“The most important thing now is to save workplaces”
How should we handle the economic effects of the crisis? Demand has collapsed in many industries as a result of the novel coronavirus. Focused initiatives are required to save troubled companies, so that there are jobs to return to when the pandemic is over. This is according to economist Nils Gottfries.
at Uppsala University,
It is difficult to find past economic crises that are comparable to the one we are currently experiencing. Nils Gottfries, professor emeritus in economics at Uppsala University, compares the situation to the global financial crisis 2008–2009.
“During the financial crisis, primarily manufacturing companies took the greatest hit. GDP fell by five per cent and companies within the manufacturing industry saw demand fall by up to 30 per cent.”
This time the crisis is hitting companies across a wide range of industries: everything from restaurants, travel companies and theatres to suppliers of the vehicle industry.
“The biggest economic problem I see is the risk that we lose a large number of companies, small and large, that are important for our prosperity. That’s why it is even more important to save companies than it is to maintain the incomes of individuals,” says Nils Gottfries who is concerned this could cause unemployment may skyrocket.
Lost all revenues
“If lots of companies are eliminated, those jobs go with them. It takes time to build up new companies and for them to hire people. It takes several years. During that time, we risk having high unemployment. So we have to save workplaces.”
Many companies have lost practically all of their revenues in a very short period of time. The government has taken several initiatives to help them. Nils Gottfries is particularly impressed with the short-term furloughs.
“I think short-term furloughs are a very good measure. They help those companies hit hard by immediately removing half of their salary costs. If an employee goes down to 60 per cent work time, that reduces salary costs by half for the company. That’s a well aimed measure intended for companies that risk going bankrupt.”
He would now like to see additional similar initiatives.
Reduce salaries
“The proposed short-term furloughs are not enough. If a company completely lacks revenues, it needs to furlough a 100 per cent. If you don’t have any revenues at all, it isn’t enough to reduce salary costs to 50 per cent. It’s still too much.”
Some companies have temporarily reduced their employees’ salaries. For companies facing bankruptcy, that could be part of the solution, according to Nils Gottfries.
“I think you have to accept that these employees have to take some of the costs when these types of furloughs occur. Employees have to accept temporary salary reductions.”
At the same time, he raises a warning flag for general stops to salary increases or general salary reductions. That’s something that the labour market parties have to consider when they resume the delayed collective agreement negotiations.
Risk of deflation
“That wouldn’t be good since both salaries and prices would increase too slowly. Then we’d end up with deflation. Since the Riksbank already has zero interest, it can’t lower its interest much more and increase the real rate of interest, that is interest minus inflation. Higher real financing costs are not good for companies.”
Closed border are also something he doesn’t want to see.
“Over time it is very damaging with closed borders since the economies are interlinked. We don’t need to move just goods, but also people like consultants and experts who need to be able to move about to keep production going. Closed borders are very costly.”
Helicopter money to adults
There are many examples of initiatives that have been taken to support bleeding economies. In Hong Kong and the U.S., money has been distributed to adult citizens, known as helicopter money.
“In general, I am very negative about cash injections like helicopter money. It is completely pointless and not aimed at the companies that are in desperate need of capital to survived.”
The speed with which the economy will recover after the crisis depends, according to Nils Gottfries, on how well companies have managed.
“Once the epidemic is over, the recovery will be quick, but the risk is that we have lost a large number of valuable companies and that will lower employment and incomes until we get new companies. It is all these small and large companies with unique skills and expertise that are the basis of our prosperity.”
Åsa Malmberg