The rapid spread of COVID-19 is a global crisis on multiple levels. First, and most crucially, it is a public health crisis with the potential to cause billions of infections and millions of deaths if left unchecked. However, it is also an economic crisis. The measures required to contain the virus and prevent catastrophic death tolls will profoundly reduce economic activity and create unemployment and loss of income on a vast scale, while straining already fragile health care systems and social safety nets in every country affected by the pandemic.
Even under the most optimistic scenarios, American workers and businesses will suffer major economic disruption in the coming months. Likewise, the international community is facing these same unprecedented challenges. The economic responses of other governments grappling with the novel coronavirus, especially those at more advanced stages of the outbreak, offer crucial lessons for U.S. policymakers.
The Center for American Progress’ analysis of 18 governments’* coronavirus-related economic measures to date highlights four policy approaches from which U.S. policymakers should learn:
- Prioritize supporting those who cannot work because of the crisis, so that they have the resources to provide for themselves and their families. Following the lead of other countries, the United States should allocate resources to help the most vulnerable individuals weather a sudden and potentially extended loss of income.
- Take steps to keep small and medium-sized enterprises afloat. Like other countries, the United States should take measures to keep this vulnerable sector of the economy on life support so that it can be quickly revived when the threat of the pandemic recedes.
- Suspend or reduce tax, mortgage, and rental obligations to avoid defaults. Mirroring the actions of other nations, U.S. policymakers should take steps to ensure that ordinary people are not put in the difficult position of making payments with no offsetting income.
- Directly support and strengthen critical sectors such as health care in the face of unprecedented burdens, even to the point of direct intervention in the health care sector through nationalization and direct government requisitioning.
1. Help those who cannot work or have lost income
U.S. policymakers should seek to ensure that workers who experience sudden unemployment or loss of income, or who assume child care responsibilities, have the resources necessary to make it through the crisis. Governments across the globe are assuming unprecedented responsibility to keep individuals from falling into financial ruin.
The governments of the United Kingdom, Denmark, Hong Kong, Australia, Italy, Brazil, and Canada recently unveiled economic stimulus packages with funds dedicated to workers and vulnerable populations. Rishi Sunak, the U.K. finance minister, introduced a spending package to Parliament that allocated 7 billion pounds ($9 billion) for the support of the labor market. This makes Statutory Sick Pay, which entitles people to 94.25 pounds per week ($112), available to workers directed to self-isolate, even if asymptomatic. The United Kingdom also waived “waiting days” for paid sick leave. This move makes sick pay available immediately, rather than after a three-day waiting period, encouraging workers to take sick days if needed rather than risk the spread of the coronavirus. Self-employed workers and those making less than 118 pounds per week ($140) who have COVID-19 or are under self-isolation will have easier access to Universal Credit or Employment and Support Allowance, which collectively provide assistance to working-age people who are out of work, short on income, or cannot work because of illness or disability.
Furthermore, the United Kingdom and Denmark are planning to cover a portion of workers’ wages in the hopes of preventing mass layoffs. The British government will cover 80 percent of the salaries of retained workers—up to 2,500 pounds per month ($2,975)—and Denmark is putting a three-month freeze on its economy, during which it has agreed to cover 75 percent of employee salaries, or up to $3,288 per month. Denmark’s plan is expected to cost 287 billion Danish kroner, or about $41.5 billion. This amount equals almost 13 percent of Denmark’s gross domestic product. The Danish government is also suspending its previous requirements for receiving unemployment benefits.
A number of governments have issued one-time payments to help people during the coronavirus crisis. Hong Kong offered HK$10,000 ($1,289) cash payouts to all permanent residents ages 18 and older. Australia announced an AU$17.6 billion ($10.5 billion) stimulus package, AU$4.76 billion ($2.8 billion) of which will go toward one-time payments of AU$750 ($447) to 6.5 million lower-income citizens as well as other groups such as veterans. According to Prime Minister Scott Morrison, these payments will benefit both the recipients and the economy, as low-income groups are more likely to spend the money; the Australian Treasury estimates that for every $1 spent, there will be a 150 percent return to the economy.
Italy, one of the hardest-hit countries, recently announced its 25 billion euro ($28 billion) “rescue plan” for the economy, which includes about 10 billion euros in support for employment and workers. For example, self-employed or seasonal workers are eligible for a 600 euro ($653) payout in March, and parents may claim up to 600 euros for babysitting.
Brazil plans to inject its economy with 150 billion reais ($30 billion) through existing measures such as social assistance payments and allowing workers easier access to severance funds. France also introduced a 45 billion euro ($49 billion) stimulus package this week, which includes 8.5 billion euros ($9.3 billion) in unemployment benefits for those forced into part-time employment. It also guarantees workers 84 percent of their salaries, paired with a requirement that employers keep workers’ jobs open. The package also includes 2 billion euros ($2.2 billion) for a “solidarity fund” for the self-employed and shopkeepers, which covers both businesses that have been forced to shut down as well as businesses that have lost 70 percent or more of their turnover relative to a year earlier.
The Canadian government plans to spend around CA$12 million ($8.45 million) on the Work-Sharing Program, which assists employers and their workers when they face a downturn in business. The Canadian government’s statement indicated that it is exploring income support for those not currently eligible for Employment Insurance Sickness Benefits.
2. Keep small and medium-sized enterprises afloat
U.S. policymakers should take measures to avoid widespread failure of small and medium-sized enterprises (SMEs) during the COVID-19 pandemic. SMEs are the backbone of local economies, a key source of jobs in many communities, and are especially vulnerable to economic disruption. Public safety measures in many countries have forced restaurants, cafes, gyms, and barbershops to close their doors to the public and limit or curtail their operations, causing a devastating decrease in their revenues. Keeping SMEs above water during the pandemic will be crucial to a rapid economic recovery once the threat of the novel coronavirus recedes.
Europe has shown initiative in protecting SMEs. On March 13, the German government detailed an economic aid package worth at least 550 billion euros ($600 billion) intended to support SMEs and larger companies by offering “unlimited” access to credit from KfW, Germany’s national development bank. A total of 40 billion euros ($43.6 billion) was set aside for affected freelancers and small businesses with up to 10 employees; of that total, 30 billion euros ($32.7 billion) is intended for loans, while 10 billion euros ($10.8 billion) will go toward direct subsidies. On March 23, German Finance Minister Olaf Scholz presented the German Cabinet with a plan for a 100 billion euro ($108.9 billion) economic stabilization fund with access to 400 billion euros ($435.5 billion) in state guarantees to underwrite companies’ debts.
On March 16, French President Emmanuel Macron announced, “No French company, whatever its size, will be exposed to the risk of collapse.” To keep this promise, Macron decreed that the French state will guarantee billions of euros worth of loans, while delaying tax payments and suspending rent and utility obligations for smaller firms. Denmark has similarly declared that the government will guarantee 70 percent of loans given to SMEs whose operating profits have fallen by more than half.
Italy, whose domestic economy is especially reliant on SMEs, announced a large-scale moratorium on debt repayments, including mortgages. Additional measures under consideration include a “guarantee fund” that would provide loans to SMEs, along with compensation for companies whose turnover has decreased by more than 25 percent. The Bank of England has made it easier for small and medium-sized businesses to access loans with lower interest rates.
At the regional level, the European Central Bank announced it will provide loans to commercial banks for lending out to affected groups such as SMEs. In some cases, loans could be available at rates as low as -0.75 percent.
Europe is not alone in seeking to reduce the strain on small firms. On February 12, Japanese Prime Minister Shinzo Abe announced that the government would secure a total of 500 billion yen ($4.5 billion) for emergency lending and loan guarantees to affected SMEs. Likewise, in Taiwan, President Tsai Ing-wen announced a T$60 billion ($2 billion) coronavirus relief package that includes loans for small businesses and subsidies for the tourism sector; South Korea, meanwhile, put forth a 11.7 trillion won ($9.8 billion) supplementary budget that allocates approximately 3 trillion won ($2.4 billion) in child care subsidies and support to SMEs that cannot afford to pay their employees. The plan also provides export-oriented businesses easier access to loans.
Thailand’s Government Savings Bank and Social Security Fund will provide 180 billion baht ($5.7 billion) in soft loans for small and medium-sized firms. Singapore, too, has indicated that its second coronavirus relief package will include support to SMEs and the self-employed.
In Australia, SMEs will receive up to AU$25,000 ($14,900) to cover employee wages, based on tax withheld. The government estimates that this measure will cost AU$6.7 billion ($4 billion) and will occur automatically based on already filed business activity statements.
3. Suspend or reduce tax, mortgage, and rental obligations
U.S. policymakers should adjust policies to relieve the fiscal and tax burdens currently placed on individuals and businesses at risk of defaults. This is already being implemented by other countries in the form of suspended or deferred loan and mortgage repayments, as well as deferral of tax obligations and common expenses such as rent and utilities.
As part of Italy’s plan, affected families may apply to have their mortgage payments suspended for nine months. This mortgage relief plan is intended to support workers who are self-employed or nonsalaried, as well as workers whose earnings have “fallen by more than a third” due to the crisis. Spain has taken similar measures, freezing mortgage payments and prohibiting basic utilities from shutting off service to affected individuals. The United Kingdom even passed emergency legislation banning landlords from evicting tenants during this crisis. Denmark will provide compensation to businesses for their fixed expenses based upon how much income they have lost. France, meanwhile, has suspended the obligation to pay rent and certain utilities for affected SMEs, with exceptions granted where creditors would suffer hardships.
International governments have also acted urgently to provide tax relief. Denmark, for example, announced three tax measures to boost liquidity. Under the measures, large companies will have 30 additional days to pay value-added tax (VAT), while all companies will be granted four extra months to pay labor-related contributions. The Danish government also plans to lift the ceiling on business tax accounts so that corporations won’t have to pay negative interest rates when placing cash in the bank. Meanwhile, Spain has approved tax relief for small and medium-sized businesses and self-employed people that will allow them to defer their tax obligations—including income, corporate, and VAT—for six months without interest.
The Indonesian government plans to waive six months of income tax for individuals in order to strengthen purchasing power, while also allowing firms to delay corporate and income tax payments on the sale of imported goods. These measures will be effective from April 1 and will remain in place for six months. Thailand’s plan similarly cuts the income withholding tax from 3 percent to 1.5 percent for six months, from April to September.
4. Support health care providers
The United States should also consider emulating other governments by providing direct economic support to those on the front line of the COVID-19 response. This means, above all, support to health care providers and workers.
Many countries have devoted sizable portions of their coronavirus economic stimulus packages specifically to the health sector. Around 2.3 trillion won ($1.9 billion) of South Korea’s supplementary budget, for example, will go to medical institutions and quarantine efforts. The United Kingdom and Italy are dedicating 5 billion pounds ($6 billion) and 3.5 billion euros ($3.8 billion) to their respective health care systems. New Zealand has likewise promised NZ$500 million ($292 million) for health services, which will be used to increase the number of health staff, boost intensive care capacity, provide hospital equipment, support primary care and telehealth resources, and aid public health unit coronavirus contact tracing efforts. Similarly, Japan’s 430.8 billion yen ($4.1 billion) stimulus package will include funds to improve medical facilities and ease the supply and demand of face masks.
Some countries have gone further by nationalizing or intervening directly with the health sector. Spain, for example, has nationalized private health care facilities and announced it would requisition face masks and test kits to fight the pandemic. Along the same lines, Japanese Prime Minister Abe invoked a special law granting the government emergency powers to regulate the sale and distribution of face masks in Hokkaido. Under this policy, the Japanese government instructed manufacturers to sell face masks directly to the government, which would then deliver them to residents.
To fill the growing demand for health and social care workers, the U.K. government is allowing nurses, midwives, paramedics, social workers, recently retired health professionals, and even medical students to be registered as regulated health care professionals.
Working within the U.S. system
The U.S. government has already acted to address some of the fallout of the crisis. On March 18, Congress passed the Families First Coronavirus Response Act, which provides paid sick leave and paid emergency leave to individuals quarantined or otherwise unable to work because of the coronavirus. It also provides supplementary unemployment insurance and food security funding to states. Congress is now aiming to pass a much larger stimulus package. On March 25, the Senate passed a bill that includes a one-time $1,200 payment to individuals, $250 billion in funding for unemployment insurance, a $350 billion small-business rescue plan, and a $130 billion investment in the health care sector. The House is expected to take up the bill on Friday.
In seeking to draw lessons from the responses of foreign governments, U.S. policymakers should take stock of structural differences between the financial, political, and social security systems of other countries and those of the United States. Many of the countries examined here have more centralized and robust social safety nets than those that currently exist in the United States. For example, many European countries have used preexisting national institutions and legal frameworks to ramp up existing substantial unemployment insurance and paid sick leave benefits for those who have lost work or income. Particularly in Europe, these economic features are the consequence of greater union density and, in some cases, a tripartite model of corporate governance in which labor organizations, firms, and national governments all participate.
By contrast, U.S. unemployment insurance programs—and other social welfare programs, such as Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)—are implemented through a complex federalized scheme administered by states with federal oversight. Likewise, the absence of federally mandated sick leave in the United States means that new legislation will be required to extend sick leave to affected workers—as Congress has already done for a segment of U.S. workers on a temporary basis. The U.S. federal system, however, does not make economic measures examined here irrelevant to the United States: In Germany, which also possesses a federal system, Chancellor Angela Merkel has had to work closely with the governments of länder (states), which have in key respects assumed a leading role in responding to the crisis.
Beyond social safety nets, other countries can use state-owned or state-affiliated banks to push through loans and grants to eligible firms on an expedited basis to grant relief to SMEs. In Germany, the state-owned development bank KfW is assisting with the short-term supply of liquidity to companies. By contrast, the comparatively decentralized U.S. banking system means that assistance to SMEs will depend on a larger number of small institutions, which may pose challenges in underbanked rural regions.
Finally, it bears noting that U.S. policymakers may need to seek corporate governance reforms in response to the coronavirus that may be absent from the international discussion. In particular, policymakers may want to consider attaching conditions to corporate rescue packages—such as stock buyback restrictions, worker protections, and executive pay caps—that other countries are not considering because practices that would be affected are already proscribed or uncommon in their jurisdictions. For example, CEO compensation is higher in the United States than in other countries both in absolute terms and relative to average worker salaries. Likewise, labor rights in the United States are far weaker than in most advanced industrial economies.
Reflecting on how other governments across the globe are responding to the economic impact of the ongoing COVID-19 pandemic, there are three broad commonalities that U.S. policymakers should consider in crafting their own interventions:
- First, U.S. policymakers must think beyond the conventional tools of fiscal stimulus, with the understanding that domestic economies will inevitably suffer until the virus is contained. Measures to increase demand and avoid credit crunches will not prevent loss of income and employment when health measures require that businesses stay closed and workers stay home. Instead, governments must work to keep the economy on life support so that it can be quickly revived when the threat of the pandemic recedes.
- Second, in deciding where to allocate resources, U.S. policymakers must focus first on allocating resources to helping the most vulnerable populations stave off financial ruin. This can be accomplished through direct assistance; subsidized tax deferrals; and suspension of mortgage, rental, and other common obligations.
- Third, U.S. policymakers should not be averse to direct investment, and even intervention, in critical sectors—above all, in health care and supporting sectors such as medical manufacturing.
Trevor Sutton is a senior fellow for National Security and International Policy at the Center for American Progress. Jordan Link is the China policy analyst for National Security and International Policy at the Center. Anna Lipscomb is a China research intern at the Center.
* Authors’ note: The 18 international governments considered in this column are: Australia, Brazil, Canada, Denmark, the European Union, France, Germany, Hong Kong, Indonesia, Italy, Japan, New Zealand, Singapore, South Korea, Spain, Taiwan, Thailand, and the United Kingdom.
To find the latest CAP resources on the coronavirus, visit our coronavirus resource page.