There are beacons of light in this otherwise barren landscape that the West is going through. Yet they’re coming from places you might have not initially expected. Business has mobilised on an unprecedented scale to alleviate the fallout from the COVID-19 crisis – and it has done so voluntarily. It’s worth pointing out a few examples:
– Virtually all major supermarket retailers are offering some form of discount and/or purchasing benefits to keyworkers. Stores like Tesco, Sainsbury’s, Aldi and Lidl are all opening their doors early for keyworkers. Aldi is giving its employees a 10% bonus for their effort during the crisis.
– The vast majority of UK telecoms providers are offering unlimited access to the NHS website. Id Mobile are also providing the over 70s with free unlimited calls to any UK destination.
– The main pharmaceutical networks like Boots, Superdrug, Pharmacy2U, and LloydsPharmacy are all prioritising key supplies and restricting the sale non-essential items. Boots is starting to offer COVID-19 testing for NHS staff.
– Delivery and haulage companies such as Royal Mail, TNT, UPS and others are prioritising critical goods used to help alleviate the the crisis. Major online retailers like Amazon are doing the same
– Even car repair garages like KwikFit and F1 Autocentres are providing discounts and reduced waiting times for keyworkers, particularly NHS staff.
– In the US, Bank of America has allowed over 50,000 mortgage borrowers skip their payments.
The emphasis here as to be on the ‘voluntary’. These measures are voluntary: there was no governmental requirement or regulatory framework enforcing them. Yes, we have also seen some bad apples – Mike Ashely’s blunder for instance, for which he has since apologised. But the overwhelming mobilisation and initiatives taken by business must be commended.
Yet the impact of COVID-19 on business goes deeper. It has instinctively awoken in a realisation that has been present all along: no company operates or indeed, survives in a vacuum. Profit is linked to purpose; stakeholders matter just as much as shareholders – if not more so in certain cases.
Since its inception CEME has been arguing for a free-market economy that is built upon a foundation of ethical and moral values. One that is driven by businesses themselves, not a regulatory framework driven by government. It is the fundamental realisation that long-term business success lies in a form of governance that actively considers all stakeholders, internal as well as external. CEME Director, Richard Turnbull, has recently written a more elaborate piece on this topic.
The long-term macroeconomic recovery is vital
The short-term economic disruption may appear difficult, but guidance for long-term recovery will dictate the trajectory of macroeconomic growth. Unfortunately, this is where the major risks lie. Get the policy response right, and the economic growth curve will be more akin to a ‘V-shape’ recovery – as many hopeful economists would point out. Get it wrong, and we are in for a prolonged “L-shaped” economic struggle. One that will have a profound impact on businesses both large and small.
Governments in the US and UK have pledged an unprecedented level of financial stimulus to dampen the economic impact of the crisis. President Trump announced the $2tn stimulus package while the UK’s Chancellor Rishi Sunak committed over £330bn to business and the self-employed. The Federal Reserve has also reduced interest rates to low of 0.25% and the Bank of England to 0.1%.
Admittedly these were necessary measures. Much like the crisis of 2007-2008 politicians have little choice but to pump the economy with liquidity to quite literally, keep things moving. The rationale behind lowering the interest rates is also understandable but perhaps less convincing – make lending cheaper, promote liquidity and breath some confidence into the markets. Unfortunately for the policymakers, the markets have reacted negatively. The S&P 500, DOW and FTSE 100 have all experienced drops of more than a third from their total market cap. Unemployment rates are going up and the national deficit is likely to skyrocket.
The problem is that measures like lowering the interest rates caused panic among investors and furthered uncertainty surrounding the overall gravity of the COVID-19 crisis. Investors saw the measures not as a stimulus, but rather a form of life-support for an economy that is likely to be critically ill. It created panic rather than confidence.
Again, the stimulus package for business and the self-employed is a necessity, the needs of those hardest hit by the pandemic must be met. Small businesses like barbershops, independent restaurants, bars and other cannot be held to account for circumstances that are out of their control. Equally for the self-employed, many of whom may desire to work but are unable given the current restrictions. Temporary financial support must be delivered quickly and effectively in these cases.
However, it is the course of macroeconomic recovery that remains a challenge – one that will likely affect all of us to varying degrees. Ian Stewart, Chief Economist at Deloitte warns that, “In the coming months, government spending will be the prop holding up economies across the West. Tax revenues will plummet. Levels of public debt seem likely to rise above the peaks seen during the financial crisis.”
The challenge we are faced with is two-fold: First, ensuring that the COVID19 virus is contained, or an adequate cure is found. And second, implementing a fiscal policy that is focused on medium to long-term growth. One that promotes spending but protects savers and the principle of saving. Therefore, low interest rates should only be kept in place for the absolute minimum that is necessary to return the economy to its pre-crisis state, no longer.
On a final note the impact on lives is disheartening. Sadly, too many will go before their time. Yet the challenge that COVID-19 poses should also prompt us to change. It should mobilise us to develop far greater international coordination on disease control and prevention.
COVID-19 has stopped the world in its tracks, yet a crisis is also a chance for new opportunities. To redeem this current predicament, the UK should start by promoting a renewed socio-economic model. One where the natural functions of the marketplace work (as they were originally intended), in tandem with a moral conscience for the development of a free and virtuous society.
Andrei E. Rogobete is the Associate Director of the Centre for Enterprise, Markets & Ethics. For more information about Andrei please click here.