New report shows that America’s economic mobilization during World War II offers a useful model for the government to fight crises from coronavirus to climate change
New York, NY—Today, with a health crisis putting millions of Americans out of work, people are looking to the government to save the economy while protecting their health. Congress has passed a $2 trillion stimulus package, and state and local governments are taking steps to stabilize their economies through economic and other activities normally left to the private sector. With calls for strong government action against the coronavirus and related economic collapse, policymakers can draw on lessons from the past to map out an expanded role for government in addressing looming climate change disasters.
The Public Role in Economic Transformation: Lessons from World War II, a new report released today by the Roosevelt Institute, argues that crises like the coronavirus and climate change require an economic restructuring comparable in scale and speed to the nation’s mobilization in response to WWII. The first paper in a forthcoming series authored by J.W. Mason (Roosevelt fellow) and Andrew Bossie (chair of the economics department at NJCU School of Business) suggests that this type of sustained government action may be needed if the US must drastically scale up the health care system or make additional large-scale economic adjustments in response to the coronavirus. This type of response is even more relevant for transforming economic activity to achieve deep decarbonization.
The authors draw three broad lessons from the experience of building up war industries in the early 1940s:
- The first is that the more rapidly the economy must be reorganized, the greater the direct role for government must be. When a transition between industries or technologies can happen slowly, over many years, government intervention can operate mainly through the price mechanism, encouraging some activities with subsidies and discouraging others with taxes or fees;
- The second is that long-term government investment in the private sector is key where major expansions of capacity are required. For instance, without government support, it is highly unlikely that profit-seeking businesses would build out new hospital beds on the scale that a public health crisis like the coronavirus may require; and
- The third is linked to the second: A key strength of the government is its capacity to bear risk in times of economic uncertainty (such as climate change). This is because private businesses may be unwilling (or unable) to invest, even if the social costs and benefits are reasonably clear.
“If we want to get serious about fighting climate change down the line, we need to let government step in and bear risk when the private market won’t,” said Bossie. “For example, when the private sector is unwilling to undertake the necessary short-term investment in things like developing a vaccine for a new virus or the energy-storage capacity required for a complete transition to renewable energy, the government can, and will, take on that financial risk. We’ve seen this type of government mobilization work successfully during WWII, and we can see it again today.”
“With record-high profits and record-low interest rates, we should be seeing an investment boom in corporate America. Instead, firms are giving their profits back to shareholders,” said Mason. “This suggests that the role of the public sector as ultimate economic risk-bearer is necessary. In the transition to a green economy, in response to pandemics, and in any other major transition involving major new technologies and new ways of working, the role of the public sector as risk-bearer will be as critical as it was during WWII.”
The sheer scope of the climate change problem, as with WWII, defies the ability of the private sector to respond quickly, in concert, and at the necessary scale. The coronavirus pandemic is—let us hope—a temporary emergency. The full breadth of lessons we can learn from WWII is far from clear, but it may help inform thinking on existing crises, like the coronavirus, and a much more long-term emergency: the climate crisis, which will be with us for generations.
About the Roosevelt Institute
The Roosevelt Institute brings together multiple generations of thinkers and leaders to help drive key economic and social debates. With a focus on curbing corporate power and reclaiming public power, Roosevelt is helping people understand that the economy is shaped by choices—via institutions and the rules that structure markets—while also exploring the economics of race and gender and the changing 21st-century economy. Roosevelt is armed with a transformative vision for the future, working to move the country toward a new economic and political system: one built by many for the good of all.
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