he COVID-19 economic depression will require that governments make difficult policy decisions that balance the need for short-term economic relief with longer-term goals for economic growth.
As governments around the world attempt to get people back to work safely despite continued pandemic concerns, it is important to keep in mind that recovery will look different from country to country. The complexity of restarting economies worldwide will entail more than just allowing businesses to hang an “open” sign and limiting the number of customers. For starters, there may be no door.
Increasingly, multinational enterprises are announcing “work from home forever” and “work from anywhere” models. However, many countries lack the infrastructure and technology to accommodate these rapidly changing policies and there is the much-discussed re-location of value chains from China. Furthermore, there is doubt that many hopeful host countries have the infrastructure to accommodate the complex manufacturing needs associated with such a shift anytime soon. Additionally, the “informal” sector makes up more than half of total employment in some regions of the world. That may make it impossible to track, in a useful way, when millions of people are back in business or back on the job.
These are just a few of the concerns expressed by global economists and experts, including top Latin American think tanks such as Fedesarrollo in Colombia and Argentina-based Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento. These organizations warn that many citizens may be left behind if the technology and information gaps are not addressed soon… and the global economy cannot afford that. Resilience and sustainable growth will depend on new and nimble policies that juggle shifting market structures, private sector needs, and demands for a new social contract. Amid the layers of complexity, decision-makers must address this over-arching question: What are the new needs of business?
New Policy Challenges
Governments the world over are looking to the private sector for answers and partnerships to address human needs and rights. In developing countries like Argentina and Colombia, that daunting task may be compounded by serious pre-COVID-19 challenges: major debt, governance issues, high corruption levels, soaring unemployment, and few reliable systems for social support.
Efforts to balance the needs of production, transportation, and service provisions with requirements for social distancing will introduce a host of new challenges for everyone. These issues represent untested policy needs that governments must address to help create a business enabling environment. Traditional toolboxes available to policymakers are insufficient for this new multi-faceted crisis. The challenges are not completely unfamiliar to seasoned lawmakers and businessmen, but the challenge will be in facilitating adaptation at scale.
The world’s small and medium-sized enterprises (SMEs) are at greater risk of failure than large companies, which typically have more resources. Since government bailouts are finite, policymakers face tough choices in deciding which SMEs to assist. Governments should prioritize supporting innovative entrepreneurs and “at-risk” businesses struggling to restart instead of “high-risk” businesses that may not have been competitive in the market to begin with. In addition to access to capital, SMEs will likely need some short-term tax relief and non-financial support such as information services, access to talent, and training to adapt to their new business environments.
The work of associations and chambers of commerce will be instrumental to providing this support. For example, business groups in Ukraine recently facilitated discussions with the central government on tax relief measures, while in Burma groups are collecting feedback from SMEs about how they will use resources from the country’s new COVID-19 Fund.
Creating A Better Business Environment
Following short-term relief, the best way to support the small business sector will be to get the fundamentals right. This means creating legal and regulatory environments that lower barriers to business and create an ethical business environment. Although informal businesses can be remarkably resilient, their largely unmonitored and untaxed status leaves them out of many relief efforts. Their reliance on face-to-face commerce and cash-only transactions makes them particularly disadvantaged by social distancing policies. In some countries, the informal sector makes up a large and important component of the national economy. For example, in Zimbabwe the informal sector accounts for nearly 90% of the workforce. Policymakers need to find ways to support the informal sector, while staying vigilant to the drag that informal competition places on the formal economy and its tendency to undermine public goods and regulation. Recovery planning should include integrated reforms that go beyond business registration and tax enforcement to establish long-term incentives that allow formal operations.
Repairing Supply Chains
Mobilizing and attracting investment will be at the heart of any recovery scheme. Yet, the Organisation for Economic Co-operation and Development is forecasting a 30% drop in foreign direct investment flows this year. As companies seek new offshore supply opportunities in low-cost and logistic-friendly markets, some countries can find opportunities for large-scale private investment.
As they seek to build supply chain resilience, companies will seek to mitigate business and political risks. Countries that provide stable business environments, predictable rule of law, protection of assets, and low levels of corruption will thus be attractive venues for investment. Reforms required to create this environment can be tough to push through, but COVID-19 is a rare paradigm-busting occurrence that may provide the needed political impetus.
The COVID-19 crisis has made clear that business and society need investments in health, digitalization, infrastructure, transportation, and education. Governments that are intent on encouraging innovation and global competitiveness— or conversely on protecting older, threatened industries— may be drawn to industrial policies that direct investment independent of market forces. Policies that encourage innovation and a competitive playing field should be valued over those that promote the interests of political cronies or poorly governed state-owned enterprises.
Role of E-Commerce
The digital economy represents another paradigm shift for policymakers. It offers a democratization of opportunity not seen since the industrial revolution. E-commerce coupled with trade facilitation policies can be the great equalizer of globalization, allowing SMEs to trade across borders with the ease of multinationals. However, the digital divide will require a policy focus on both the macro and micro operating environments.
On the macro-side, countries will need to grapple with value-driven concepts such as freedom of information, the cashless economy, intellectual property, and data privacy. Simultaneously, programs that prepare entrepreneurs for e-commerce and internet access are needed on the micro-side. Together these elements require large infrastructure and human capacity investments as well as commitments to liberal democratic reforms in the digital space. These efforts are boosted by programs such as the Open Internet for Democracy Initiative, which focuses on digital rights and accountability issues in emerging economies.
A New Social Contract
To find the right balance of growth and need, a new social contract is called for in which business plays an active role. Findings from the Edelman Trust Barometer suggest this is a feasible shift. People rank business highest in competence over government and non-governmental organizations, while 75% of respondents trust their employer to do the right thing. Conversely, only about one-third of people believe that business does a good job of partnering with governments or non-government organizations for the common good. Societies that value and embrace the private sector as a source of wealth and partnership will do better than those who see it as a golden-egg laying goose.
For their part, companies must come to the table as constructive and ethical partners. Business membership organizations including the Kenya Private Sector Alliance and the country’s national chamber of commerce are asserting leadership in working with their government on economic response frameworks. Others are organizing community relief operations. For instance, the Kurdistan Economic Development Organization has been helping local government workers sterilize streets and markets. To be sure, purpose-driven business models and stakeholder-friendly models of corporate governance will be a growing part of the landscape.
Many governments look to the private sector tax base as a politically expedient and accessible route to government finance. However, over-taxation at a time of high business risk not only drains corporations of needed assets, but also discourages the investment and long-term commitments needed to drive sustainable growth. It also overlooks the potential of business to discover innovative solutions even during recessions.
Restarting the economy presents both opportunities and perils for policymakers. COVID-19 could refocus attention on creating an economic order based on opportunity, fairness, competition, and innovation. However, short-term thinking could threaten recovery efforts. Such thinking could allow authoritarians and crony capitalist thinking to overcome the liberal order and imperil market recovery. An open, inclusive approach to economic policy can lead to growth that is sustainable, ethical, and widely shared. This will require policy leaders and business leaders to jointly seize the occasion to shape national strategies for recovery.
a global affairs media network
Restarting Economies Amid COVID-19
Photo by Tim Mossholder via Unsplash.
June 23, 2020
The economic impacts of COVID-19 requires governments to make difficult policy decisions that balance the need for short-term economic relief with longer-term goals for economic growth.
T
he COVID-19 economic depression will require that governments make difficult policy decisions that balance the need for short-term economic relief with longer-term goals for economic growth.
As governments around the world attempt to get people back to work safely despite continued pandemic concerns, it is important to keep in mind that recovery will look different from country to country. The complexity of restarting economies worldwide will entail more than just allowing businesses to hang an “open” sign and limiting the number of customers. For starters, there may be no door.
Increasingly, multinational enterprises are announcing “work from home forever” and “work from anywhere” models. However, many countries lack the infrastructure and technology to accommodate these rapidly changing policies and there is the much-discussed re-location of value chains from China. Furthermore, there is doubt that many hopeful host countries have the infrastructure to accommodate the complex manufacturing needs associated with such a shift anytime soon. Additionally, the “informal” sector makes up more than half of total employment in some regions of the world. That may make it impossible to track, in a useful way, when millions of people are back in business or back on the job.
These are just a few of the concerns expressed by global economists and experts, including top Latin American think tanks such as Fedesarrollo in Colombia and Argentina-based Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento. These organizations warn that many citizens may be left behind if the technology and information gaps are not addressed soon… and the global economy cannot afford that. Resilience and sustainable growth will depend on new and nimble policies that juggle shifting market structures, private sector needs, and demands for a new social contract. Amid the layers of complexity, decision-makers must address this over-arching question: What are the new needs of business?
New Policy Challenges
Governments the world over are looking to the private sector for answers and partnerships to address human needs and rights. In developing countries like Argentina and Colombia, that daunting task may be compounded by serious pre-COVID-19 challenges: major debt, governance issues, high corruption levels, soaring unemployment, and few reliable systems for social support.
Efforts to balance the needs of production, transportation, and service provisions with requirements for social distancing will introduce a host of new challenges for everyone. These issues represent untested policy needs that governments must address to help create a business enabling environment. Traditional toolboxes available to policymakers are insufficient for this new multi-faceted crisis. The challenges are not completely unfamiliar to seasoned lawmakers and businessmen, but the challenge will be in facilitating adaptation at scale.
The world’s small and medium-sized enterprises (SMEs) are at greater risk of failure than large companies, which typically have more resources. Since government bailouts are finite, policymakers face tough choices in deciding which SMEs to assist. Governments should prioritize supporting innovative entrepreneurs and “at-risk” businesses struggling to restart instead of “high-risk” businesses that may not have been competitive in the market to begin with. In addition to access to capital, SMEs will likely need some short-term tax relief and non-financial support such as information services, access to talent, and training to adapt to their new business environments.
The work of associations and chambers of commerce will be instrumental to providing this support. For example, business groups in Ukraine recently facilitated discussions with the central government on tax relief measures, while in Burma groups are collecting feedback from SMEs about how they will use resources from the country’s new COVID-19 Fund.
Creating A Better Business Environment
Following short-term relief, the best way to support the small business sector will be to get the fundamentals right. This means creating legal and regulatory environments that lower barriers to business and create an ethical business environment. Although informal businesses can be remarkably resilient, their largely unmonitored and untaxed status leaves them out of many relief efforts. Their reliance on face-to-face commerce and cash-only transactions makes them particularly disadvantaged by social distancing policies. In some countries, the informal sector makes up a large and important component of the national economy. For example, in Zimbabwe the informal sector accounts for nearly 90% of the workforce. Policymakers need to find ways to support the informal sector, while staying vigilant to the drag that informal competition places on the formal economy and its tendency to undermine public goods and regulation. Recovery planning should include integrated reforms that go beyond business registration and tax enforcement to establish long-term incentives that allow formal operations.
Repairing Supply Chains
Mobilizing and attracting investment will be at the heart of any recovery scheme. Yet, the Organisation for Economic Co-operation and Development is forecasting a 30% drop in foreign direct investment flows this year. As companies seek new offshore supply opportunities in low-cost and logistic-friendly markets, some countries can find opportunities for large-scale private investment.
As they seek to build supply chain resilience, companies will seek to mitigate business and political risks. Countries that provide stable business environments, predictable rule of law, protection of assets, and low levels of corruption will thus be attractive venues for investment. Reforms required to create this environment can be tough to push through, but COVID-19 is a rare paradigm-busting occurrence that may provide the needed political impetus.
The COVID-19 crisis has made clear that business and society need investments in health, digitalization, infrastructure, transportation, and education. Governments that are intent on encouraging innovation and global competitiveness— or conversely on protecting older, threatened industries— may be drawn to industrial policies that direct investment independent of market forces. Policies that encourage innovation and a competitive playing field should be valued over those that promote the interests of political cronies or poorly governed state-owned enterprises.
Role of E-Commerce
The digital economy represents another paradigm shift for policymakers. It offers a democratization of opportunity not seen since the industrial revolution. E-commerce coupled with trade facilitation policies can be the great equalizer of globalization, allowing SMEs to trade across borders with the ease of multinationals. However, the digital divide will require a policy focus on both the macro and micro operating environments.
On the macro-side, countries will need to grapple with value-driven concepts such as freedom of information, the cashless economy, intellectual property, and data privacy. Simultaneously, programs that prepare entrepreneurs for e-commerce and internet access are needed on the micro-side. Together these elements require large infrastructure and human capacity investments as well as commitments to liberal democratic reforms in the digital space. These efforts are boosted by programs such as the Open Internet for Democracy Initiative, which focuses on digital rights and accountability issues in emerging economies.
A New Social Contract
To find the right balance of growth and need, a new social contract is called for in which business plays an active role. Findings from the Edelman Trust Barometer suggest this is a feasible shift. People rank business highest in competence over government and non-governmental organizations, while 75% of respondents trust their employer to do the right thing. Conversely, only about one-third of people believe that business does a good job of partnering with governments or non-government organizations for the common good. Societies that value and embrace the private sector as a source of wealth and partnership will do better than those who see it as a golden-egg laying goose.
For their part, companies must come to the table as constructive and ethical partners. Business membership organizations including the Kenya Private Sector Alliance and the country’s national chamber of commerce are asserting leadership in working with their government on economic response frameworks. Others are organizing community relief operations. For instance, the Kurdistan Economic Development Organization has been helping local government workers sterilize streets and markets. To be sure, purpose-driven business models and stakeholder-friendly models of corporate governance will be a growing part of the landscape.
Many governments look to the private sector tax base as a politically expedient and accessible route to government finance. However, over-taxation at a time of high business risk not only drains corporations of needed assets, but also discourages the investment and long-term commitments needed to drive sustainable growth. It also overlooks the potential of business to discover innovative solutions even during recessions.
Restarting the economy presents both opportunities and perils for policymakers. COVID-19 could refocus attention on creating an economic order based on opportunity, fairness, competition, and innovation. However, short-term thinking could threaten recovery efforts. Such thinking could allow authoritarians and crony capitalist thinking to overcome the liberal order and imperil market recovery. An open, inclusive approach to economic policy can lead to growth that is sustainable, ethical, and widely shared. This will require policy leaders and business leaders to jointly seize the occasion to shape national strategies for recovery.
