As the COVID-19 crisis continues to devastate lives and livelihoods, policy makers are challenged to emerge from it in a way that lays a foundation for a strong, healthy economy in the long run. The scale of the economic challenge created by the pandemic has not been faced in nearly a century, and the impacts across employment and productivity are at levels rarely seen.
Governments need to turn their attention to reimagining a stronger economic future by very deliberately addressing the vulnerabilities the crisis has exposed. National monetary, fiscal, and other policy decisions will provide large-scale boosts to aggregate supply and demand and will help create the conditions for renewed economic growth.
Identifying where the COVID-19 crisis has caused the most economic damage
The first step toward reimagining a more resilient economic future is to understand how and where the pandemic has most damaged the economy.
- The pandemic has attacked the economically vulnerable, much like it has attacked those with preexisting health vulnerabilities.
The COVID-19 pandemic is a major threat to their personal financial situations, with many living from day to day and having to turn to unemployment assistance and food banks.
- Small and medium-size enterprises (SMEs), are the lifeblood of employment growth. The COVID-19 crisis has put particular strain on this segment. SMEs have fewer cash reserves to maintain employee salaries when shocks occur and have more trouble navigating and accessing channels of aid. Absent of any intervention, 25 to 36 percent of the businesses were at risk of closing permanently because of disruption from the first four months of the pandemic.
By contrast, tech-company stocks have soared, up almost 20 percent since the start of 2020 versus a less than 1 percent increase in the S&P 500 index over the same period.
- The pandemic presents new challenges to innovation ecosystems, since history suggests that venture-capital (VC) firms may be less likely to raise new funds and start-ups less likely to receive funding in such circumstances. Research on Organisation for Economic Co-operation and Development countries suggests that governments that are innovation leaders increase public spending during recessions whereas innovation laggards cut back.
- Accommodation and food service, retail, and manufacturing are experiencing the greatest economic impacts from the COVID-19 crisis. How can counties, towns and cities reimagine their least resilient and productive sectors while also diversifying into more resilient and productive sectors?
- Seemingly overnight, access to digital infrastructure became a basic requirement for doing business in the face of the pandemic. Yet the variations in access across communities are still stark.
Millions of households lack access to reliable, affordable, high-speed internet, and 80 percent of those households are in rural areas. As technological innovation continues and accelerates, the expectation of digital access as the key means of doing business is only expected to continue.
The COVID-19 crisis has exacerbated existing divides, cut into the productive potential of the most vulnerable segments of the working population, slowed the pace of productivity enhancements and limited the diffusion of their benefits, highlighted constraints in provision of essential digital infrastructure, and exposed opportunities of the future as open questions.
The stakes are high for government and local council leaders to get it right as they reimagine the economy.
Implementing new ways of organization to enable changes
The scope of the challenge in reimagining the UK’s economic future is daunting, but the stakes have never been higher. Governments could consider adopting new ways of working and organising, such as the following:
Within government, the treasury department alone can deliver growth. Leaders will need to convene a broad-based group that cuts across economic development, treasury and budget, transportation, energy, higher education and other departments.
Beyond government, a broad-based, multisector task force, including private and not-for-profit leaders, can be built to maximise the number of ideas from all sectors of the economy, secure buy-in, and ensure that all expertise and implementation resources are brought to bear.
Policy makers could consider helping communities identify with, advocate for, and lead the work to bring in more sustained long-term investment. As an example of broad civic engagement, the Netherlands launched the Voor je Buurt (For Your Neighborhood) platform in 2013 to crowdsource and crowdfund civic projects; it has been implemented in more than 40 cities and provinces.
It is critical to maintain discipline, energy, focus, and momentum throughout a multiyear period. Each initiative will need metrics, targets, milestones, and owners. Outcome metrics and targets should be identified in some long-term, measurable performance areas, such as GDP, productivity, median income, improvements in income for underrepresented groups, income distribution more broadly, VC investment, and number of businesses started. Metrics and targets should also be identified for some short-term areas, such as consumer spending and job placement.
The current crisis provides an opportunity to reevaluate traditional metrics of success, such as by giving greater consideration to the quality of new jobs, in addition to their number. Some novel approaches pointing the way include new models being embraced in the Netherlands, New Zealand and South Africa.
The individual resilience of businesses and workers during the unique and devastating COVID-19 crisis has been inspiring. To help efforts add up to more than the sum of their parts and to have flexibility and resilience in the long run, leaders in government and across sectors can take advantage of a major opportunity—one that is unprecedented in recent years and could serve them well in this crisis and in future crises. That opportunity is to reimagine not just their economies but also how they could work together to become far more than just the sum of their own parts.