Pandemic and the Limits of Entrepreneurial Government

Once again the government has used a high-profile announcement of an apparent technological breakthrough (the “game-changer” this time is the promise of ninety-minute diagnostic tests) to try to distract from their general failure to effectively address the pandemic (and, in this particular case, to grab front pages from the embarrassing story of a former minister being accused of sexual assault/rape). This raises a number of points. One of them is the persistent failure of journalism during this crisis to meaningfully question repeated and obviously spurious government claims about “magic bullet” technologies – indeed they’ve repeatedly played the part of loud, credulous cheerleaders. I’m going to come back to that one day soon. But what I want to focus on here is why these initiatives have, so far, all failed – spectacularly and often expensively.

The reason is simple. Despite the loudly-stated enthusiasm of key figures in this government (most notably their éminence grise Dominic Cummings, but also from ministers such as Raab, Gove and Hancock) for the language and trappings of “disruptive capitalism” their understanding of how this system works appears limited to a fascination with the glossy hagiographies of tech bro billionaires and little grasp of how disruptive capitalism works as a system and as part of a wider economy.

The government’s attachment to an ideology of disruptive capitalism goes beyond a traditional Conservative preference for private sector provision of public services and embraces a belief that the creative destruction of existing economic relationships is inherently good. It is not enough that businesses do the work of government – through the contracting out of services, for example. The revolution must go further and deeper. Existing patterns of thinking, ways of working and relationships must be broken down and rebuilt. All sectors of industry and government will be made more effective and efficient by bulldozing existing safeguards and embracing the buccaneering, free-for-all approach of their idealised vision of Silicon Valley entrepreneurialism. It is an approach that, typically, lionises a handful of high profile (if not, always, high-profit) companies and a tiny number of billionaires.

The pandemic forced the government to make decisions that required practical responses to urgent public needs. Their response has been, in almost every case, to reject “orthodoxy” and to promote “new approaches”, putting faith in longshot technological solutions in place of existing institutional structures. The results have not been encouraging – an extraordinary density of failures has been packed into a remarkably short time.

Magic ventilators

Instead of buying ventilators from existing contractors (or asking new producers to build up capacity by licencing and building existing models) the government launched a scheme to “disrupt” the ventilator market by encouraging new producers to develop radical new models and approaches to constructing these devices. The result was 20,000 useless machines and £450m thrown away and a load of wasted effort and goodwill. Luckily this remained an embarrassment, not a human disaster, as treatments to Covid-19 have developed over time.

Pinprick antibody tests

The pinprick antibody test was going to immediately let everyone know how whether they’d been infected and allow those people who had immunity go back to work. The government ignored standard procedures and placed orders for as many as two million tests and paid at least $20m to two Chinese firms. None of the tests worked to the degree required. They are now repeating this gung-ho approach with their introduction of “90 minute diagnosis tests” that are untried and untested but which have been purchased blind and are being sold as “gamechangers”.

Test, track and trace

The UK went into this crisis with pandemic preparations that had been widely praised and were copied/adapted and used successfully by countries around the world. In the UK these plans were ignored. Responses were made on the fly and key services were removed from the control of public health oversight in the NHS and (particularly) local authorities and put into the hands of new bodies or private companies who had to build capacity from scratch. The result is that the UK’s testing capacity is uncertain (still not meeting targets set at the start of the outbreak), slow and unstable and, six months into the outbreak, track and trace systems are failing to reach up to one quarter of those testing positive and are (potentially) fatally slow.

Track and trace App

Announced as a “poster boy” of this government’s radical new approach to public services – much was made of the NHSX tracing app (“the X stands for user experience” – Matt Hancock said, meaninglessly) commissioned by an in-house team but built (at significant cost) by VMware – Go Pivotal, who are owned by American tech giant Dell. It would be, we were assured, able to replace long established but resource intensive contract tracing procedures – despite no convincing evidence from anywhere in the world that it was likely to be as effective as promised. As well as placing an unusual burden of expectation on the app – other countries have used apps as an alongside, not as a replacement for, traditional processes – the UK chose a radically different technical approach to other nations. The app was first promised for May, then June, then autumn and then scrapped.

Why have all these projects failed?

The central problem with the Cummings approach is that it fails to understand how disruptive capitalism “solves” problems (actually it more usually create problems for which has produced solutions to, but that’s another article) and how it works within society as a whole.

The Cummings approach starts with a simple faith that markets are efficient.

This position is not entirely without merit. If you want to ensure a supply of cheap bread or to create a system that can deliver a fresh mango for me to eat in the UK in the middle of January, then market mechanisms have proven remarkably effective. There are, of course, often externalities, costs within those exchanges that the price mechanism at the heart of markets does not adequately account for (environmental, social, etc) – but, as a system for delivering commodities, markets are, in normal situations, a successful tool. As a means of communicating relatively straightforward information about demand and consumer preference to producers, they are undeniably successful. And I see no a priori reason why some elements of government provision should not make use of the strengths of markets where they do not conflict with other priorities.

But relative efficiency in price setting does not imply that markets are universally efficient – though this is an often-made mistake.

Indeed, a moment’s thought reveals that disruptive capitalism’s mechanics are unavoidably wasteful. For every “tech unicorn” there are vast numbers of failures – there is a reason why these successes are named after hard-to-find, mythical beasts. Fifty-seven per cent of new UK companies fail within five years of starting up. In the technology and ecommerce sector, the rate of failure is even higher. One commonly quoted estimate is that ninety percent of ecommerce companies fail in the first 120 days while Fortune puts the failure rate for start-ups at 90% in the first two years

That’s a lot of wasted money, time and effort.

On a systemic level this approach to problem solving is sustained by the willingness of individuals to take huge risks in chasing massive rewards and in the tendency of a certain type of person to believe, in the face of all reasonable evidence, that they are destined (through hard work or fate or genetics or their own innate value or whatever hokum they put their faith in) to be successful. With a (for practical purposes) near infinite supply of wishful thinking and people willing to risk everything, chance, circumstance and timing will eventually return winners. Someone will, eventually, be in the right place at the right time. And, from the constant churn, leviathans rise and fall. This mix of good fortune, timing and occasional inspired guess work is, almost inevitably, subsequently mythologised into a post hoc narratives of inevitable genius rewarded – whether for the self-aggrandizement of the lucky few or by those keen to encourage the idea that this way of organising a society makes sense. 

Proponents of disruptive capitalism will argue that this is an evolution-mimicking process that results in the “survival of the fittest” and produces the best possible solutions to consumer demands. This may be so, but while we can wonder at the marvels produced by evolution, no one sensible ever claimed that it was an efficient way to create animals suited their environment. Misfires, misfits, extinctions, curious left-overs and more steps away from effective adaptation than towards it are inherent to the evolutionary process in nature and in business. 

A system where only a tiny minority of ideas blossom, and where much effort goes into failure, may solve problems. It may even be the best way to encourage creativity and innovation in new technologies. But, for all the positive aspects that it may possess, it is not a system that can meaningfully be described as “efficient”.

This creation by attrition it is not a viable strategy for the governments of medium-sized democracies when faced with a pandemic. It requires too many resources. 

So, the failure of the government’s start-up-inspired approach to solving pandemic-related problems should not be a surprise. The overwhelming majority of start-ups fail. What would have been a surprise is if any of them had been one of the small proportion that survive their initial exposure to the world. It would have been a near miracle if even one of them had turned out to be a public sector “unicorn” and been a runaway success.

Markets can be useful. Marketisation, with appropriate safeguards, can even be useful in informing some government services. But markets have limits and demands that don’t always mesh with the needs of government. And governments are not always able to bear the burdens that markets demand. One of the big burdens, especially of disruptive capitalism, is the built-in necessity of widespread failure. 

Governments do not have the resources to recreate the manic, scatter-gun approach of the technology sector. They cannot replicate the wasteful evolutionary environment of failure and collapse necessary to create vanishingly rare unicorns. And, most crucially, they should pursue strategies that take risks with public money or with the lives of their citizens.

Governments can promote entrepreneurship, they can even sometimes harness the energy of entrepreneurs, but it is not the job of government to take risks like an entrepreneur.

If you need ventilators, build ventilators that you know will do their job.

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