We should not link political goals to government support

NPO Radio 1
Erasmus School of Economics

The coronavirus infects the economy. In NPO Radio 1 programme Dr Kelder and Co, Bas Jacobs, Professor of Public Economics at Erasmus School of Economics, explains that government support does not have to be unconditional, but we should not link political goals such as sustainability to it.

Uncertainty

The uncertainty is great at the moment. Jacobs is concerned about what this will mean for the economy in the long term. ‘We have put the economy in a coma for a while, but it is important that it comes back to life after that. We do not want large parts of the economy to break down any time soon, that is my biggest concern. Losses are being made, income is being lost, people are losing their jobs: that is inevitable to some extent. What you really want to avoid is our production capacity breaking down in the long term.’

Obligatory support

Are the measures taken by the government sufficient? ‘The crucial uncertainty is: how long do businesses have to stay closed? We cannot answer this question because it is hard to predict the development of the virus. I do think that the government should give serious thought to renewing the emergency measures that are now being taken. The government has announced a production stop in sectors that are closed. Of course, those companies cannot do anything about that, so liquidity support must be provided. I think the government is also, in some way, obliged to provide emergency support because of the measures the government has announced. This cannot be seen as the normal entrepreneurial risk.’

More harm than good

Currently, a popular idea is not to support companies which are not sustainable or socially equitable enough. Jacobs does not support this idea. ‘In the end, this means that if you do not do what we think is right, we will pull the rug out from under you. I think this is a rather extreme way to push companies into doing what we want, which will probably do more harm than good. I understand that some people want to attach political conditions to the support measures, but I am afraid this is going to cause huge economic damage.' Jacobs does, however, not believe there should be no conditions attached to receiving aid at all. ‘One of the conditions could be to first address the shareholders of a company, since they are the ones who have to pay the price.’

Professor
More information

The full interview on NPO Radio 1 from 2 May 2020, can be found here (in Dutch).