No, production is not enough

 

From Carmelo Ferlito

As we know, a great deal of the discussion on lockdowns has been based on the distinction between essential and non-essential services.

This is a distinction that I criticised several times on the basis of two main considerations: 1) government cannot decide what is essential to individuals, and 2) each business is essential to at least one person to bring food to the table.

Yet, governments around the world insist on such divisions, creating more harm than benefits.

In Malaysia, the manufacturing sector was better equipped than others to fall into the essential business group. And, no doubt about this, a certain continuity in production has been a blessing for Malaysians.

However, manufacturing alone cannot lead the way to recovery.

A preliminary clarification: I do not belong to the group of economists who would like to stimulate aggregate demand to save the economy; not at all. But, while I do believe that only investments in production activities can be the backbone of a sound recovery, it has to be stressed that production needs the market.

As Adam Smith pointed out in 1776, the true limit to the growth of the wealth of a nation is represented by the extent of the market. What does this mean?

It means that goods produced by the manufacturing sector need to find their way to consumers. Car manufacturers can be allowed to operate, but if individuals are confined at home, then eventually car manufacturers will have to shut down: we do not buy cars to keep them parked in the basement.

Clothes manufacturers can be allowed to operate, but for whom? Work-from-home policies and Zoom meetings have confined us to a world of ugliness: what’s the point in wearing nice clothes if nobody is going to see and appreciate them?

Food producers can be allowed to operate, but they will have to scale down if restaurants and hotels remain closed; let’s not forget that we go to a restaurant not simply to fill our stomachs, but also as an expression of our ontologically social human nature.

In a nutshell, production and consumption are two faces of the same coin, called the market. Consumption without production is simply impossible. Production without consumption is a means without an end and, therefore, a short-lived experience.

Trading is the activity that mediates production and consumption in the market. By asking people not to consume, trading becomes the first victim in the market, killed by policy. Indirectly, production will also die, succumbing to the pretense of knowledge of the policymakers.

The prime minister recently announced a “breathing bubble” for vaccinated people, hoping to revive consumption.

That is an unwise decision and citizens should never allow the party in power to decide who can breathe and when. As a famous song by the Manic Street Preachers goes: “if you tolerate this, then your children will be next”.

Let’s be honest and use the logic: the green (why green?) pass is unnecessary. If the vaccines work, then vaccinated people should not be afraid and the risk is totally on unvaccinated individuals.

If, on the contrary, the vaccines do not work, well, the pass is unnecessary precisely because it does not certify anything meaningful. Unfortunately, it seems that we already lost the fight to avoid turning the world into the dystopic reality imagined by George Orwell.

Coming back to the economy: a true recovery cannot be built on “breathing bubbles”. The first point, as hinted, is that production and consumption need to meet each other in the market via trading.

The second point is that investment decisions are based on profit expectations. Third, consumers spend money for a reason and by assessing the development of economic reality.

Under the current scenario, even if “breathing bubbles” are allowed, the production sector cannot properly assess the future development of the market, which remains too uncertain to allow strategic decisions able to turn the economic trend into growth.

Because of this, they may decide not to produce (yet) the products that bubble beneficiaries may demand; the consumption side would be frustrated because what they need is not available (forced saving).

Furthermore, as we know from the discussions in Europe, vaccinations and green passes seem not to be able to stop the governments from implementing more lockdowns. Then, again, both production and consumption cannot properly assess the market trends and therefore, will be unable to positively interplay to lead the system toward growth.

A sound way out can only be built on different pillars. Frequent, mass and affordable tests are the best way to detect infections in a moment in which the real potential of vaccines – in particular against the variants – is yet to be assessed (together with vaccine safety for people with several non-communicable diseases).

Government resources should be devoted to strengthening the healthcare system, while lives should be given back to people (before they start to claim them back in ways that are not the most desirable). - FMT

Carmelo Ferlito is CEO of the Center for Market Education.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.