Coronavirus

Lockdown: best intentions, worst outcomes

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While there has been a broadly similar reaction from nation states to the COVID-19 panic, one that has seen vast swathes of the global population put under a form of house arrest, the path taken to remedy the economic harm that this policy has created is far more varied from country to country.

The UK, for example, has taken the dramatic step of directly paying individuals through its furlough scheme. A decision that has already resulted in the state paying for over 50% of adults. A remarkable situation, and while being generous and justifiable, it may become a policy that is ultimately remembered for the unintended long term damage that it inflicted on the economy. 

There are already worrying signs that this scheme is placating the ambitions of private sector employees. At the start of May, a poll conducted by YouGov of 3152 adults found that 46% wanted the lockdown to continue, and following the announcement of the gradual easing of the measures, a further YouGov poll found that 43% of adults opposed the loosening of restrictions. 

This is cause for concern, and somewhat counter-intuitive, especially as it becomes apparent that the NHS has not, and will not, be overwhelmed and that the virus itself does not present a dramatic danger to large swathes of the working population. Given this current backdrop, you may have expected the majority of private sector workers to be keen to get back to work, protect their jobs and the companies that pay their salaries.

Surprisingly, this has not been the case and so an important question has to be asked. Why are so many people viewing the low risk of infection as a greater risk than the economic damage and insecurity that stems from the hibernation of the economy?

One explanation could be that the generosity of the furlough scheme has given people a false sense of security. By taking over the payroll of the nation, and accepting the associated plaudits and praise, the chancellor has also removed the connection between employer and employee and most importantly removed the responsibility of employers to employees.  

As a result, it seems that the British workforce is not overly worried about the damage that the lockdown policies are having on the economy, as if their jobs are lost, they seem to believe that the government will cover their wages. And to be fair, as the government bailed out the entire banking sector during the last significant crisis, it is not hard to imagine that people would assume this type of generosity would extend to them during this crisis.

Unfortunately, this is not possible, and the warmth of feeling towards Rishi Sunak will quickly turn frosty, when it becomes apparent that this new status quo is not sustainable.

It did not need to be like this, there was the ability to provide a furlough scheme that would not have created such a disconnect between the employers and their employees. In Singapore, the economic reaction to their version of the lockdown, known as the ‘Circuit Breaker’, has been to offer similar support, but crucially this help has been directed to the companies not the employees.

Over the past two months, 75% of wages of up to $4600 per month has been covered by the state, with further support committed over the following seven months, at different levels depending on the industry.  This payment has been given directly to the employers after each month’s salary payment to their employees. A process that has placed the responsibility on the employer to keep their staff employed during this period of uncertainty. This ensures staff are able to still work and be productive, rather than being paid to do nothing at home.

It also enables policy makers to have a clear understanding of how the employment market will emerge from this crisis. Unlike the UK system, where it is hard to know whether people are on furlough from jobs that no longer exist, Singapore policy makers can make more informed observations on their own jobs market, as they have supported companies to keep their staff actively employed. 

While the difference between these two approaches are subtle, the outcomes will be significantly different. Singapore, like much of Asia, where the social contract between the government and the population does not include large programmes of state aid paid directly to their voters, has supported its economy through directly rewarding positive hiring practices from the companies that make up their economy. The UK, on the other hand has seen the government replace those companies and become the economy itself, something that should concern everybody. 

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