The devastation created by the COVID-19 pandemic is forcing us to reconsider long-held beliefs about how to organize the economy. Take “I, Pencil,” an influential essay by Leonard Read, written in 1958, which argues for reliance on the “invisible hand” of the market. Read started one of the first free market think tanks in 1946, and his pencil story figured prominently in Milton and Rose Friedman’s ten-part television series, Free to Choose, which first aired in 1980.
“I, Pencil” uses a genealogy of an ordinary lead pencil to explain that nobody knows how to make one. It is, rather, the genius of the market system that coordinates the efforts of people around the world to manufacture the final product. They include loggers in Northern California, graphite miners in Sri Lanka, and farmers in Indonesia whose rapeseed oil is a key ingredient in the eraser. Read’s refrain is “no single person on the face of this earth knows how to make me.” But in the absence of that knowledge, the market is still able to seamlessly produce vast quantities of pencils.
Read’s pamphlet is a brilliant distillation of the arguments made by Friedrich Hayek and Milton Friedman in favor of the market. Hayek insisted that the market was an elaborate information processing system, one that is highly efficient and produces a “spontaneous order” out of the disparate actions of millions of people who respond to market signals.
Now compare the genealogy of a medical N95 mask, which keeps frontline healthcare workers from inhaling the contagious droplets that spread COVID-19. What Read celebrates about the pencil is equally true of the N95 mask. No individual knows how to make such masks. The 3M Company and firms in China that produce such masks by the millions all rely on complex global supply chains for key inputs. Among these are synthetic polymer fibers that are produced through a process called melt blowing which creates tiny strands that overlay in complex patterns to block small particles while still allowing the user to breathe. There are also complicated machines that are used to produce melt blow and to assemble the actual masks.
But in the midst of a global pandemic, how wondrous is this global division of labor? Multiple national governments are also aggressively procuring N95 masks, with the result that exports of finished masks, raw materials, and machines suddenly dry up. The effort to ramp up production domestically runs into the considerable barrier that nobody knows how to make these masks from start to finish. The handful of domestic firms that produce the melt blow have rushed to increase capacity, but some of them are located in small towns where finding more employees is a challenge. And the German factory that makes the production machines is facing a rush of orders from all over the world.
The resulting shortage of N95 masks has had huge consequences. While data are scarce, some sources suggest that health care workers account for nearly 10 percent of all reported COVID cases in the United States. If they die at the same rate as others, that would be more than 10,000 health care fatalities as of late May. And it was only on May 7 that the FDA got around to blocking the sale of N95 face masks produced by 65 of 90 Chinese companies that had previously been authorized to sell such masks in the U.S., after finding many of these masks failed to meet quality standards. But this decision came weeks after millions of those inadequate masks had been acquired by public and private agencies. How many more health workers will die because they were relying on defective masks?
Wouldn’t it be better if there were some people in the United States who actually knew how to make high quality N95 masks or ventilators or test kits or various medications needed to fight this disease? This is not the last pandemic we will face. The government should create a national center to support mass-production of a list of essential items likely to be needed in future health emergencies. The center’s database would include the full specifications for mass-producing these essential products to meet the most rigorous federal standards. In a crisis, the center would be able to assist all kinds of enterprises to ramp up production of the needed items. In those cases where production depended on highly specialized equipment, the government would hire one of the big Department of Energy laboratories to maintain and keep current the needed production equipment for things like those synthetic polymer fibers used in N95 masks.
In the darkest days of the Great Depression, John Maynard Keynes expressed his disillusionment with global markets in an essay called “National Self-Sufficiency” (1933). He wrote: “Ideas, knowledge, art, hospitality, travel — these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible…” We do not have to go as far as Keynes, but it makes no sense to rely on the dispersed knowledge in global markets for things which are a matter of life and death such as food, medicines, and protective equipment. After COVID-19, we need to build an inclusive and resilient economy — and that means having the know-how to produce the things that we really need. We should never again be misled by a fairy tale about pencils.
Fred Block is research professor of sociology at U.C. Davis. His most recent book is Capitalism: The Future of an Illusion (University of California Press, 2018).