Winning the peace

This latest report from UK think tank Adam Smith Institute looks at how to unfreeze the economy and unleash British enterprise.

The ASI’s latest paper explores how to safely unfreeze the economy and unleash British enterprise: The protection of public health in response to Covid-19 is raising extraordinary economic challenges. The Government has tried to “freeze” the economy using the Job Retention Scheme, generous business loans, and various handouts. But freezing the economy is the easy part. Just like we have not mastered the second phase in cryogenics — unfreezing a human — we do not know how to successfully unfreeze an economy. Both are complex systems that cannot simply be turned “on” and “off”. The economic scarring has already begun. Thousands of businesses are shutting down, undermining the productive capacity of the economy. There have already been millions of job losses. Many who lose their job during a recession never find one again. Young people who are trying to enter the workforce could experience long-run lost earnings. Freezing the economy has also had extraordinary fiscal costs: increasing government debt by hundreds of billions. While this was justified to prevent a total economic collapse, it is simply unaffordable for these sorts of measures or this level of state expenditure to be maintained. The Government is now loosening the public health restrictions that have undermined economic activity through a phased plan. The focus must now turn to how to successfully unfreeze the British economy. The next stage of the recovery will require a new approach guided by following principles:

Prosperity: The focus must shift from redistributing a shrinking economic pie to expanding the pie by embracing private sector entrepreneurship and innovation, and earned success to get people back to work.

Temporariness: Extraordinary emergency measures to “freeze” the economy that undermine long-run prosperity must not be allowed to become permanent.

Flexibility: Existing ways of thinking will not suffice, it is necessary to be adaptive to circumstance, pursue industry-specific measures and implement radical policies.

Common sense, not micro-management: The state should not seek to micromanage the reopening of the economy, but rather encourage businesses to adapt to new circumstances.

Supporting people, not businesses: Support should be broad-based and focused on helping individuals, not on bailouts to politically favoured companies.

Accepting failure: The economic structure and businesses must adapt to new circumstances; this will mean accepting some previously viable firms are no longer sustainable.

This paper outlines a plan to help reboot the economy in the short to medium term, to “unfreeze” the economy in the least possible damaging way. In practice, this means taking steps to reduce the footprint of the government in the economy, boost employment, reform insolvency arrangements, support hospitality and retail, reduce the tax burden on enterprises, support housing reform, improve accessibility to child care, champion trade and immigration, and back innovative new transport.

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