Covid-19 is not a Black Swan: predictable shocks need fully-funded, resilient public services

Simon Szreter | 01 May 2020

At the beginning of the nineteenth century, enthusiasm for then-new ideas of the free market led the UK government to slash in half funding for the country’s longstanding system of social security, health and care for the aged poor. In 1834 it introduced the Dickensian workhouses, also extended to Ireland in 1838. The new policy was justified by a hatchet-job carried out as a Royal Commission under the direction of Edwin Chadwick, architect of the workhouse system. His report returned the verdict the nation’s landowners and liberal economists wanted to hear- that the old poor law was too expensive and its misguided ‘generosity’ simply encouraged laziness among the poor.

Yet there had just occurred a clear warning that the nation was now vulnerable to new pandemic threats. There were 33,000 excess deaths in the cholera outbreak of 1831-2.

That first cholera outbreak was, however, nothing compared to the next foreign micro-organism to arrive on British soil, the potato blight fungus, which destroyed the potato crop in Ireland in 1846. Ireland comprised fully 8.2 million UK subjects at the 1841 census (over half the 15.9 million figure in England and Wales). By the 1851 census the Irish had been literally decimated. Only 6.2 million remained. Apart from the Black Death, this was the greatest microbial catastrophe in British history. The response of the government in London was, overall, patently inadequate, given the extreme loss of life in the richest country on the planet.

The repeal of the 1815 protectionist Corn Laws had been an early Westminster response in 1846. Their main beneficiaries had been wealthy landowners. Yet the repealer was Robert Peel, leader of the Conservative Party, representing the wealthy, just as the Party does today. Faced with the urgency of the need to feed the starving Irish, Peel was prepared to abandon a policy that served the richest in society at the drop of a hat. Remember, Chancellor Sunak just a month ago, speaking directly to the rich Tory Party donors and their ‘shrink the state’ think-tanks, when he prefaced his announcement on March 17th of a breath-taking 330 billion government-backed fund for the unemployed and small businesses, by warning them, ‘this is not a time for ideology and orthodoxy’.

In the 1840s the greatest loss of life occurred under Peel’s immediate successors, the Whigs. Over-confidently believing the crisis was ended when the potato crop returned in 1847, they handed back all responsibility for the Irish poor to the workhouses, which completely buckled the following year when the potato crop failed again.

Having created such a weakened, minimalist social security system in 1834, the UK government had short-sightedly discounted the pressures its people might come under in a global economy. In 1847-9, there was a perfect storm, with Chartist protests at home and revolutions around Europe, the second potato failure in Ireland, the second cholera outbreak in Britain (claiming over 50,000 lives) , and a financial crisis because – guess what – microbially-induced crises are often associated with economic crises.  

Despite its extremely well-attested recurrence in history, this tendency for natural calamities to interact with economic disruption seems to be permanently ignored in today’s ‘orthodox’ economics textbooks, as Chancellor Sunak acknowledged. This is because it is an extremely inconvenient truth for low-tax, small state, free marketeers. Much easier to call it a Black Swan. But it isn’t. Sensible statemen should know better. They should study their history, and not fund their public services according to free-market principles but according to hard-won historical experience.

That is unfortunately what happened in 2010 when the right-wing ideologues, led in government by George Osborne, Ian Duncan-Smith and Andrew Lansley, imposed on the nation the austerity policy with its ‘digital workhouses’ (the description in 2019 of the UN Rapporteur on Poverty). Their fervent belief was that the state was too big, the poor were work-shy, and the NHS needed cost-cutting ‘market-efficiencies’. Their equivalent to Chadwick’s 1834 hatchet job, was the infamous error-strewn Rogoff and Reinhart paper. In his 2010 Mais lecture, launching austerity, Osborne approvingly cited its justification to embark on shrinking the state: ‘As Ken Rogoff himself puts it’, intoned Osborne, ‘ "there's no question that the most significant vulnerability as we emerge from recession is the soaring government debt. It's very likely that will trigger the next crisis” ‘.

The trouble is that, just like Chadwick’s ideologically-biased finding against the established poor laws in 1834, Reinhart and Rogoff’s analysis was fatally flawed – in this case not only ideologically, but also by crucial, uncorrected spreadsheet errors. This meant that there was no evidential basis for the austerity policy lustily pursued by Osborne & co. At the point when the invalidating errors were publicly exposed by other academics on 16 April 2013, one would have thought the sound of screeching tyres and a wailing handbrake turn would have been heard from the direction of No 11 Downing Street. But no. The Coalition government was in ideological lockdown. Tragically, those policies, quite literally ‘nonsense upon stilts’, have continued for the next 7 years, dictating that the poor be subjected to the notorious 5-week wait of universal credit. The result has been to the benefit only of the loan-shark industry, while the necessity of foodbank charity and rough sleeping has become shamefully normalised. The NHS, the nation’s final defence against natural calamity, has continued to be privatised and under-resourced year after year. The government failed to fund its own Exercise Cygnet’s warnings in 2016 that, following SARS, MERS and Ebola, a stockpile of PPE and ventilators for a viral pandemic should be created. This was like failing to pay attention when cholera arrived on its herald call from the Far East in 1831. The handbrake turn in Tory policy did not occur until Mr Sunak’s recent announcement, 6 years and 11 months too late.

There are three clear lessons from the period 1834-50 for the UK government. Firstly, don’t engage in wishful thinking by relaxing your guard at the first sign that the danger has apparently receded. The price for getting this wrong can be appalling. Secondly, as Mr Sunak has candidly realised, don’t run the whole of government policy on the basis of a narrow, free market ideology.

Thirdly, the globally-connected economy is also a globally-connected microbial environment. Therefore, you cannot afford to run a shoestring social security and health care system in the 2020s any more than in the 1840s. You cannot allow the management consultants, private providers and public-private partners to get inside your nation’s public protection systems and start running them for profit – their own profit that is – in the name of so-called ‘efficiencies’. This is because you need well-resourced, protective public services that can act as shock-absorbers when the shocks arrive. They need to be built-up, not run-down, to give the security and resilience the globally-connected nation and economy needs when these entirely predictable global microbial challenges periodically recur. These are only ‘Black Swan’ events for those who pay no attention to history and continue to be mesmerised by the out-dated ideological mantras of the free market.

• Tags:
• Szreter, Simon
• Medicine and public health
• Public services and social policy
• Covid-19

About the author

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Simon Szreter is Professor of History and Public Policy in the History Faculty, Cambridge University, and Life Fellow of St John’s College, Cambridge. He is Editorial Director of History & Policy and in 2019, with Hilary Cooper and Ben Szreter, he was joint winner of the inaugural IPPR Economics Prize for their essay entitled, ‘Incentivising an ethical economics’.