Two economists share their views on how the outbreak is affecting B.C., from government support for small business to the timeline for recovery
“I’ve never been in the business of forecasting, but now even less so,” says Iglika Ivanova when asked about the economic impact of the COVID-19 pandemic. “We are going to see a lot of disruption,” adds the Vancouver-based senior economist and public interest researcher with the Canadian Centre for Policy Alternatives.
No doubt. Blanketing the globe with terrifying speed, the virus has infected 400,000 people and killed more than 17,000 as of today. As governments everywhere scramble to keep citizens alive and stave off another Great Depression, what does it all mean for B.C.?
There’s no comparison between the current downturn and what happened in 2008, Ivanova stresses. “It’s not like a normal recession at all, because even in the financial crisis, the layoffs came a lot more gradually in the economy than they are coming today, when everyone has to close their doors,” she says. “A lot of jobs, we know, can’t be done from home. And some of the jobs that can, unfortunately people don’t have the infrastructure.”
The most important thing is to reduce the public health damage as quickly and effectively as possible, says James Brander, a professor in the strategy and business economics division at UBC Sauder School of Business. “I’m not going to go on and on about Donald Trump, but one thing that’s annoying is worrying less about the public health issues than the stock market,” Brander laments. “Which is important, but it’s the public health issue that is first and foremost, and dealing with that might involve some short-term economic pain.”
A licence to print money
On that note, the federal government’s key role is to maintain liquidity so banks don’t go under, Brander says. “Secondly, they need to provide financial support to individuals who lose their jobs,” he adds. “The government needs to provide that safety net and make it clear and unambiguous that the money will be there.”
To make that happen, Ottawa can borrow—and print money via the Bank of Canada. “You don’t like to do so much of that in normal circumstances, but this is not normal,” Brander says of the latter option. “There’s still going to be a lot of economic pain, but I think the government does have the right general strategy.”
Although the provincial government can’t print money, it will need to run a deficit to keep paying for health care and other services while revenue declines, Brander says. And municipal governments? “They’ll just have to do what they can with the resources available to them, and I think they are being reasonable.”
Yesterday, on the heels of the feds’ $82-billion pledge, the B.C. government announced $5 billion in relief for people and businesses affected by COVID-19. Ivanova hopes Victoria will “push the federal government to do more on the areas that fall within federal jurisdiction.”
Because B.C. and Canada have relatively low government debt, they can afford not worry about deficits for now, she says. “The next month or six weeks, it will be very important to be able to roll out the money fast,” Ivanova notes of the federal government. “And that’s one area where nobody’s exactly clear.”
Ivanova, who thinks wage subsidies are the way to go, also worries about Ottawa’s plan to support small businesses. “In other countries, they’ve been tied to keeping employees, or a certain number of employees,” she says of subsidies. But for a business that’s lost 30 or 50 percent of its revenue, the Canadian cap of 10 percent of payroll over a three-month period is too low, Ivanova argues. “If the government doesn’t want to have everyone laid off, they need to think about a larger wage subsidy for smaller businesses—and somehow make sure that it’s tied to not laying people off.”
Health and wealth
Although Brander gives our governments good marks for confronting the economic fallout from COVID-19, he’s less positive about public health. Around the world, the lesson so far is that the best way to deal with the pandemic is by getting ahead of it. In other words, be more like South Korea and less like Italy.
“I think in B.C. and in Canada generally, we’ve been pretty slow on the public health side,” Brander says. “We should have been doing a lot more testing. We probably should have shut things down a bit earlier to delay transmission. I hope it’s not too late at this stage, because we are taking fairly serious action now.”
Then again, most Canadians have been following the rules when it comes to self-isolation and social distancing, Brander concedes. “Even if you get 90-percent compliance, that’s a huge step forward.”
For Ivanova, the crisis is helping expose the gulf between rich and poor in Canada. “We’ve seen all the polls back in the day that told us people were living a paycheque or two paycheques away from not being able to pay rent or pay their bills, and now we’re seeing the impact of that instability and uncertainty.”
COVID-19 has also revealed a gap in the social welfare system, she asserts. With the gig economy now entrenched across the country, relatively few workers have access to employment insurance and paid sick leave. And in Vancouver’s Downtown Eastside, where many residents survive on social assistance that is thousands of dollars below the poverty line, people are seeing their meal support programs disappear as community centres and other municipal services close due to the outbreak.
“You have tent cities,” Ivanova says of the neighbourhood. “Self-isolate—what, in a tent city? It’s scary stuff.”
A speedy recovery?
Although every crisis is different, economists try to identify common features and what we can learn from them, Brander says. In his view, the COVID-19 recovery could be quick—more like the bounce-back from the 2002 tech meltdown than the slow climb out of last decade’s global financial crisis. “This is all just conjecture, but my best reading of the situation is that if the public health issue is resolved reasonably soon, we should get a fairly fast recovery.”
Why? “Because we’re not actually doing any harm so far to underlying productive assets or underlying infrastructure,” Brander says. “A lot of people are getting sick, but the vast majority of them, especially the people who are in their prime working age, will recover.” Likewise, governments have learned how important it is to keep financial institutions in place during a major crisis, Brander adds.
The big question is how soon the disease will start to decline, whether it’s thanks to a vaccine or growing immunity. “Is that going to take a year?” Brander asks. “Is it going to take a year and a half, as some people have suggested? Is it going to take three months? How responsive is this virus to the weather? Those are huge uncertainties.”
The upside of the crisis
Ivanova thinks it’s too early to tell how COVID-19 might change the world. After the global financial crisis, she did a long CBC interview, she recalls. The headline: Is Capitalism Dead? “Everyone thought it was going to radically change how we do things, but it didn’t,” Ivanova says of the 2008-09 market crash. “I wouldn’t make sweeping statements just yet.”
As gloomy as things look right now, Brander sees some lasting changes that could be positive. For example, the crisis is speeding up the shift toward e-commerce. This development could hurt businesses that provide face-to-face services, Brander notes. “But it’s good for people who are doing things in the online world,” he says. “Absolutely that will be a change, but not necessarily a bad change.”
With business meetings now taking place almost entirely online, Brander expects that trend to continue after the crisis. “It’s not good for the airline industry, but it’s actually an efficiency gain—people wasting less time flying, using up less fuel, less pollution.”
Individual behaviour will change, too, Brander predicts. “I think we’ll be more conscious of doing things to reduce transmission of infectious disease, which will probably reduce transmission of flu and colds, which actually has a very positive productivity effect,” he says. “If you’ve got a cold, don’t go to work; work from home. And the institutions will be in place to allow people to work from home much more easily.”