Report: COVID-19 has transformed business support policy objectives

NordenBladet — The amount of business support has multiplied during the COVID-19 pandemic and, at the same time, the policy objectives for business support have completely changed from those applicable in normal times. At the beginning of the crisis, the main aim was to help companies with liquidity problems avoid bankruptcy. In the longer term, financial business support should be directed to the development of business activities.This is the conclusion of the report drawn up by the Research Division on Business Subsidies focusing on the COVID-19 financial support for businesses. The report does not include a detailed assessment of the COVID-19 support, but provides guiding principles for future evaluation by the Research Division. A broader assessment of the support for business development is to be published in spring 2021 as part of the annual report.Support must develop business activities in the long termIn the report, the COVID-19 pandemic is divided into three stages and the focus is on the impact on the economy and businesses. These stages are the partial closure of the economy, the recovery phase and the return to normal conditions.In the early phase of the COVID-19 crisis, the economy partially closed down. Strict restrictive measures quickly weakened companies’ liquidity, but uncertainties about the depth and duration of the crisis restricted companies’ willingness and possibilities for borrowing. This also reduced the effectiveness of guarantees and loans as forms of business support. This speaks in favour of using direct financial support for businesses.In the recovery phase, the role of business support will decrease as the economy returns towards normal conditions. Once companies and their financiers are able to anticipate the future and business risks again, the importance of guarantees and loans as forms of support will increase substantially and the importance of direct support diminish.In the long term, the aim is to reintroduce business support measures that help develop companies and their production rather than maintain the existing business structures and level of employment. Prolonged support periods can maintain business and industry structures that no longer meet demand after the crisis. This increases the risk of companies that are financially less profitable and can only remain in business with the help of financial support that does not encourage them to develop their activities.COVID-19 affects services and private consumptionThe report also compares the COVID-19 crisis with the two previous recession periods which began with the 1990s economic depression and 2008 financial crisis. The findings are very preliminary, as the coronavirus pandemic is still ongoing.The effects of COVID-19 on industrial production seem moderate compared to the financial crisis in particular. The effects of COVID-19 are largely felt by services. Compared to the previous crises, COVID-19 has heavily targeted private consumption, while the impact on investments has been moderate. In terms of the impact on unemployment, the 1990s recession is in a class of its own.Research Division on Business Subsidies will carry out an impact assessment of business development supportAn independent Research Division on Business Subsidies was established in 2019 under the Ministry of Economic Affairs and Employment. It produces information on the development of the business support scheme and promotes high-quality impact assessment and utilisation of research in policy-making and societal discussion. In 2019–2023, the Research Division is chaired by Seija Ilmakunnas (Professor of Practice, University of Jyväskylä). Its members are Minna Martikainen (Professor, Hanken School of Economics), Mikko Puhakka (Professor, University of Oulu), Hannu Salonen (Professor, University of Turku) and Rune Stenbacka (Professor, Hanken School of Economics).In August 2020, the Ministry of Economic Affairs and Employment launched an independent assessment of the business support made available to companies to address the liquidity problems they were experiencing due to the COVID-19 pandemic. The first stage involves assessing the short-term effects of the COVID-19 support.

Source: Valtioneuvosto.fi