COVID-19 is a heartlessly protectionist infection that is revealing weaknesses in Australia’s economy that need addressing
The world is awash with money as governments everywhere fire up the printing presses. How well it is targeted will determine whether the aftermath is a debt hangover or an economy with stronger foundations.
According to the latest Roy Morgan figures, more than 60 per cent of all Australian businesses are feeling the effects of the COVID-19 downturn. Some industries, especially tourism and travel, are catastrophically hit. Others are feeling the flow-on effects of reduced demand for their services by the most affected sectors. Eventually almost all businesses will be forced to confront the challenges of the downturn. Redundancies are inevitable.
With the best will in the world, small and medium-sized enterprises without income cannot pay their workers wages, let alone indefinite leave. Large businesses also have finite reserves. Sole traders and casual workers are already finding themselves without an income: they too need help just to make rent and eat.
Stimulus money should help meet those necessaries, but governments also understand the importance of keeping businesses from going under because of forces unrelated to their fundamental viability. When the virus is beaten, they will power the rebound.
Any pandemic-induced shutdown could be used by SMEs to make themselves more efficient in the future, says Small Business Ombudsman Kate Carnell. Roger Stonehouse
The Small Business Ombudsman suggests that the forced downtime will provide businesses with an opportunity to review their use of resources. In good times, poor practices are tolerated, which depress productivity.
Stimulus money targeted to helping businesses become more productive is money well spent. Since money is no object right now, a sensible additional stimulus would help small businesses identify these opportunities. Another productivity measure would be to subsidise training for employees who suddenly have the time to avail themselves of it – online modules are the perfect pastime during self-isolation.
It’s a good plan. But one thing would make it better: if the structure of the tax system allowed the revenue from online app and platform use to be taxed in Australia, delivering tax dollars back into the country that forks out the stimulus. COVID-19 is acting like a truth serum on our economy and revealing weaknesses in the borderless dream that will need to be addressed. Among those with a right to feel vindicated are co-operatives and mutuals, the member-owned businesses that by virtue of their business model have always kept money cycling within the communities they serve.
Skills shortage on the horizon
Other sectors of the economy are also realising that a world globalisation has left them ill-equipped to manage a crisis that has peremptorily snapped the gates shut.
The first of Australia’s “scalable” stimulus acknowledges the importance of building a skilled workforce by subsidising employers to retain apprentices. Businesses will be able to claim 50 per cent of the wage cost of apprentices and trainees already with the business for the next nine months.
While this is widely welcomed by businesses that employ apprentices, the Global Apprenticeship Network Australia notes that COVID-19 will reveal a deeper training-related issue in the Australian economy: for decades businesses have taken the easy way out by hiring skilled workers from overseas rather than taking on the commitment and expense of training up new workers.
But now the borders are suddenly closed, workers will need to be sourced locally. A standard apprenticeship takes three to four years to complete. The ability of the government to stimulate the economy by funding infrastructure projects was already at its limit as wage inflation hit the construction sector. If you thought unions put a crimp on the viability of new projects, wait until you see what a skills shortage can do.
Despite our troubles, Australia can take comfort that, regardless how long the lockdown lasts, we will have enough to eat. Despite runs on supermarkets creating temporary supply chain-driven shortages of the more stodgy and storable foodstuffs, our agriculture sector is strong. The drought has broken. But even before COVID-19, reliable access to working capital had become a problem for farmers. Now we are reminded of the strategic importance of the sector, a solution will need to be found. The farmers need money to plant.
Again, there is no downside to solving the problems that have accrued while we were distracted by financial industry baubles. When the crisis has passed, we will still need to eat and agriculture, as one of Australia’s strongest export industries, will drive the recovery.
COVID-19 is a remorseless protectionist virus. In a matter of weeks it has shut down the liberal world order of decades and proven the nationalists’ claim that, as Yoram Hazony puts it in The Virtue of Nationalism, “the ties of community are deeper than the dispassionate ties of contract”. It is incumbent on each nation to use the opportunity to find the right balance between economically destructive protectionism and the utopian fantasy of a borderless world so that humanity emerges stronger.