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Lockdown decision makers still get paid. Those they shut down do not

My colleague, Fintan O’Toole, deems it “breathtaking” that a group of 11 men, and not a single woman, took the decision to lock down.

Of course he is right. Robust decision-making must be representative. None of the decision makers – all public servants or politicians – works in the sectors that they are closing down.

Small businesses live in the world of risk, while public servants live in the world of security. They are chalk and cheese. When it comes to the lockdown, politicians and people in the Civil Service get paid no matter what, but small businesses go bust.

Given the security of the public servant and the precariousness of the small business person’s situation, we can see they have profoundly different reactions to challenges. One individual is protected; the other exposed. One individual knows they will be paid come what may, while the other understands that they may be paid last, if at all.

For one, the lockdown means a new lifestyle; for the other it could mean losing everything.

We are talking about hundreds of thousands of people. Small business in Ireland provides 74 per cent of all the jobs in the “productive sector” of the economy – that is, the part of the economy not dependent on a Government wage. On top of this, another 300,000 people are self-employed.

In the lockdown most of these people don’t have any income and planning for the future is impossible because the immediate concerns of keeping the business afloat are all-consuming.

While we hear quite a bit from big business, small businesses are the backbone of this economy. Small and medium-sized enterprises in Ireland pay 62 per cent of all private-sector wages, 55 per cent of all income tax, 63 per cent of all VAT and 55 per cent of all universal social charges. Small businesses make the country tick. They include manufacturing and tourism outfits, small indigenous tech companies, start-ups, companies in transport, hospitality, entertainment and retail. The so-called non-essentials.

A civil servant has no idea of the day-to-day reality of buying and selling, trying to make profit after costs, trying to juggle precious cash flow, chasing debt, risking everything and knowing that there is no safety net. Simply put, if you don’t have skin in the game, you don’t understand the game.

The men who took the decision to lock down haven’t experienced what it’s like to wake up in the middle of the night worried about paying the rent, paying suppliers, agonising about product lines, marketing, advertising, cash flow, keeping staff, helping staff – and the families who depend on their salaries – through this pandemic.

Every man who took the decision will be paid a full salary irrespective of the lockdown. Not one worries about the VAT bills piling up, the rent arrears, the threat of tax-clever online giants destroying their retail business. They don’t stress about paying rates, employing people or paying employers’ PRSI. They are not lumbered with massive insurance bills for the mere pleasure of opening every day.

Go bankrupt

These men don’t have customers who may never come back because of the lockdown. They don’t have creditors who are cutting their credit lines. They don’t have balance sheets where the assets are falling in value but the debts they incurred to buy those assets have yet to be paid.

Public servants will not go out of business due to the lockdown. They won’t go bankrupt, or lose the homes they put up as collateral, or face the personal trauma of liquidation.

Small business owners, many of whom are women, face some or all of the above, every week. By ordering the private sector to close, in order to avoid overwhelming our hospitals, the State is putting most of the economic burden on the small business sector. Big businesses have the balance sheet to survive this. Small businesses don’t.

Lockdown means completely different things to different people. For the public servant there is no reduction in income. For the average small business person, income goes to zero. When your income goes to zero, it means you have no cash.

Once that happens, once cash flow disappears, every other problem is magnified because running a business is a complex exercise in managing an inter-dependent web of obligations. The life-blood of business is cash flow. Little else matters. Without cash, you go bust and without sales, you have no cash. The lockdown means no sales for hundreds of thousands of small businesses.

I’m no expert on lockdowns, but the WHO is not a big fan, suggesting lockdowns should be introduced only as a last resort if the health system looks to be overrun.

This begs a question: why was Ireland’s intensive-care capacity not enhanced greatly during the summer? It was the one thing that we needed to do, as we waited for the long-anticipated second wave. The answer to this question will probably come in the 2025 Tribunal at Dublin Castle into the 2020 Covid-19 Response. After all, that’s the way we do things in Ireland.

So what can be done now to protect small businesses that have been ordered to stand down? In March, this column argued that the correct response to Covid-19 was massive State borrowing. At the time, the establishment condemned this idea as being too radical. Now they are doing it.

However, distributing money though State agencies via grants is including an unnecessary layer of bureaucracy. Likewise, presuming that small businesses will look for soft loans from banks when they are facing bankruptcy reveals a deep lack of understanding of what bankruptcy does to you. Let’s just say more debt is not the answer for struggling small companies.

Helicopter money

The answer is helicopter money. Give small businesses the money directly. We are borrowing it anyway. Cut out the middle man. Get the Central Bank to add a few zeros to the accounts of small businesses. Use the banking system to do this, as we don’t have accounts with the Central Bank.

These are not loans: the money is free, just like it is if you get a tax cut. You never ask where it comes from, you just get it. The Central Bank lends it for free to the State and the State does what it wants with it. Once the borrowing decision is made, where it goes is immaterial.

But it is material for cash flows, and cash flow prevents bankruptcy, and preventing bankruptcy prevents a credit crunch and the viral defaults that move from one debtor to the next in our interrelated world.

Civil servants rarely ask where the money comes from when their wages arrive like clockwork every month. Why not afford this sense of security to small businesses until this thing passes and we can all get back into the game?

Lockdown decision makers still get paid. Those they shut down do not

My colleague, Fintan O’Toole, deems it “breathtaking” that a group of 11 men, and not a single woman, took the decision to lock down.

Of course he is right. Robust decision-making must be representative. None of the decision makers – all public servants or politicians – works in the sectors that they are closing down.

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The rules of the property game have changed

In the mid-1990s a foreign friend, visiting Dublin for the first time, lamented how malicious the British must have been to bomb the city’s quays, great squares and wide streets before they left.

Looking at the dereliction, beautiful buildings without roofs, gutted internally, their facades crumbling, this visitor concluded that some vindictive scorched-earth policy had resulted in such destitution, and that the poor post-independence Irish simply never had the money to refurbish.

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Why an Irish mortgage costs €80k more than a German one

The macroeconomy operates with two arms: the fiscal arm and the monetary arm. It can been seen as a boxer, with a left jab and a right hook.

Fighters go into the ring with a chance of beating their opponent, but if they have one arm tied behind their back against a two-fisted adversary, their chances fall to zero. Same with an economy. If either monetary or fiscal policy is not working, the ability of the economy to stay in the game is drastically diminished.

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The budget’s great opportunity to give young people a stake in Ireland

On Monday night, some 1,000 young people gathered near the Spanish Arch in Galway and were roundly criticised for doing so. But in vilifying them, we forget at our peril that those young people are also Ireland’s future.

They will pay for your retirement and will propel the country forward. They will take the risks, create the companies, music, art and culture of 21st-century Ireland. They will possibly manage and navigate the country towards a United Ireland.

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Johnson’s UK and Milosevic’s Yugoslavia – spot the difference

We could be witnessing the beginning of the end of the United Kingdom. The centrifugal forces of competing nationalisms are strong enough to recast the old order and to redesign this part of the world in a way that has not been seen since the Tudor era, when England started its Imperial project in Ireland.

The centre now struggles to hold because nationalism is being driven by the centre. Nationalism is now Whitehall’s default position.

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The UK’s economic illiteracy is Ireland’s opportunity

This week, we’ve had so much incoming economic information, it’s hard to know where to start. News that the economy is in a recession confirms what we all knew.

Likewise, Google’s decision, which it came to well before the rout in tech stocks this week, not to take a large office block in Dublin 2 is not such a surprise and is a portent of things to come. As this column argued a few weeks back, commercial property in Dublin and other major tech-focused urban centres, like San Francisco, is in for a torrid time.

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Italy has done us a huge favour by defeating Germany on monetary policy

While we are still convulsed over Phil Hogan, the EU has moved on. This week, the powerful head of the German Bundesbank, Jens Weidman, sought to reframe the battleground for 2021 and beyond.

The future of Europe will be a struggle between the North and the South and, more specifically, between Germany and Italy, Europe’s two manufacturing powerhouses.

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Nobody’s lending. Nobody’s borrowing. Here’s what to do

Another lockdown will destroy the economy unless we change direction. It’s really that simple, and it is because the banking system no longer works as a distributor of capital in the country.

Our Government and ECB have approached the crisis in the same way: cutting interest rates to zero to coax businesses to borrow and to encourage banks to lend. As a result, banks are the critical intermediary between the Central Bank, the State and the economy.

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