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Business-government relations in a time of coronavirus

Srividya Jandhyala & Jamus Jerome Lim
Srividya Jandhyala & Jamus Jerome Lim4/17/2020 07:13 PM GMT+08  • 5 min read
Business-government relations in a time of coronavirus
What are some things that firms need to consider as business-government relations invariably change amid one of modern history’s most devastating pandemics?
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SINGAPORE (Apr 17): In the throes of one of modern history’s most devastating pandemics, governments can play a fundamental role in easing the transition for businesses. The reason goes beyond leadership: as entities with both oversight over the entire economy, as well as a long horizon with which to operate, governments are best positioned to take on a number of roles that are simply unavailable to private actors.

First, the government can play the role of insurer of last resort. Under normal circumstances, private insurers are able to help cushion the effects of unexpected events businesses, by transferring risk from one geographical location or business sector to another. But since the pandemic-induced recession is a universal shock, the only entity capable of absorbing this risk is government. Businesses, naturally, will look to assistance from the public sector, and governments should not shy away from this role for fear of possibly rewarding bad behaviour. After all, while it is true that some well-managed firms would have planned for a rainy day, it is unfair to expect the majority of firms to bear the economic burden of a crisis that was clearly not of their own making. Indeed, one way to look at taxes previously collected is to see them as premia paid for crisis insurance. Since the crisis is now upon us, payouts should now be released, in the form of government spending, to smooth the path of national welfare.

Second, governments are also an important market maker. One of the fundamental roles of government is to ensure that the social costs of private actions—known as externalities—are taken into account by households and firms. Nowhere is this more relevant than in a public health crisis, where the costs of failing to observe measures such as social distancing and personal hygiene are borne not just by individuals but by society as a whole. Governments can help “internalise” these externalities by a combination of carrots—for example, ensuring workers who are sick are taken care of and do not feel compelled to work to make ends meet—as well as sticks, such as policing and, when necessary, issuing citations and fines.

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