Navigating the long road to economic recovery - Fraser of Allander Institute comment

A clear plan is critical to rebuild in the aftermath of Covid-19, according to Graeme Roy, director of the University of Strathclyde’s Fraser of Allander Institute.

Nearly 90 per cent of businesses have seen their turnover affected by the crisis, says Roy. Picture: John Devlin.
Nearly 90 per cent of businesses have seen their turnover affected by the crisis, says Roy. Picture: John Devlin.

Quite rightly, the primary focus of government remains upon supporting us through the immediate health emergency.

Investing in our public health today is an investment in tomorrow’s economic health. If anything, in the coming days we may see restrictions strengthened as cases rise. But the immediate economic cost is huge.

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Our Scottish Business Monitor, published this week in partnership with Addleshaw Goddard, provides an indication of the hardship that many businesses, their owners and employees are now experiencing.

The professor favours a 'phased approach' to rebuilding. Picture: contributed.

A total of 85 per cent of businesses we spoke to now expect growth to be “weak” or “very weak” over the next 12 months, with the expected volume of activity at its lowest level since we launched the survey in 1998.

Nearly 90 per cent of businesses have seen their turnover affected by the crisis. More than 80 per cent have reduced the number of hours staff are working.

Such effects shouldn’t be a surprise given the scale of the shutdown. Indeed, these numbers are a visible demonstration that the measures to slow the spread of the virus through social distancing are being implemented.

The implications, however, are stark. In our survey, 54 per cent of businesses said that they had less than three months to survive at current trading levels. A further 32 per cent said they could survive for just four to six months.

Unprecedented

The government has announced a raft of measures to support the economy. But as the Chancellor acknowledged, even despite these unprecedented measures, “we won’t be able to save every business”.

We are in a sharp recession. Our own analysis suggests that anywhere up to 20 per cent to 25 per cent of Scotland’s economic activity has been mothballed at the current time, with businesses shut down or working at reduced capacity.

Key will be attempting to minimise any “scarring” effects. We know from past recessions that even temporary periods of financial hardship can have long-term implications for individuals, families and communities. Recessions, just like pandemics, come with serious costs for health and wellbeing.

In time, there will need to be frank discussions about what we can learn from the current crisis. But at some point, and when the public health advice says it is appropriate, we must also turn our attention to the practical issue of rebuilding.

The nature of the health crisis is such that any return to “normal” will be slow. There will be many setbacks. Planning out how businesses can start up again, under what conditions, and at what capacity, will take time. Difficult decisions lie ahead for government. So how might these discussions be framed?

Firstly, simply “switching our economy back on” and hoping for the best won’t work. We need a clear plan to support a gradual restart of economic activity, whilst not jeopardising our public health. We need to recognise, too, that all of this will take place under huge levels of uncertainty and a time of stress and anxiety for many.

Secondly, decisions will have to be made about which government support packages can be scaled back and which ones need to be extended. What new measures will be needed to assist the recovery phase, for example, to help kick-start our tourism industry or to rebuild parts of the country disproportionately affected?

Thirdly, the practical issue of gradually unwinding the social distancing restrictions and advice will need to be worked through. At the moment, legal restrictions only force a certain number of businesses to close – such as restaurants, pubs and non-essential retail – with “strict advice” and guidance for everyone else.

Tweaking that advice on a sector-by-sector base would be a start. But the complex nature of supply chains means that it’s impossible to simply switch on one part of the economy and not another.

A phased approach would also make sense. Working with businesses to develop practical rules for the gradual re-starting of operations, including better guidance on social distancing on production lines, processes for staff handover at the end of shifts, and more general health and safety protective measures would be one way forward.

It will be important that any advice seeks to avoid confusion, all the more difficult if advice differs across the UK.

Two important additions. First, public health must be paramount. Second, any discussions about re-starting must be a partnership between business, employees, trade unions, and government.

Of course, none of this will be easy. And it would be wrong to assume that this can be fully planned. Flexibility will be key. One thing we do know is that it will be a long road.

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