07 Oct 2020
By Stuart Patrick, Chief Executive of Glasgow Chamber of Commerce
Amongst the more irritating claims made during the Covid-19 crisis is the view that the time has come to stop government support of some businesses because we need to reallocate resources to more productive segments of the economy.
An example is Dame DeAnne Julius, formerly of the Bank of England’s Monetary Policy Committee, who cited British Leyland as a historical example of misguided government intervention to support failing industry.
She called instead for encouragement for “private capital and labour to move to new and growing sectors through the unfortunately named process of ‘creative destruction’” – as described by political economist Joseph Schumpeter.
A glance at furloughing figures tells us what that would mean in practice. Of the 736,000 people being funded in Scotland through the job retention scheme at its peak, more than 324,000 were in accommodation and food services, arts, entertainment and retail.
Are we seriously suggesting a substantial share of our massive consumer services industry should be shut down, packed away and replaced with ... what?
You will be hard-pushed to find an organisation more enthusiastic than Glasgow Chamber of Commerce about the free market flows of capital, skills and trade – but bars, restaurants, cinemas, theatres and tourism businesses are not in trouble because of changing market forces. They are struggling as a result of government intervention to tackle the pandemic.
This week’s decision by Cineworld to mothball its UK cinemas and put 5,500 jobs in doubt shows how difficult it has been for businesses in consumer services to work within the current social distancing constraints.
The hospitality sector is struggling with a constantly shifting kaleidoscope of regulations and local lockdowns and must be desperately fearing the prospect of an imminent "circuit breaker" closure with customer confidence undermined, more fresh stock lost and a further blow to seriously stretched cash flow.
The Chancellor chose to ignore the more fundamentalist view on government funding and will introduce the job support scheme in November. While it is to be welcomed, the scheme is at the more cautious end of the spectrum, supporting just a third of the cost of hours that staff are not working so long as staff are working at least one-third of their normal hours.
The ask of businesses to pay a third to staff for unworked hours may be a step too far for many smaller businesses with very little spare cash in reserve. It also leaves businesses unsupported that are not allowed to open and, incidentally, makes it much more difficult for the Scottish Government to order the closure of hospitality businesses in the weeks ahead without a drastic impact on unemployment.
Tim Allan, president of the Scottish Chambers of Commerce, argued “we simply cannot continue to keep switching the lights of the economy on and off. It risks not just jobs but the well-being of entire communities”.
Approaching seven months into this crisis should we not be getting closer to a more economically sustainable strategy for managing recurring outbreaks? Wasn’t Test and Trace going to be a substantial part of that strategy?
Businesses are desperate to know how to plan for the future with some indication of when that sustainable strategy is coming.
Intermittently and directly closing large parts of our consumption economy without effective business support in place does not feel like the "creative destruction" process Schumpeter described.
It is far too early to be jumping to conclusions about the long-term viability of the consumption economy and, like Dame DeAnne, accepting the closure of thousands of businesses that were perfectly successful before the crisis and, with a clearer plan, can be again.
This article was first published in the Herald Scotland on 7 October 2020.
