How Businesses Can Survive the Lockdown

The role of the State

Paul Sweeney01/05/2020


Many argue that bad businesses should not be supported by the state. However, if this pandemic’s lockdown lasts a long time, it is going to wipe out a lot of viable businesses. These employ large numbers, provide vital goods and services, locally and nationally and internationally, add value and pay tax. States are again supporting businesses all over the capitalist world to viability, just as they did 12 years ago, when governments bailed out the banks and speculators here and the auto industry, insurance and banking industries in the US. Then, many of the losses were socialised – borne by taxpayers.

There is a discussion underway in government - How do we do it better this time - ensure most businesses survive and thrive, without bankrupting the state? This  blog will examine five ways in which this can be, how it should be done and warn against wasting money on unnecessary supports.


1: The Wage Subsidy Scheme

The first action introduced by the state to assist business was the Temporary Wage Subsidy Scheme on 28 March 2020. It has helped thousands of businesses to retain great numbers in jobs - with wage subsidies 70%-85% or €412 pw until 4th May and after and other amounts depending on earnings. Around 40,000 firms employing over 400,000 workers are on the scheme. This was a prompt and excellent response which helped jobs retention, but crucially also maintained confidence - vital in a pandemic. Its design was assisted by Irish Congress of Trade Unions and IBEC.


2: A Loan Subsidy Scheme

Next step is probably guaranteed loans and/or loan subsidy schemes for SME businesses. When lockdown is over, businesses will re-open but many will be laden with debt and may struggle on for a while, but the debt may kill them off. Thus, if they are found to be viable, then they should be assisted by the state on loans, provided there is a return for the taxpayer.


3: Grants or Free Taxpayer Money.

The government may give grants or free money to businesses. This would be welcomed by business but it is highly questionable, because Ireland has the highest market inequality in the EU and to give free money to the owners of firms, to capital, will boost inequality further. Much of it would be paid by employees’ taxes on income and consumption. Add to that that corporation tax paid by firms here is listed by government officially as “a risk” because it could collapse overnight because the current system is based around transfer pricing and use of IP.  Transferring a large sum of money upwards would be seen as grossly inequitable during a prolonged housing and health crisis in Ireland.


4. Converting Loans to Equity

Then, if a after a time, those firms which cannot pay the interest on their loans or worse, cant repay them, then the loans or part of them should be converted to equity. The form this equity might take needs discussion. It could be full voting ordinary shares, non-voting ordinary shares, redeemable shares, preference shares, cumulative preference shares . Having share without vote may be more acceptable to small / family firms and more practical for the state too. The state shareholding mechanism needs refinement and an exit plan.


5. Helicopter Money of Cash Grants to Citizens

The government is considering giving cash or vouchers to citizens (helicopter money) which would also assist businesses. People would love this, as would business. However, devising an efficient and equitable system is not easy.  It might be paid to all but that would mean far less for those who need it and are more likely to spend it. It might be targeted at all adults on state payments below median or average income of €40,768. It could be paid in cash or vouchers and the vouchers might be redeemable only at certain (local?) shops / services.


How: Harnessing Skills within the State Institutions to Help the private sector.

But who is going to examine these firms to decide if they are viable? It is vital that this is not outsourced to the banks like in the US, or to the Big Four, regrettable defaults of a few senior Irish public servants. Who is going to supply the credit or what forms should aid take? Should banks and vulture funds be involved? Should the general public (who are getting little interest on their savings) be invited to invest in state-backed bonds which would invested in viable businesses?

Deciding which businesses are viable may not be the first action, because loans might first be given to most firms (excepting lost causes) to support them until the economy and they pick up.

The state has many skilled persons bodies like the IDA Ireland, Enterprise Ireland, SfadCo, Udaras, BIM, Failte Ireland, all of which support the private sector daily and also the state holding company New Era, Auditor General, Ireland Strategic Investment Fund, (the Revenue?) and DEPER might second staff with the analytical skills to an existing body, say New Era to build a dedicated Pandemic Support Unit to support private firms in a systemic and professional way. This unit  should be dissolved in time.

The state support system must be in-house and must not be privatised to the banks or one of the Big Four accounting firms (as the HSE has already done on testing, a vital function.) The US privatised/outsourced its business support scheme to banks to much criticism there. Banks were paid for each loan, did not monitor them and paid out fast, especially to favoured large clients and so SMES lost out.

It is vital that firms are helped including even bad firms until the pandemic ends because the pool of skills and systems in firms would be hard to reproduce if lost forever, it would cause huge job losses, pain for so many, loss of goods and services, of taxation of national income etc. and while getting a good (not necessarily full) return for the state. The Irish State has a long record of direct investment in private firms.

The State Must Avoid Subsidising Winning or Irresponsible Companies.

US airlines are seeking state bailouts of $50bn. In the past five years they bought back $45bn of their own shares - instead of investing or retaining it for this rainy day. It was the bigger firms - many with cash assets or access to loans and to the stock exchange - which grabbed most of the first $35bn fund aimed at SMEs in the US.

The Paycheck Protection Program was supposed to help small companies, with fewer than 500 employees and it came with caveats including no firings etc. Some non-compliant firms had to repay the state aid. The Small Business Administration, which guarantees the loans, did not decide which companies get funding, but outsourced the process to banks. The banks collected fees as was seen and the outsourcing of loans management was not effective.

The biggest US firms, especially the tech oligopolies, the FAANGS;- Facebook, Apple, Amazon Netflix and Google are going to come out of this pandemic even stronger. Their share prices are soaring today as investors priced this success in; they have vast cash assets and their products are booming in this tailor-made pandemic and will continue to do so long after.

Here the state should not support companies that sack workers; have bought back shares, paid dividends, behave irresponsibly or are in sectors which are winning. CRH is Ireland’s largest indigenous based multinational company. It is laying off 12,000 workers, only postponed a share buyback, is paying €1/2bn dividend, but cut management pay by 25%, but did not mention curtailing its  CEO’s pay of a staggering €9.3m pa. If governments do invest in building programmes as promised after the crisis, CRH will do very well. With has cash reserves of €6bn, it probably does not need subsidies.

It is hoped that all state subsidies will be conditional on companies planning to protect the well-being of employees, customers, community, environment and that financial reporting will be reformed to full country-by-country disclosure on this and finances, closing the gulf between corporate-speak on CSR and reality.



The initial government action on helping business during this pandemic – the Wages Subsidy - has been impressive. It is a good Social Partnership intervention in the market. We can only hope government officials are hard a work on the next phase of the massive socialisation of the economy to ensure it helps firms survive and blossom while getting a good return for the state in Ireland’s mixed economy.


These are some thoughts for the current discussion

Posted in: Corporate governanceEconomicsTaxation

Tagged with: covid19

Paul Sweeney     @paulsweeneyman


Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.



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