cities had been bombed out; the economy lay in ruins; the population was demoralized; the nation was morally disgraced.

These were hardly the best conditions for economic recovery. But West Germany managed an economic miracle.

After the Nazi era, confidence in the state had waned. Instead, a group of liberal economists led by Ludwig Erhard, who later became Economics Minister and Chancellor, shaped economic policy.

In all areas of the economy, they did the opposite of Great Britain. There were no nationalizations, no economic planning, no price controls. Instead, there was solid monetary policy through an independent central bank, economic freedom and a basic social security system.

Erhard called his concept the “social market economy” and promised “prosperity for all”. It delivered just that. West Germany became the economic powerhouse of the post-war era.

West Germany was an outlier in Europe after the war. While most countries experimented with Keynesianism or socialism, Germany pursued a liberal economic policy during the recovery phase. The decisive factor, however, was that West Germany simply did not continue its wartime economic policy after 1945.

If we are looking at our pandemic world today, and if we understand our battle against coronavirus as a war, we can draw the correct conclusions from this historical analogy.

There may be a temptation to use the powers which served us so well in fighting the virus for our recovery. Just as government can now direct resources to where they are needed, bail out companies as required and direct businesses as it sees fit, it could attempt to do that in our lower Covid-19 alert levels.

Government might see for itself a more significant role in housebuilding, in manufacturing, in providing finance, in directing trade, in organising logistics.

But all of that would be a repetition of a historic mistake: the mistake of confusing the extraordinary powers needed in wars and pandemics with the role of the state in peacetime.

What happens over the coming weeks and months will determine our political and economic fate for decades to come. Governments can follow Attlee or Erhard. The hopeful victory against coronavirus will be a Pyrrhic one if we allow it to destroy our liberal, free-trading economic order.

To paraphrase Churchill, will those who can end a pandemic well also allow a good recovery? It depends on their understanding of history.

%d bloggers like this: