[Viewpoint] The Economics of Public Masks

Professor Kim Hong-beom, Department of Economics, Gyeongsang National University

Professor Kim Hong-beom, Department of Economics, Gyeongsang National University

The novel coronavirus disease (COVID-19) crisis that emerged at the beginning of the year continues even as we enter summer. Everyone, even a child, knows that our daily lives have changed significantly. It has become a world where you cannot take the subway or bus without wearing a mask.

Amid these unfamiliar changes, our people experienced a rare event. It was the public mask 5-day rotation system implemented by the government last March as part of the 'Mask Supply Stabilization Measures.' Although not free, the 5-day rotation system was close to a rationing system under a planned economy, as it limited the purchase quota to two masks per person per week. Since then, with supply stabilization, the 5-day rotation system was temporarily abolished in June, and the purchase limit per person was increased to 10 masks per week from mid-last month. The measures may be extended, but as of now, the supply stabilization measures are scheduled to end on the 11th of this month. Through this 5-day rotation system, our people personally experienced the rationing characteristic of a planned economy for a while. In short, it was inconvenient.

First, everyone had to carry their ID and line up in long queues in front of neighborhood pharmacies to buy masks. In the early days, it was not uncommon to come up empty-handed due to mask shortages. It was also difficult for other family members to purchase masks on behalf of elderly parents or young children. We had to buy masks, which had doubled in price compared to before the COVID-19 crisis, with our own money and endure with an insufficient quantity for a week. Even now, the price remains at 1,500 won since March. Although the market situation has improved, the price has been fixed due to the initial contract between the government and manufacturers.

Is that all? From the beginning of the system's implementation, various suspicions and controversies arose. The government initially selected only one mask distribution company, which led to fake news controversies about the background, and a considerable distribution margin was criticized. The decision to use pharmacies as the main distribution network instead of the evenly distributed administrative welfare centers (community centers) in towns and neighborhoods was also controversial.

All these inconveniences and controversies surrounding the public mask 5-day rotation system are not surprising. That is what a planned economy is like. So why did the government implement this system for several months?

Sometimes, even in a market economy, it is difficult to leave supply and demand entirely to the market. In February, our society faced a mask crisis. Due to the explosive demand following government guidelines that mask-wearing was essential for personal protection amid the COVID-19 outbreak, prices surged to around 5,000 won per mask, and shortages occurred. Masks had become essential goods, and despite the price hike, demand did not decrease much. Meanwhile, it took time to secure raw materials and expand production facilities to increase output. Ultimately, the government made a temporary choice to implement supply stabilization measures (including the 5-day rotation system) to overcome the emergency situation where masks became scarce and expensive beyond control. Since then, demand has gradually stabilized, and daily production has nearly doubled compared to before the measures, indicating some success of the government's market intervention.

Returning to the earlier inconveniences and controversies, in March, the government directly selected mask distribution companies, arbitrarily set contract prices with manufacturers, distribution margins, and even consumer prices, and limited the purchase quantity per person to suppress consumption. At the same time, the government ordered manufacturers to produce a certain volume and forced them to supply 80% of production to the public distribution network while banning mask exports entirely. Additionally, support measures were implemented in various aspects such as raw materials, workforce, production facilities, and industry conversion.

In short, the government decided who would produce, distribute, and consume masks, at what price, and in what quantity. There was no room for the countless voluntary decisions of individuals and companies in the market. Therefore, inconvenience and controversy were inevitable. This is a considerable cost of the government making all decisions by itself. If the government has overcome the emergency situation through market intervention and supply has stabilized to some extent, it is now time to hand over the baton to the market.