Help Business – But do it Right

Facing an unprecedented downturn in work, incomes, and spending, the federal government has rolled out major new support programs to help businesses survive the coronavirus pandemic. This support is essential. But government should learn from past experience, and design those support programs carefully for maximum effect and fairness.

In this commentary, originally published in the Toronto Star, Jim Stanford identifies several best practices in supporting businesses and industries in an economic crisis.

To Help Workers through the COVID-19 Crisis, We Must Help Our Businesses. Here’s How.

In the face of unprecedented lay-offs from the COVID-19 lockdowns, the federal government is quickly shoring up Canada’s income support network. The new Canada Emergency Response Benefit will provide $2000 monthly to those losing work because of the pandemic; other income supplements (like expanded GST and child tax benefits) will also help.

Of course, it’s not enough to support workers after they’ve lost their jobs. It’s also vital to prevent lay-offs in the first place. Like the doctors say, an ounce of prevention is worth a pound of cure. So government is also moving to prevent a tsunami of layoffs that would overwhelm our support systems, and plunge the economy into depression.

Many businesses have seen revenue evaporate virtually overnight: especially in consumer-facing sectors like retail, hospitality, and personal services. Firms in other industries will soon experience spillover losses: logistics and wholesaling, manufacturing, business services, and more. With no customers and no revenue, few have the financial resources to keep workers on staff.

If each business simply disemploys its own workers, however, they collectively make the problem much worse: further shocking consumer confidence and deepening the collapse in spending power. Worse yet, a competent and experienced workforce is the backbone of any business. Desperate companies which toss aside that critical asset, scattering employees into the winds of the coming storm, will lose the capacity to restart production once the health emergency is over.

To prevent this worst-case scenario, government is moving to help companies cross the economic chasm now in front of us. They need cash flow, subsidies, and legal protections to survive the coming months. Then they will need an enormous reconstruction plan – like the Marshall Plan that rebuilt Europe after the Second World War – to kick-start production, once this new war against COVID-19 has been won.

Here are the major elements of a strategy to support businesses and prevent mass lay-offs. The government is already implementing several of these measures, but more will be needed before this crisis is finished:

Support wage payments: Labour is the biggest single cost for most businesses. Ottawa will directly pay 75% of the wages for employees who are kept on payroll, but can’t work due to collapsing demand. (That replaces an earlier plan to offer just a 10% subsidy.) Programs like this are already in place and making a difference in several other countries, including the UK, Denmark, and South Korea.

Procurement: Government can supplement order books for many businesses with its own emergency purchases. For example, Canada’s ingenious manufacturers are already retooling to produce medical supplies and equipment: government should purchase everything they can make.

Defer obligations: Suspending or deferring any regular payments will help businesses survive the lockdown. That includes normal tax installments (Ottawa has now deferred GST and HST installments until June, and business income taxes until September), but should also include business rent and utility payments.

Block creditor actions: No business should have to face creditor actions or liquidation in the next year. This will require provincial governments to suspend normal bankruptcy procedures. Individuals should also be protected from creditor action, foreclosures, or evictions.

Public sector jobs: It goes without saying that no public sector agency should be laying off right now (only adding to the cascade of private sector job losses). To the contrary, the public sector should be hiring – including for health care and social program administration.

Conditionality: There is no point pulling out the stops to support private businesses, if those firms lay off workers anyway. Financial aid must be conditional on continued employment (even if workers aren’t actually working). The bitter lessons of previous bailouts – like General Motors, rescued by Canada in 2009 but then allowed to close plants here – must never be repeated.

Buy equity: For larger or strategic firms, government should convert emergency aid into equity. That will reduce the repayment burden on companies after the crisis, and also give government a stronger hand in guiding post-pandemic reconstruction.

All these measures are unprecedented – and expensive. But money is no barrier: the federal government (in partnership with the Bank of Canada) has unlimited capacity to provide funds to help businesses survive the coming weeks. And once the pandemic has run its course, we can invoke creative strategies to manage the accumulated debt: including deferring, refinancing (at near-zero interest rates), and converting debt to other assets (including money).

We’ve never faced an economic emergency like this one. Both workers, and the businesses they work for, need every dollar of support government can provide. The normal rule book of capitalism has been thrown aside. It’s time for government to jump right in, and guarantee the survival of the industries and firms that will be essential to our prosperity – once we can go back to work.