#BusinessBrief: Why business matters (even more than we think)

Small business and entrepreneurs have been hard-hit by the Covid-19 pandemic and lockdown of the economy. They have suffered a supply-side shock and a contraction of demand. When firms have to close, workers lose their jobs and incomes. The plight of restaurants and the broader tourism sector has been in the news this week. It is obvious that business matters for livelihoods, but I want to argue that it matters as part of the even bigger picture. Small businesses tend to pay a bigger share of their income as wages. Small businesses are innovators. Small businesses are place-makers. Small businesses are ladders for social mobility. Yet, there are a number of challenges to long-term, sustainable recovery, and I want to highlight three:

  1. Entrepreneurs need support in the face of a large decline in consumer demand. Yet governments find it difficult to target assistance to firms who need it most. Well-intended funding to large incumbent corporations will over the long term stifle entrepreneurship.
  2. Start-ups, in particular, need support. The pandemic has highlighted inequality and will increase it further. A high level of inequality is bad for entrepreneurship and innovation – it affects the size of the market and entrepreneurial opportunities. It is associated with uncertainty and instability that limits investment.
  3. The economic losses of the pandemic disproportionally affect young people. Younger entrepreneurs are more likely to fail: they lack knowledge and experience, they have less collateral, the have greater obstacles to access finance.

The best outcome now will be for lockdown measures to be ended and for all businesses to resume as before the outbreak of the pandemic. Looking ahead at second waves and flare-ups of infections, the “management” of the response should be decentralised and outsourced to all of us.

To do this, we need better information at the local level. If a business knows what is happening in its community, it can respond appropriately in terms of work-from-home arrangements, physical distancing in the plant or at the shop, restricting own travel, evaluating the supply chain, and communicating with everyone. Similarly, customers will know when it is best to self-isolate or order online, and when to go and eat out.

Whatever support can still be given in terms of extensions to repayments, or access to liquidity should be focussed on small firms, start-up firms, and young firms. If you as a customer can still support such a local business, please do it.

The big danger is that the pandemic leaves us in a world with more centralised and bigger government, who are in a pact with big corporations, while growth stagnates, inequality increase and zero-sum politics put democracy is under pressure.


Hat tip: The 5-D’s of a long-term, sustainable recovery, by Prof Wim Naudé

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