Covid-19 and the Danger of Self-sufficiency: How Europe’s Pandemic Resilience was Helped by an Open Economy

During the Covid-19 pandemic, Europe has benefitted strongly from being an open economy that can access goods and services from other parts of the world. Paradoxically, some politicians in Europe think that dependence on foreign supplies reduced the resilience of our economy – and argue that Europe now should wean itself off its dependence on other economies. In this Policy Brief, it is argued that self-sufficiency or less economic openness is a dangerous direction of policy. It would make Europe less resilient and less capable of responding to the next emergency.

It is key that people, firms and governments can get supplies from other parts of the world. It is diversification, not concentration of production, that will make Europe more resilient when the next emergency hit. We don’t know where the next crisis will come from. Nature will throw nasty surprises at us, and we will make stupid mistakes, some of which will have devastating consequences. What we do know, though, is that we stand a better chance to fight the next emergency if we get richer and improve our technology. The best policy for resilience is one that encourages specialisation and innovation – and, when the emergency hit, allow for people to improvise in search for solutions. For that to happen, we need openness to goods, services and technology from abroad.

Johan Norberg’s latest book is Open – The Story of Human Progress.

The rise of disaster protectionism

In Naomi Klein’s book The Shock Doctrine: The Rise of Disaster Capitalism, she argues that economic liberals have used disasters to ram through unpopular economic reforms.[1] It is true that emergencies tend to change the policy direction of a country, but it is far more common that crises lead to the exact opposite of what Klein proposed. Public spending and government power tend to expand in response to a crisis, a terrorist attack, war, economic depressions – and pandemics.[2] And perhaps there’s a human logic to it: when we feel threatened, we look to the government for protection. This also goes for trade protection – and the present pandemic is a case in point. Call it disaster protectionism.

Consider Europe’s initial response to the pandemic. The European Union shut its external borders in March 2020 to keep the virus out – just when Europe had become the global epicentre of the disease. And for a while, trade dropped like a stone – affecting the supply of food, labour and hand sanitizers across the continent. If Pfizer and BioNtech had not had access to corporate jets, they would not have been able to send genetic material over the Atlantic Ocean to develop the first successful Covid-19 vaccine.

Meanwhile, new borders within the union were erected, suspending free movement, sometimes stopping citizens from getting back to their home country after losing their jobs during lockdowns.

France and Germany banned the export of personal protective equipment. In March 2020, France even started confiscating equipment produced in other countries sent through the country by third parties. As a result of these restrictions, internal EU trade of the medical goods needed to treat Covid-19 went down by 13 percent between March and April of 2020, a reduction that was especially damaging for oxygen therapy equipment, which fell by 42 percent (see Box 1 Globalisation comes to the rescue) After the European Commission stepped in, controls were lifted, but other forms of export restrictions were re-created at the EU level, prohibiting exports unless a license was obtained. Companies producing medical supply were wrapped in extra red tape just when the speed of supply was a matter of life and death.

The pandemic spurred strong calls for bringing manufacturing back home. Some politicians asked: How can we withstand a crisis like this, if we don’t even have local production of face masks, surgical gloves and pharmaceutical inputs? The fact that most of this production is based in Asia is worrying, said the German Chancellor Angela Merkel in April 2020, and called for “a pillar of domestic production here too”.[3] The European Commissioner for Health, Stella Kyriakides, expressed the same sentiment: “we need to ensure that we reduce our dependency on other countries.”[4]

For some, the pandemic urged new calls for broader trade protection – not just in medical goods. The pandemic, they argued, have revealed how dependent that countries and supply chains are on companies on the other side of the globe: if these suppliers would reduce or divert supplies, wouldn’t our assembly lines grind to a halt? Some governments created incentives to repatriate supply chains and build national champions, rushing headlong back in time to the industrial policy of the 1970s.

Internal Market Commissioner Thierry Breton claimed that “the question posed to us by this crisis is that we have perhaps gone too far in globalization”, not just when it comes to pharmaceuticals and protective equipment, but also in manufacturing and agriculture. And as an harbinger of what policies he would later propose, Breton said: “I am convinced that our relationship to the world after this crisis will be different.”[5]

And when the solution seemed to be at hand, in the form of vaccines developed through global research collaboration and the international flow of data, the EU succumbed to vaccine nationalism, raising the prospect of banning exports of vaccines produced within the union, even momentarily threatening a hard border between Ireland and Northern Ireland.

When international cooperation was needed the most, Europe undermined its reputation as a champion of open markets and the rule of law in international affairs. Poor countries that had opened up their economies to the EU are now questioning whether it is a reliable supplier of essential medical equipment in the future. Pharmaceutical companies ask themselves if they should relocate to smaller countries that would never have an incentive to block exports.

This development was sadly predictable. In times of crises, societies often react with a fight-or-flight instinct. We pick fights with some and make scapegoats of others – immigrants, neighbouring countries, or pharmaceutical companies. Some politicians want to hide behind walls, others behind trade barriers. Instinctively rushing to defend the perimeter might have made sense in mankind’s pre-history, when the threat was predators and roving bandits. But in a complex and global economy, where necessary resources to solve societal problems are spread across the world, we surely shouldn’t attack outsiders. And when the common enemy is a virus, wouldn’t it better to cooperate with outsiders to build up more knowledge and produce better solutions? And wasn’t that the spiritual foundational of the EU?

[1] On closer inspection, it turned out that she came to the conclusion by taking quotes out of context, distorting timelines and confusing free market policies with crony capitalists, hungry for government support. See Johan Norberg, ”The Klein Doctrine: The Rise of Disaster Polemics”, Cato Briefing Paper No 102, 14 May, 2008.

[2] Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government. Oxford University Press, 1987. Johan Norberg, Open: The Story of Human Progress, Atlantic Books 2020.

[3] “Statement by Federal Chancellor Merkel”, Office of the German Federal Government, 6 April, 2020, <https://www.bundesregierung.de/breg-de/themen/coronavirus/statement-by-federal-chancellor-merkel-1739724>

[4] ”Covid-19 exposes EU’s reliance on drug imports”, Financial Times, 20 April, 2020.

[5] Thierry Breton estime nécessaire l’émission d’obligations pour faire face à la crise”, Le Figaro, 2 April, 2020, <https://www.lefigaro.fr/flash-eco/thierry-breton-estime-necessaire-l-emission-d-obligations-pour-faire-face-a-la-crise-20200402>