The Post-COVID State

In the case of COVID-19, one of the most obvious lessons of the crisis is that a powerful government is necessary for managing large-scale emergencies. But what would such a government look like?

Contemporary China is a salient example. In this scenario, Western democracies would try to emulate China by worrying less about privacy and surveillance, while permitting more state control over private companies. After all, one of the standard narratives to have emerged from the pandemic is that China’s pre-existing infrastructure for snooping and social control enabled it to respond to the virus faster and much more effectively than the US has. One could also imagine citizens in advanced economies deciding that democratic governance is too inefficient or unwieldy for dealing with the challenges of a globalized, interconnected world.

But China-lite need not come about by conscious choice; we could also stumble into it unwittingly. The experience of the twentieth century’s two world wars shows that once the government’s spending and taxation expands, it tends to remain at those higher levels.

The same goes for other forms of state power. In the US, once the FBI and the CIA had been created and vested with far-reaching surveillance and enforcement capabilities, there was little chance that either agency would ever relinquish those powers. Notwithstanding reforms in the 1970s, following revelations of widespread abuse and a US Senate investigation, America’s national-security state has expanded dramatically since the September 11, 2001, terrorist attacks.

This is not to suggest that a country like the US could turn into China overnight. But there could come a time when it has gradually passed some unmarked threshold: when its domestic surveillance regime, privacy laws and conventions, and economic policies start to look more like those in contemporary China than its own a few decades ago. At this point, the US would have developed into a bastardized version of China, because it would probably still lack the level of state capacity that has developed in China over two and a half millennia.1

For example, less democratic governance might go hand-in-hand with less effective, more arbitrary bureaucratic action in many domains. Instead of the stifling but usually competent despotism of the Chinese state, the US could end up operating like a hypertrophic digital Department of Motor Vehicles (DMV) – one of the most notoriously inefficient bureaucracies found in the 50 US states – perhaps with random disruptions from presidential Twitter accounts. Inevitably, this kind of state would fail, triggering endgame dynamics similar to those associated with the “tragic business as usual” scenario.

Thus Spake Zuckerberg

The third trajectory leads to tech dominance or “digital serfdom.” To return to the example of the US, imagine that America, as a society, recognized the need for widespread coordination, but lost still more trust in government and public institutions, owing to the Trump administration’s spectacular failure to manage the COVID-19 crisis. More or less by default, Americans would instead come to rely on private companies like Apple and Google, which could step in to manage testing, contact tracing, and other pandemic-response measures far more efficiently than the government has done.

Indeed, Apple and Google have already announced a partnership to track viral contacts through iOS and Android mobile devices. The same tech giants are already offering the creative innovations needed to sustain many forms of economic activity during the lockdown and social-distancing periods. Beyond improved online communication and entertainment options to spare the public from debilitating boredom, artificial intelligence and advances in automation technologies promise to enable factories, meat-processing plants, and many other critical production sites to keep operating at scale.

As more and more of these technologies come to seem indispensable, the private companies behind them will amass more power; and in the absence of a viable state-based alternative, the public might voice few objections. The same firms will, of course, continue to collect personal data and manipulate users’ behavior, but they will have even less to worry about from the government, which would become a kind of subservient handmaiden to Silicon Valley.

In time, the champions of the pandemic economy would grow much, much bigger, exacerbating pre-existing conditions like rising inequality. Silicon Valley would then propose its own solutions, by pushing for a universal basic income, charter schools, and more e-government. But insofar as these measures would merely paint over the underlying problems, they are likely to lead to even wider discontent and frustration over time. Will the growing ranks of jobless subjects settle for a monthly pittance in the absence of real economic prospects? Probably not. In the long term, the third path would arrive at the same dystopian destination as the first two.

The New-Old Welfare State

Fortunately, the fourth option – “welfare state 3.0” – could lead toward a brighter horizon. The first iteration of the welfare state emerged from the Great Depression and World War II. In the US, it featured policies such as social security and unemployment insurance, and later received a major upgrade with additional programs such as Medicaid and Medicare (government health insurance for those over 65) in the 1960s.

The second version came in the 1980s, following the arrival in power of Ronald Reagan in the US and Margaret Thatcher in the UK and, subsequently, the collapse of the Soviet Union. In many parts of the West, and particularly in the US and the UK, welfare state 2.0 amounted to a downgrade — a weakened, less effective iteration of what had come before, with many old protections, such as trade unions, hollowed out or neutered.

To anticipate what could — and should — come next, one should start with an understanding of current needs. Clearly, many advanced economies need a stronger social safety net, better coordination, smarter regulation, more effective government, a significantly improved public-health system, and, in the US case, more reliable and equitable forms of health insurance.

Pretty much everyone agrees that governments need to shoulder more responsibility, while also becoming more efficient. It is also safe to assume that the pandemic-era expansion in spending, regulation, liquidity provision, and other interventions will become permanent to some degree (though it will eventually have to include expanded taxation, too). But this larger government would be fundamentally different from the DMV state in the China-lite scenario. As the state grows stronger, so, too, would democratic institutions and mechanisms of political participation adequate to monitoring its actions and holding it accountable.

To be sure, the other three scenarios remain possible, and welfare state 3.0 could be wishful thinking. Yet it is worth noting that something very similar has happened before. As Robinson and I show in our most recent book, The Narrow Corridor, this fourth path is the most common and straightforward way to achieve true state capacity, democracy, and liberty at the same time.

The rise of welfare state 1.0 illustrates this dynamic clearly (just as the failure of welfare state 2.0 demonstrates what can happen when efficiency is pursued at the expense of broader social buy-in). Before the 1930s, there was not much of a social safety net anywhere in the world, and government regulatory capacity was limited. But the Great Depression and WWII changed all of that.

In 1942, William Beveridge of the London School of Economics led a government committee in writing the now-famous Beveridge Report, which offered a vision for a post-war British welfare state that would ensure social security, health care, and other basic goods to all citizens.

Some critics at the time reacted to these proposals with horror. The economist Friedrich von Hayek, then a new émigré from Vienna teaching at the LSE, saw the modern welfare state as a step toward totalitarianism. He believed that the role for governments in controlling markets and setting prices envisaged by the Beveridge Report would put society on “the road to serfdom.”

But Hayek was wrong. First in Sweden starting in 1932, and then in the rest of Scandinavia, Western Europe, and the US, the state shouldered more responsibilities and grew larger, but democracy deepened, and popular political participation expanded.

The Only Way Forward

There is growing agreement today that we need better, more accountable institutions, as well as a more equitable way of sharing the gains from technological progress and globalization. Voices from the left and the right argue, not unreasonably, that the game is rigged to benefit a small but powerful and well-connected cohort at the top of the income and wealth pyramid.

Especially now that the world is beset by a pandemic, there is a growing realization that our systems are too fragile and vulnerable for the challenges of the twenty-first century. Even if many countries are far from reaching a consensus on what a better future would look like, acknowledging the problem is always the first step toward building something better.

The belief in the possibility of a new, better welfare state is no fantasy. But it would be naive to presume that it will come about easily, let alone emerge on its own. Efforts to strengthen democracy and accountability must go hand in hand with an expansion of the state’s responsibilities. Striking the right balance would be difficult even in the best of times.

At a time of unparalleled polarization, crumbling democratic norms, and dwindling institutional capacity, a reformed and renewed welfare state is a tall order indeed. But like the WWII generation, we have no other choice but to try.

(Daron Acemoglu has taught at the Massachusetts Institute of Technology since 1993. He is currently the Elizabeth and James Killian Professor of Economics at MIT. He was named Institute Professor, the highest degree of recognition for an MIT professor, in 2019. This commentary originally appeared in Project Syndicate on June 5.)