Pandemic has opened a vast policy vacuum

The acclaimed economist John Kenneth Galbraith once remarked that, “the only function of economic forecasting is to make astrology look respectable.” It is not clear how many tarot card readers predicted this pandemic, but there is no denying that policymakers were on the back foot given that the associated economic shock was not caused by market or regulatory failures.

Instead, responsibility for a deficit amounting to 6.5 per cent of Ireland’s gross domestic product (GDP) lies at the door of an unwelcome guest, a borderless virus wreaking havoc. Unlike the international financial crisis of 2008-2009, the cause of the current crisis is not irresponsible corporate risk-taking but a global health pandemic.

Nothing is worse for commercial life than uncertainty

This time around the cure for companies will not be found in changing board culture so as to inculcate long-termism and drive out irresponsible pursuit of short-term gains. Nor will it be found in beefing up regulation and enforcement. That said, companies who learned the financial crisis lesson of taking a prudent long-term approach to building solid shareholder value, and who recalibrated executive pay to link it to performance, are likely to have been in a more robust position going into this economic shake-up.

Nothing is worse for commercial life than uncertainty. Having a known set of clear rules to work with is always better than none. Covid-19 calls for responsive regulation. Reflecting that, policymaking in the short and medium term needs to be adaptable as conditions change. As highlighted in the policy report published this week by the Covid-19 Legal Observatory at the School of Law in Trinity College, there is, for example, a clear policy need for the introduction of a code dealing with the handling of mortgage arrears on commercial premises to assist with fair arrears management both during and in the aftermath of the pandemic.

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Resilience and longevity

Ordinarily, in devising rules and regulations for business, policymakers aim for those rules to have a certain amount of resilience and longevity as well as flexibility while meeting defined regulatory goals. However, where the market conditions are very complex or fast evolving, there is often a “wait and see” stance by regulators to buy time to study the market and see what policies are needed, rather than rushing in.

This is seen in Ireland, for example, in relation to observing financial technology (fintech) markets as they develop before determining a bespoke regulatory strategy. However, regulatory rules of thumb go out the window in the unprecedented emergency presented by Covid-19 which opened a vast policy vacuum. Speed to act becomes a major driver. Long-drawn out consultation, drafting processes and impact assessments have to be sacrificed for a workable model that provides some level of certainty and comfort. That said, transparency and privacy obligations do still apply to State actors. Furthermore, there must be a clear distinction between floodlighting a non-binding preferred behavioural choice versus a mandatory legal obligation.

In some instances the pandemic is forcing societal attention on notions of fairness in the fiscal and regulatory landscape. Requiring firms accessing the wage subsidy scheme to retain their employees on the payroll was a smart regulatory manoeuvre. Making State support to companies conditional upon keeping employees “on the books” acts as a lever towards a corporate purpose beyond simple profit maximisation, namely to treat employment as both a private and a public good.

Having done the sums on both financial and human costs many businesses have understandably opted not to open their doors during the Level 3 pre-Christmas period

The pandemic has also put the imbalance of power in insurance relationships under scrutiny. Some years back, Mr Justice Bryan McMahon tellingly wrote in a High Court judgment that insurance is “not a charter for indolent insurers”. This year there has been a pushback against insurers’ refusal of Covid-related business disruption insurance and the Central Bank has shown leadership on best practice for the insurance industry. Looking down the line, policy consideration ought to be given to the establishment of a State-backed insurance fund to cover pandemics. This would have the beneficial effect of eliminating disputes concerning the ability of businesses to claim for loss of profits for pandemic-related business disruption.

The “restart week” payments announced by Minister for Finance Paschal Donohoe to top up the Covid Restrictions Support Scheme should provide an additional boost to businesses as they recommence trading. However, there is no denying that Irish businesses are facing into a woefully uncertain trading outlook.

Health restrictions

Moreover, there are real costs associated with negotiating rapidly fluctuating rules of engagement. Shifting Covid-related public health restrictions are incredibly disruptive for management forced to devote huge amounts of time to planning. This planning exercise is both very complex and frustratingly micro-short-term in application. A simple equation arises here. Are the costs worth the benefits? Having done the sums on both financial and human costs many businesses have understandably opted not to open their doors during the Level 3 pre-Christmas period.

More than €25 billion has been spent by the State this year on Covid-19 fiscal supports for households and businesses. Provision by the State of financial cushioning in Budget 2021 is designed to ward off greater economic decline and to hasten post-vaccine recovery. The planned exceptional €3.4 billion recovery fund is calibrated to be suitably flexible as to how it will be wielded. Although welcome, arrival of a vaccine is unlikely to provide an immediate panacea for economic distress experienced by businesses. The Government needs to be sensitive to this in relation to withdrawing the lifeline provided by supports in place to avoid precipitating a crisis in corporate and personal insolvencies.

Deirdre Ahern is an associate professor at the School of Law, Trinity College Dublin. She is the co-editor, with Dr Suryapratim Roy, of the Trinity College Covid-19 Legal Observatory’s report Law and Policy Responses to Covid-19 in Ireland: Supporting Individuals, Communities, Businesses and the Economy.