The importance of a prosperous economy for our collective ‘wellbeing’ cannot be overestimated

The effects of COVID-19 continue to wreak havoc to the economy.

The latest ONS data points to around 1 in 5 Scottish companies currently closed or paused trading. Of those still operating, around half have seen turnover fall by over 20%.

Sadly, we are beginning to see the costs of the shutdown with business closures and job losses across the country. Last week we had the warning that four out of five engineering firms expect to cut jobs in the next six months.

Predicting the outlook for the next few months is still highly uncertain.

One thing that we can say is that we are in for a long haul. The government’s route-map points to ‘four phases’ with restrictions remaining in place – in some form – for months to come.

As a result, government will need to provide lifeline support for many businesses for some time yet. The Chancellor’s response – particularly the Coronavirus Job Retention Scheme (CJRS) – was the right course of action. But the decision to shut-down businesses was arguably the easy, albeit costly, part. Starting them back-up again will require great care.

Indeed, it will only be once our economy emerges from its hibernation that many risks will crystallise. When firms work out what’s left of their customer base, many will find that their pre-COVID business model is simply no longer viable.   

Government will therefore have to tread a fine line between ongoing support where needed, but also helping businesses to get back trading again.  

Last week’s proposals for the CJRS, which will see a gradual withdrawal of support and greater flexibilities, are designed to do just that. Other measures, such as supporting furloughed workers to look for new jobs in growth businesses, will be needed too.

Not all businesses will require the same level or type of support. Some, for example in hospitality, are likely to require longer-term financial help. For others, the best form of support will be less about cash and more about practical measures to help plug breaks in supply chains, close gaps in logistics, or invest in new technologies and skills.

Government cannot do all the heavy lifting. Innovative private financing approaches will be required to address the £100bn of unsustainable debt estimated to have built up in the corporate sector since the crisis began.

This response will require coordinated action across government and regulators. Here in Scotland, this will mean that policymakers on all sides of the political spectrum will need to switch from simply asking for more funding or more powers and look at priorities within the Scottish Budget. Budgets across areas of enterprise and economic development have been under pressure for years. Yes, as a result of austerity, but also because of political priorities elsewhere.

A debate about what we economists call ‘opportunity cost’ – where else public money could be spent instead – will be more important than ever during the recovery phase.

It is only natural that some discussion has turned to imagining a better long-term future, with catchy phrases such as ‘build-back better’. This is all well and good. But we cannot lose sight of the seriousness or the urgency of the situation now. Helping get our economy get back-up off the ground, safely and securely, will be crucial for our long-term prosperity.

In looking to the future, there is one important take-away from all this. These last few months have highlighted the link between our economy and, the in-vogue phrase, ‘wellbeing’. Yes, there are debates to be had about the nature of growth, how it is distributed, and its sustainability. But the importance of a prosperous economy for our collective ‘wellbeing’ – one that provides financial security for families, creates opportunities for our young people and supports innovative and vibrant businesses – cannot be overestimated.   

Authors

Director of the Fraser of Allander Institute.

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