I’m not going to argue the merits or otherwise of the New Zealand Government’s decision to enforce a lock-down and close all non essential businesses. That decision has been made, and our best option as a nation now is to apply it as stringently as possible so that we get on top of the virus’s spread and ensure an extension is not needed. As a former SME owner that went through virtually every type of adverse circumstance other than a natural disaster or pandemic, I have strong empathy for SME owners at the moment. There will be few things as lonely at the moment. Also, currently working as a supermarket employee and having being made redundant as an employee during the GFC, followed by a year of study and two years of unemployment running down my savings, I have just as much empathy for workers and contractors laid off or about to be laid off by this crisis, which looks to surpass the GFC in its short term and long term economic repercussions.
I’ll put it bluntly. Leaving aside the deeper pockets of corporate entities, New Zealand is primarily a nation of Small to Medium Enterprises. They have to be allowed to shed staff to survive. Wage subsidies are going to be no more than a temporary band aid to many of them. Wages are usually the biggest overhead but not the only significant one. Each week/month they will also be facing rent, equipment & vehicle finance, tax and creditors for their material supplies.
This will be offset by debtors, customers who owe them money. If they are business to business, they will have terms of trade somewhere between 30 and 90 days. From the day the lock-down commenced and their business ceased, they will have to wait 2-3 months at best for payment for the work they have already done. Some of their customers will go out of business and default. Some will stretch payment past 90 days into the never never. Banks are right now being asked to extend overdrafts or loans to cover. Depending on the risk, they may be denied. Many will have finance secured by their family home or a personal guarantee, and there will be stressful discussions between owners and their spouses about how far they go in risking the bedrock of their security. They will be talking to their landlords who also likely have finance. They are trying to determine even if they keep the payments to everyone going for the lock-down, will they still have enough customers moving forward to be viable. The option of selling the business at even 20c on the dollar is now moot. The stress and uncertainty will be crushing. For many of them, everything they have worked for and their family owns is on the line right now.
For employees the situation is also fraught. Many will be acutely aware how precarious their company’s situation and their job is. They are looking at their workmates and doing mental calculations about relative abilities. They are angsting about how they will pay their own rent or mortgage if they are made redundant, what opportunities will be available in a shrinking job market. Those in longstanding corporate jobs may take substantial redundancy packages but these are rarely available to SME employees who generally will be looking at a month or so.
So what needs to happen to achieve the least destructive outcome for all and keep the economy moving?
Firstly there needs to be a residential and commercial/industrial rent and mortgage freeze for 3 months. The only losers from this will be the banks and finance companies who will miss out on the interest component. Taking what is probably a business’s second largest overhead out of the equation lets them direct more money to wages and salaries. It also relieves both employers and employees of the stress of worrying about a roof over their heads.
Secondly the Government should look at suspending GST payments for a few months. They don’t need the money to spend and business’s and their employees do.
Thirdly there needs to be an acceptance that not all businesses will survive and not all jobs will be saved. Some businesses were marginal before the virus and we are at the tail end of the business cycle. Business is a risky proposition at the best of times requiring perseverance and no small amount of luck sometimes, and while the severity of the downturn is going to be unprecedented, and unforeseen, many businesses will survive, some will adapt and prosper, and new ones will take the place of the fallen. Governments spending money indefinitely to keep zombie businesses alive will only postpone the inevitable.
Fourthly there needs to be a Government Job Guarantee instituted. Private enterprise, especially SME’s, must be allowed to shed as many staff as necessary to survive. No one gains from a business collapsing. Government must step in and be the employer of last resort. I am not talking about the Government permanently employing more staff, although this may be desirable as part of a reorientation towards direct government provision of infrastructure that has previously been subbed out or a massive new state or low income housing programme ie by a reconstituted Ministry of Works.
A Job Guarantee involves the Government paying a minimum wage to anyone, for any reason, for up to 40 hours pw, in their own local area, to work on projects for the public good. You could tie this in with ecological or “green” objectives; riparian planting, native reforestation, landfill remediation, pest eradication. There have been 300 plus journalists laid off by Bauer Media in the last few days. Local newspapers are looking marginal. Public service television is non existent. They could be employed at minimum wage using their skills until entrepreneurs reemploy them in revived or new publications and radio/TV companies start to expand again. Forestry workers planting trees. Musicians performing at schools and other places free of charge for at least part of the week. Artists doing public murals and free art installations. Parents being paid to care give their physically or intellectually disabled children or assist others. Nurse aids, remedial reading, possum trapping, civic beautification…. there are no end of local and regional tasks the temporary or long term unemployed could do. WINZ offices would become job matching centers.
The advantages of the Job Guarantee are numerous:
Although it is paid the minimum wage, it is far more than a benefit. A 2 person household would have a minimum income of over $1200 nett. It stops people falling into absolute poverty and circulates more money through local businesses than benefits.
It would not be dependent on their partners income or subject to claw-backs.
It has no time limit or tests.
It keeps people active and using any skills they have rather than atrophying. Many may even have the opportunity to add to their skill base.
Employers too, rightly or wrongly, prefer to employ from those working than on a benefit.
It is a reciprocal relationship with the state. The right to a job in return for providing labour for the community’s benefit. It would replace the Job Seeker benefit and end involuntary unemployment.
It is not subsidising the private sector to provide temporary employment for private benefit.
It provides a base minimum that private sector employers have to match or better including all statutory holidays, annual leave and sick pay.
It may provide lifetime employment for those who will never find a place in private sector employment for various reasons including disability or mental health.
It could supplement the gig or part time employment allowing a mixture of private sector and Job Guarantee work up to 40 hours pw.
Only the state has the logistical and financial means to do this. It needs to keep on spending until every last person who wants a job, has one, be it in the private sector, public sector, or part of the Job Guarantee. As time goes on and the economy morphs and recovers, more and more people will be offered permanent places in the private and public sectors but the Job Guarantee will always be there as a backstop. The numbers on it will wax and wane with the changing economy. Isn’t this preferable to what we have now where “full employment” is really 300,000 with no or not enough work and multiple generations consigned to subsistence welfare and the flow on personal and social consequences of this?