COVID-19 and the Economy: Industrial Planning and Policy in This Moment

For weeks, New York Mayor Andrew Cuomo, former Vice President Joe Biden, and members of Congress from both parties have pleaded with the president to invoke the Defense Production Action (DPA), a Korean War-era law that would allow the government to compel American industries to ramp up production of the equipment needed to better ensure national security.

Yet, President Trump—who has historically been eager to use the full arsenal of government powers to tackle Chinese competition—has hesitated to use any such authority with the private sector. He recently claimed that “the federal government is not supposed to be out there buying vast amounts of items and then shipping. You know, we’re not a shipping clerk.”

There now appears to be some limited forward movement, though the resolve of the administration is shaky. On March 24, Federal Emergency Management Agency (FEMA) Administrator Peter Gaynor announced that it would invoke the DPA to compel production of 60,000 test kits. This number on its own is a bit underwhelming, as that’s about equal to the number of cases in New York city alone. (Just hours later, FEMA abandoned the initiative.) Then, on March 26, Trump dismissed the need for more ventilators, before reversing course a day later and invoking the DPA to push General Motors to speed up production. Meanwhile, Biden has panned the administration for not going further and using DPA authorities to compel production of even more medical goods. What will happen in the days ahead is uncertain.

The administration’s dilatory response stands in stark contrast to the Roosevelt administration’s record, which in the New Deal and World War II marshaled the entire economy to fight the Great Depression at home and facism more broadly.

If there ever were a time for another government-led mobilization, it is now. Ideally, our country needs an independent agency devoted to emergency industrial policy and planning—one that is protected from the political whims of the administration but nevertheless has the resources and autonomy to direct the private sector.

Realistically, this won’t happen in time to meet the current COVID-19 crisis, given what it takes to establish an agency. Yet, it’s pretty likely that this moment won’t be the last crisis warranting a nationwide response. Addressing climate change, for instance, will likely require a coordinated effort of similar magnitude, so it’s worth fleshing out how this could work.

An Emergency Health Finance Agency (EHFA) could act as the primary government vehicle to enact nation-wide industrial planning and policy. This agency would be modeled after the Reconstruction Finance Corporation (RFC), which was created during the Depression and became one of the leading instruments used to support the New Deal and the World War II mobilization. Such an idea has been called for by scholars, such as Michael Lind and Jamie Galbraith, as well as politicians including Senator Bernie Sanders. The body would be a one-stop shop for financial resources in this and future crises, both on the supply and demand sides. For instance, it could fund clinics, factories, emergency field hospitals, and quarantine centers. Or, it could pay for emergency research and development (R&D) by universities, private drug laboratories, and the National Institutes of Health (NIH) in order to rapidly develop vaccinations. It could also offer grants to hospitals to buy beds and add staff and rescue medical goods suppliers. And it could provide loans and loan guarantees to businesses to keep them solvent. Importantly, it could do this nimbly, with minimum red tape and independently from the Trump administration.

The creation of such an agency would not only address the immediate crisis, but it could also stimulate growth and help set the stage for a more inclusive economy. At present, while health care takes up a huge chunk of our GDP, much of this spending is heavily skewed toward rent-seeking activities like health insurance and patented pharmaceuticals. An agency like the one we propose could realign the composition of that spending toward medical equipment and care work.

Given the considerable power and authority of such an agency, its decisions could have reverberating impacts on all aspects of the economy, including those outside the immediate scope of health needs. It will be important, at the front end, to ensure that the agency adheres to five key principles.

Sustainability: All investments to the extent practical should aid in the decarbonization effort. Ideas of how that might happen can be found in this open letter signed by Mark Paul, Lenore Palladino, and others.

Inequality Reducing and Growth Enhancing: Current levels of inequality hold back our nation’s overall economic growth, and this pandemic will likely exacerbate and deepen these trends. A guiding principle of the EHFA is that it must be used to redistribute resources away from the top and downward toward everyone else.

Equity and Inclusion: It is crucial that investments redress deep disparities in American society. This means targeting specific regions and sectors that are hardest hit; it also means ensuring high-quality jobs are created in Black, Latinx, and Native communities. The equity imperative requires that we not only build up manufacturing sectors but also develop and revitalize the service and care industries, traditionally employed by women and people of color.  

A Self-Reinforcing Government Capacity: The mere act of creating this facility will enhance human and organizational capacity in the federal infrastructure. But investments should be made with an eye toward building expertise across all agencies and also at the state level. Public universities should be encouraged to create feeder programs into this investment ecosystem, much as the Land Grant colleges supported the development of USDA.

Global Competitiveness: The crisis has shown serious vulnerabilities in our medical supply chain. Investments should be geo-economically rational, building redundancy at the national and North American regional level, so that the US is not captive to European and Asian suppliers.

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The COVID-19 pandemic and the accompanying economic recession pose enormous societal challenges—challenges that are far too complex, far-reaching, and costly to leave in the hands of the private sector. As a market actor and economic transformer, the government is best positioned to meet these challenges. We hope, though we unfortunately do not anticipate, that the current administration will rise to the occasion.