Deirdre McCloskey and Alberto Mingardi argue that private-sector trial and error, not the State, is the driving force behind innovation

As COVID-19 vaccines are rolled out, only some parts of the world can breathe a sigh of relief. In most of the world, scarce or nonexistent doses recall the product shortages in communist Eastern Europe in the 1980s. If we allocated food in the statist, non-commercial way that the vaccines are being distributed, we would all lose a good deal of weight.

Yet, some regard the successful development of the vaccines as evidence that, “government again works.” Once upon a time, in the list of supposed triumphs of active government, the United States built transcontinental railroads, the Grand Coulee Dam, interstate highways, and the space program. Now, we get a vaccine whose formula was inferred by the biotechnology firm Moderna in Massachusetts literally the week after Chinese researchers released the genetic sequence of the SARS-CoV-2 virus that causes COVID-19.

Active-government enthusiasts see this achievement as a case of successful “industrial planning,” a promising-sounding phrase that has recently attracted a broad spectrum of adherents, ranging from US Senator Marco Rubio on the right to the radical Keynesian economist Mariana Mazzucato on the left.

But the COVID-19 vaccines are a triumph not of statism and planning but of “innovism” – a private-sector-led, trial-and-error search for good things for which consumers are willing to pay. The old, misleading word for this is “capitalism,” but that implies that riches come from piling stuff up, rather than from creating new things.

That’s what the pharmaceutical industry, properly blamed in the US for buying political influence that prevents Americans from getting drugs from Canada, did in this case. And while the private sector did its innovative job, the US government dragged its feet from the back of the wagon, although some Trump administration policies relieved pharmaceutical firms from the conservatism of federal regulations, albeit temporarily.

Since the 1961 thalidomide disaster, the US Food and Drug Administration and Centers for Disease Control and Prevention have been instructed to be cautious in approving new drugs. But four years earlier, in 1957, the American microbiologist Maurice Hilleman had developed a vaccine against the H2N2 influenza then devastating Hong Kong and persuaded Merck to make it in just four months. 

This time, the federal government helped by acting as a big bank to finance COVID-19 vaccines, but didn’t choose winners in the fashion of industrial planning. Instead, Operation Warp Speed promised to buy good vaccines, and paid up front for guaranteed supplies. South Korea does the same, subsidizing trial-and-error research and development, but relying on profit-making firms to do it.

Federal procurement during World War II was similar, with the government dumping money into small innovative firms such as the American Austin Car Company or big ones such as General Motors. Contrary to the myth of the US wartime production miracle, as the economic historian Alexander Field has shown, haste was inefficient from the point of view of an imagined perfection. But haste was necessary to win the war. The result was worth it. Operation Warp Speed was, too.

During WWII, the US government didn’t usually pre-pick industrial winners. When it did, it attracted the attention of then-Senator Harry S. Truman’s hearings on corrupt procurement. Mainly, the government had private companies compete, yielding winners such as the Willys-Ford collaboration on the Jeep. General (and later President) Dwight D. Eisenhower called the weird-looking roofless four-wheel-drive car “one of three decisive weapons” of the war.

In the current world war against COVID-19, Moderna, Pfizer/BioNTech, Oxford-AstraZeneca, and Johnson & Johnson have developed the key weapons so far. Among the losers are Merck and Sanofi, although Sanofi is now collaborating with Pfizer.

It’s hard to say whether the Chinese COVID-19 vaccines or Russia’s Sputnik V are winners or losers, because China and Russia did pre-select supposed winners, in line with industrial planning, and then released too little data for regulators elsewhere to judge safety and effectiveness.

The point is that detailed industrial planning almost never works. Most of its alleged triumphs were in fact failures, such as the Anglo-French Concorde supersonic airplane. The claim that bureaucrats in national capitals are good at picking winners is strange. But in 1936, John Maynard Keynes claimed that the government (advised, of course, by Keynes himself) is “in a position to calculate the marginal efficiency of capital-goods [that is, profitability] on long views and on the basis of the general social advantage.” Mazzucato agrees, recommending that government “drives” the economy by giving “directionality” to innovation.

We are not persuaded. The new advocates of state-led industrial policy like to claim the internet as a triumph, for example. But the internet, like most advances, was a bundle of technologies and innovations developed by trial and error over years. The commercial internet we have used since the 1990s has little to do with its supposed state-backed forerunner, which was a military-networking protocol. Yes, the US government provided some money. But it didn’t provide “directionality,” unless one believes that America waged the Cold War in order to create Amazon and Google.

Instead, private firms’ trial and error, or “innovism,” is key. The MIT economist Jeffrey E. Harris has chronicled previous attempts to develop vaccines for HIV, which never materialized, and Ebola, which came very late. But the trials and errors in using mRNA technology, at Moderna for example, prepared the scientific community to develop COVID-19 vaccines. Industrial policy and state direction had little to do with it.

Deirdre Nansen McCloskey, Professor Emerita of Economics and History at the University of Illinois at Chicago, is the co-author (with Alberto Mingardi) of The Myth of the Entrepreneurial State (The American Institute for Economic Research, 2020). Alberto Mingardi, Associate Professor of the History of Political Thought at IULM University in Milan, is Director-General of the Istituto Bruno Leoni, a think tank in Milan. This content is © Project Syndicate, 2021, and is here with permission.