Switzerland is widely regarded as having mastered the economic impact of Covid-19 adroitly. The speed and simplicity of government measures have won international plaudits. Evidence of their effectiveness has emerged in the comparatively modest impact of the pandemic on the economy.
Nevertheless, with a second wave now gripping Europe and provoking renewed lockdowns, Bern is again being confronted with differing demands on how to react.
Some political players want a full-blown economic stimulus package to boost demand. Others argue the government should use current record ultra-low interest rates to fund a major infrastructure program to provide a public sector driven boost to the economy. All that comes alongside demands for the prolongation, if not expansion, of the extraordinary measures introduced to tackle the first wave of Covid-19 earlier this year.
But are further steps required? And would they be effective? Those are the questions tackled by two recent Avenir Suisse reports examining the government’s response and suggesting possible improvements.
Broad agreement exists that the three main planks of Bern’s Covid-19 response have functioned quite well. State subsidized short-time working, an income substitution scheme for the self-employed, and federal loan guarantees for bank loans have all been effective in protecting jobs, supporting incomes and keeping companies alive.
Scope for better
Launched quickly and without red tape, the schemes were an immediate reaction to unprecedented circumstances. However, with the benefit of hindsight, Avenir Suisse authors Jürg Müller, Valérie Müller and Marco Salvi suggest mistakes were made.
“The measures have certain disadvantages that are becoming particularly apparent as time goes on”, they argue in a call for “targeted improvements.”
Take earnings support for the self-employed. Allowing proprietors with private pension capital to make an advance withdrawal of their retirement assets would mean self-employed people who earned well in earlier years could bridge any current shortfalls in liquidity using their own funds, not handouts.
The Covid-19 corporate loan scheme should also be modified. Extending liquidity is likely to be as important in the second wave as in the first. Nevertheless, Avenir Suisse’s experts contend payments without a payback requirement are harmful on various grounds, while also representing political intervention in the private sector. Rather than political Bern subsidizing individual companies, a loan scheme with banks sharing the risk would be better, they argue. That view is particularly telling as experience has shown that many corporate recipients were in fact companies already on the brink of bankruptcy.
Fiscal stimulus also to be avoided
In a separate paper on similar themes, Avenir Suisse author Samuel Rutz warns against the sort of stimulus schemes currently being touted around leftist political circles to combat the second wave.
Big programs make no sense, as there is no sign Switzerland is facing a longterm recession. Rutz argues, such schemes are seldom as effective as believed initially. In hard times, households tend to boost saving, not spending. Moreover, any massive state investment program could be stymied by the lack of suitable projects – not to mention the usually very long period required for such schemes to provide a real boost – by which time the economy may have been restored to an even keel anyway.
On balance, then, the right approach involves more of the same, with tweaks where required to remove errors or distortions. Switzerland’s usually pragmatic politicians should take heed.