Wanted: a plan to bring us back from the abyss

Doomsayers predict disaster, but what if they’re proved wrong?

‘We must plan to be the best in an emerging world’

Pessimism about the global economic situation may blind us to the need for hope as we face into the future, writes Conor Skehan

THE media seems to be full of practitioners of the dismal science who are busy predicting how badly the world’s economy will fare in the aftermath of Covid-19. You will find some of them in this paper today. What happens if they are wrong? Does anybody have a plan for success? Does anybody have a plan to accommodate a rapid recovery?

If there is any relevant lesson from history, it is surely the resilience and adaptability of humans in the face of adversity. A famous quotation from 1966 about economists’ forecasts noted that “Wall Street indices predicted nine out of the last five recessions”.

By all means, be prudent and plan for scenarios of severe, deep and protracted economic contraction, but somebody, somewhere also needs to make a plan to take advantage of the opposite if that happens.

Planning for economic activity, especially for jobs, is always difficult for governments — who like to claim credit for all employment growth — even though no government in history has ever ‘created’ a job. Government economic interventions create the conditions for job creation. Advice about this usually has an excessively technical focus — such as interest rates and bank rules.

But the other core contribution that governments can provide, is confidence and encouragement of what the economist John Keynes called the “animal spirits” that drive the economy. It is this activity that needs to lie at the heart of the earliest steps to restart the economy.

The outline of the likely challenges are already becoming clear. They will be economic as well as political.

And then there is Brexit — for which all remaining patience and forbearance will soon evaporate, leaving Ireland with the very real prospect of trying to recover in the headwind of a hard Brexit.

Internationally, there are already huge losses of jobs and company value in a range of sectors.

In Ireland, it will particularly affect sectors that are major employers of lessskilled workers in the high street, especially hospitality and retail sectors. Our larger knowledge-based manufacturing and service sectors appear to be much less likely to be adversely affected, compared to domestic consumer activity.

Our restart plans need to begin with the areas that will affect the most people in the most visible way — starting with retail, hospitality and small-scale construction, keeping money in circulation at street level.

In reimagining our future, it will also be important to understand and sustain the role of important, but less visible sectors — such as non-profit services that have an annual aggregate turnover on excess of €14bn, employing 165,000 people. These sustain the sinews of society by providing education, healthcare, culture, housing, international aid, local development and social care. These are the types of sectors, often overlooked by economists, that increase social capital, while also improving quality of life — that core success factor for sustaining international competitiveness.

A plan to restart the economy will need to have two parts. The plan will need to begin by recognising that this was a government-led closedown — which means that the opening-up will also need to be led by the State. The published roadmap fulfills its role perfectly. Now we need a plan to reinflate, not just restart. We need to give consumers and businesses the confidence to borrow and spend. We need businesses to rehire and invest.

In the short term, the best way to help will be government leadership. They have already helped enormously by the provision of a roadmap full of the specific steps and dates that are so crucial for planning. The Taoiseach’s roadmap speech painted a specific word picture by simply saying “some summer night, we will see our friends again”. Much more of this will be needed to overcome one of the biggest aftermaths of this crisis. Fear.

Above all else, it will be our hearts that will need a plan — before any business plan can hope to succeed. We need a government to tell stories and paint pictures for us about what is possible. The next phase of leadership needs to give people encouragement to be unafraid to spend savings on holidays, house extensions and treats — God knows we’ve all earned these.

While this first phase may sound frivolous, it contains a more serious purpose, namely to stimulate the restart of consumer spending to create short-term economic activity. In the short term, each of us needs encouragement to do what currently seems most reckless, namely to spend savings, buy more and borrow. This will be the crucial spending that will start the circulation of money again in the near-term.

The next phase will be to provide structures to readjust to a new international economy that will place even more emphasis on technology and services. These are already Ireland’s strengths. In all of this gloom, it is important to remember that Ireland’s mix of economic activities is being less affected than many other countries. Our main sectors remain strong — pharma earns €60bn, employing 50,000, while the ICT sector earns €35bn, employing 37,000. Software earns €16bn, employing 20,000, while Med-tech earns over €9bn, employing a further 25,000.

These figures don’t even include our financial services or food industries. These high-value, low-volume products will be less affected in a world of restricted international travel.

Furthermore, the continued lowering of energy costs will continue to feed into improved competitiveness.

In the short term, there is significant potential to increase linkages between what we already have. One of the easiest and least expensive ways to grow an economy is to improve connections within our existing businesses by increasing suppliers into and between the businesses that we already have.

Predicted problems are just that — problems. Yes, it will be a problem to restructure workplaces and to adapt to new social behaviour patterns. Yes, the high street will be very different. Yes these will need changes, but communities, businesses and government always find ‘work-arounds’ for problems. Then what? What is our plan to recover first, then thrive, in this new world? We need to plan to be the best in an emerging world that will be new and difficult for every nation.

Restarting the economy after the roadmap must become an urgent priority. The current vision — based on programme-for-government platitudes about climate, energy and housing are suddenly completely irrelevant. It is a plan to fight the last war.

Worse, they will lose the advantage of new opportunities, innovation and cheaper energy, while misdirecting investment into non-productive sectors that will not pay taxes — starting a spiral of increasing personal taxation and diminishing international competitiveness.

At the very least, we need a plan that prepares for the type of ‘best-case-scenario’ outlined here. We need a plan to get back to the future. The pessimists, who are the majority, may be right. But if they are wrong will we have a plan for success? Failing to plan for success is planning to fail at succeeding.