Proactive measures can make or break containing the coronavirus

Sandra Phlippen, Assistant Professor at Erasmus School of Economics and Chief Economist at ABN AMRO, weighs in on the Dutch government's  announced measures to combat the coronavirus outbreak in Dutch newspaper AD (Algemeen Dagblad). She believes it is more crucial than ever to act swiftly and not reactively, before the economy cannot be saved.

No healthcare without a running economy

According to Phlippen, the measures announced by the Prime Minister are necessary and good, but circumstances are changing rapidly and demand more proactive measures. Of course, economic growth is currently less important than our collective health. This is always the case, but at the moment, the economy and public health can get in each other's way. And keeping parts of the economy running is crucial in order to continue to provide the care that is needed.

A big part of our spending has to do with social contact. That part of our expenditures must be halted in order to prevent infections. Therefore, it is surprising that groups of less than a hundred people are still allowed to get together. If 99 people who do not feel sick are now sitting in a communal area, the chance that three will turn out to be ill is considerable. In this case, with an infection rate of three, an average of nine people will be infected, who in turn will infect 27 people, who in turn will infect 81 people. In no time, all 99 people will be ill, of which one will probably die. Is that really necessary?

The digital infrastructure

The government should focus fully on building capacity in key sectors such as healthcare, the food industry, and delivery and communication infrastructure. The latter may seem less relevant, but it is not. Digital infrastructure ensures that the 40 percent of Dutch workers who sometimes work from home can do so now as well. This is crucial for maintaining the productivity of the economy. This digital infrastructure is also important for curbing the failure of spending.

We have an excellent digital structure in the Netherlands and already spend a lot of money on online shopping. This a blessing in times like these and will probably prevent the extremely long queues in front of supermarkets, like we are seeing in Italy. As far as the latter is concerned, Phlippen wonders when the government's rationing policy will be installed? The shelves in supermarkets are quickly becoming emptier.

Empty pockets

So far, the government has regulated the decrease of working hours, guarantees and tax deferrals for self-employed workers. Minister of Finance Wopke Hoekstra shows his willingness to empty his pockets completely to keep the economy running. Phlippen has a few ideas on what he would be able to do with that money. For example, protect vulnerable families by increasing allowances, decrease VAT for digital spending, and increase VAT for scarce resources or proclaim a regulation-free period for staff recruitment in the healthcare sector.

 

More information

Read the full article on AD.nl here (in Dutch), 14 March 2020.