Scale of crisis means unpalatable choices

Recent weeks have seen growing frustration within the business community about the government’s response to the economic crisis.

Some interpret this bluntly as businesses wanting to put profit before health. This is unfair. Making staff unemployed or winding up a business can be a devastating experience. Our response to the public health emergency will have implications for unemployment, financial security and wellbeing well beyond the pandemic. It is wrong to be indifferent to appeals for help.

Equally though, it is wrong to paint the government as some form of bogeyman. Most businesses understand the difficult balancing act that policymakers face.

Of course, the public health emergency remains paramount. But we need to consider the fallout from these decisions better.

The decisions over public health and the economy shouldn’t been seen as case of either or. Instead, concerns from businesses should be seen as a plea to better understand the economic consequences of lockdown restrictions and the need for support.

Unfortunately, this is where the data we collect lets us down.

Policymakers are seeking to balance health impacts of policy decisions with the impacts upon society and the economy – the so-called ‘four harms’.

This is hard to do even in normal times, particularly when the direct health effects are so visible but any costs for the economy are harder to pin down and only emerge over time. It’s easy to value things that we can see clearly and discount things that happen in the future.

But it is even more difficult now. The measures that the government tracks on COVID health are timely, localised and largely accurate. But on the economy, they are blunt, dated, unresponsive to policy decisions and tell us little about the real-world implications for livelihoods, inequalities or the long-term health and social costs.

Take the sector most impacted at this time – hospitality.

Newspaper debates tend to be about whether or not you can watch a football match in the pub.

But the real issue is the devasting consequences for jobs and livelihoods of the latest restrictions, and the costs for businesses already in a precarious financial position. Many people employed in this sector are some of the people most at risk of poverty and financial hardship. 

For the food and beverage service activities sector, the average age is 32, one of the lowest for any sector in Scotland. Around 60% of the workforce is female. Pay averages just £9.40 an hour while the Scottish average is £16.00.

How is our understanding of these outcomes shaping the policy response? And to what extent have these inequalities shaped the scale of support?

Quite rightly, much of the focus has centred upon the UK Government and the end of the furlough scheme.  But tough choices are needed here in Scotland too.

As economists we’re taught to think about opportunity costs – the alternative options that are foregone by choosing a particular action over another. The status quo has an opportunity cost too.

All manner of things should be on the table for re-prioritisation – not just around the edges. The sectors our agencies support, the timing of our infrastructure investments, our city deal priorities, all need to be re-examined.

The scale of this crisis means that unpalatable choices will be required.

A key priority is ensuring our core economic resilience. That means a focus on businesses which might not neatly fit into glossy economic strategies. But their survival is crucial for our long-term economic, health and social objectives.  

To do that policymakers need evidence and to be transparent about how this is being used to inform decisions. This will help allay business concerns about whether the challenges they face are understood.

Pointing the finger elsewhere or kicking everything into the ‘build-back-better’ long grass has an opportunity cost too.

Authors

Director of the Fraser of Allander Institute.

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