COVID-19 has dramatically altered the way we live our lives, and history has shown that pandemics can cause serious economic downturns as well. Business leaders and policy-makers should look to the past for insights on the behaviour of the economy during and after previous epidemics or financial crises in order to develop successful mitigation and recovery policies today.
A number of studies and research reports have identified key considerations:
• A report from the NBER (National Bureau of Economic Research) examines the effects of infection-containment policies of the pandemic of 1918-20 on the economy at the time. Researchers concluded that abandoning containment policies prematurely leads to an initial economic recovery, but the resulting rise in infection rates then causes a new, more problematic recession.
• As well, in a 2010 paper examining the parallels between the stock-market crash of 1929 and the economic crisis of 2008, the NBER found that the public policies implemented afterward determined how well, and how quickly, the economies recovered.
• Another analysis of the 1918 pandemic, prepared by the SSRN (formerly the Social Science Research Network), looked at the role of finances and the banking system in mitigating the severity of the decline in both the supply- and demand-side channels.
• In a 2007 report, the Federal Reserve Bank of St. Louis concluded that the economic effects of pandemics were short-term, and the impact of economic disruption to businesses varied depending on industry. Service-industry businesses suffered, for example, while those specializing in healthcare products experienced an increase in revenues.
• The Economic Innovation Group studied the impact of the 2009 recession on start-ups and SMEs, and came to three conclusions: 1) the start-up rate never recovered; 2) new bank formations never recovered; and 3) small-business lending never recovered.
• In a 2010 report, the Harvard Business Review researched the recovery strategies of businesses that successfully survived the 2007-09 recession, and found those that emerged from the crisis best made operational improvements, reduced costs, and boosted efficiency.
Those [businesses] that emerged from the crisis best were those that made operational improvements and reduced costs selectively to boost efficiency.”
So, what’s needed for businesses to survive, and thrive, amid the COVID-19 pandemic and beyond?
1. Comprehensive strategies.
Large interventions, rather than piecemeal approaches, make a difference, especially when endowed with maximum resources and innovative policy solutions. This is critical in order to maintain the living standard of affected populations and spur demand-led recovery.
2. Targeted approach to labour.
Specific segments of the labour force are hit harder than others and require attention — namely, youth, and those over 55 years of age. It’s also important to scale up policies to provide more jobseekers with the employment assistance they require. Core job search assistance should be maintained through the downturn, along with a greater emphasis on training, hiring subsidies, public-sector job creation and other forms of subsidized work experience. Policies that support skills development and entrepreneurship also cushion the impact of unemployment.
3. Assistance for SMEs.
Small and medium-size businesses are key generators of employment and income, and are drivers of innovation and growth. Maintaining momentum for their operations in the face of crisis is crucial. Policy measures supporting sales, preventing depletion of working capital, and enhancing access to finance are key, especially during periods of instability. Also, assistance should be provided to SMEs through investment grants and credits, accelerated depreciation, and R&D financing.
4. Social protection.
Social protection systems and public infrastructures for social services increase resilience, allowing societies to cope with emergencies and mitigating the impact of possible future crises. Effective and efficient social security systems are powerful economic and social stabilizers of economies and societies, especially if they are already in place before a crisis hits. A lack of social protection measures in the context of health epidemics aggravates poverty, unemployment and insecurity, leading to a vicious circle of even greater fragility.
Preparedness at all levels is essential: in mitigating the impact of economic crises; for increasing resilience; and in protecting jobs, enterprises, and livelihoods. Drawing on previous epidemics, business continuity planning can promote business sustainability by: identifying and managing risks; understanding business priorities, key products and services; establishing response plans; and taking action to minimize the impact.
Mitacs can assist businesses in overcoming many of their innovation challenges by leveraging our academic and industry networks to create cost-effective research collaborations. This allows companies to access skilled researcher talent at post-secondary institutions (from Canada and abroad), who can help fuel — and commercialize — the innovation needed to facilitate growth.