Small and medium-sized enterprises (SMEs) are the cornerstone of the global economy and global employment. They account for more than 90% of the world’s companies and half of all jobs. As the COVID-19 pandemic has swept across the world, SMEs with weak capital chains and inadequate financing have been the most vulnerable to the economic challenges created. Governments and policymakers around the world have had to come to terms with how to rescue vulnerable SMEs and protect jobs. Against this backdrop, “Luohan On Air” brought together Sir Christopher Pissarides, Nobel Memorial Prize recipient and member of Luohan Academy's Academic Committee, Min Zhu, current Head of the National Financial Research Institute at Tsinghua University and former Deputy Managing Director of the International Monetary Fund, as well as Luohan Academy's Long Chen to discuss the necessary actions that economists, financial institutions and policymakers must take to mitigate the impact of COVID-19 on SMEs and jobs.
Rescuing SMEs is essential in order to rescue the national economy
Talking about how to SMEs can benefit from government policies, the three scholars agreed that digital technology plays a significant role. Chen said that digital technology naturally overcomes obstacles of distance, and has played a considerable role in distributing information and tracking the disease. Digital technology is even more useful in making sure that assistance policies reach SMEs. Chen gave the example of Ant Financial, which has provided businesses in Hubei with 10 billion yuan in 12-month assistance loans, which are interest-free for the first three months and offer a 20-percent discount on interest payments for the following nine months. Ant Financial has also cooperated with 25 financial institutions to provide low-interest loans to 8.5 million SMEs.
On the demand side, Alipay has helped the government issue consumer vouchers in more than 50 cities, using digital technology to drive offline physical consumption. For example, in Zhengzhou Alipay helped to issue 75 million yuan in vouchers, and generated more than 550 million yuan in consumption using the multiplier effect.
Min Zhu said that on the one hand, companies such as Ant Financial and online commercial banks are using digital technology to help central banks and commercial banks reach SMEs. Platform companies play an essential role in providing SMEs with information and logistics, from cloud computing to remote conferences and other online services. A perfect example is Hangzhou's digital consumer coupons that were offered to Hangzhou citizens through the Alipay app, making them secure, fast and reliable. This measure has already increased spending. As of April 6, Hangzhou has delivered 28 million US dollars in digital consumer coupons as government subsidies to ordinary citizens, leading to a $313 million increase in consumer spending.
Pissarides said that this was promising. He believes that China is leading the world in the digital technology applications, especially digital finance applications. One reason for this is that there are no robust traditional financial services in China that hinder innovation. When digital financial institutions emerged in China, they immediately gained a very high penetration rate, higher than in Europe and the United States by far.
On the same point, Chen concluded that the distance economy is a major structural transformation, and a large number of new opportunities will result from it. Telemedicine, education, entertainment, and fitness are all blue ocean markets that entrepreneurs can develop. History tells us that the crisis will allow more resilient firms to rise, just as SARS prompted the rise of e-commerce firms, for example, Alibaba.
Employment stability and the future of work
Pissarides was awarded the 2010 Nobel Prize in Economics for his research into job market searches and matching theory. He is perhaps the most suitable commentator on the employment environment during the epidemic. Pissarides said that employment will recover much more slowly than the rate of job losses, because of the asymmetry of the job market. Under normal circumstances, a large number of people in the market are unemployed and there is a large number of job vacancies, due to friction in the job market. Once a company lays off staff due to an epidemic, it will take it a long time to find suitable employees later on.
In addition, if there is a lot of unemployment, the job market will become clogged, and people will have to spend longer looking for work. In this case, the government will have to provide employment support before, during and after the pandemic, and it is better to provide economic assistance now to stabilize employment. This is also the reason why governments in many European countries are willing to take on 80% of companies’ labor costs. Maintaining employment stability is crucial for the rapid recovery of the economy.
Zhu Min agreed that we must safeguard employment as much as possible. A German study showed that if truck drivers were unemployed for more than six months, it would be difficult for them to continue working as a truck driver. Zhu Min said that the government plays a crucial role in employment and has recommended offering skills training programs during the pandemic to increase the supply of human capital while also supporting the transformation of China's industrial structure.
Pissarides said that during the financial crisis, new graduates faced a bleaker job market, while currently, graduates of all majors face similar issues. They need to be more patient and optimistic, because Pissarides believes that unlike the financial crisis, the impact of this epidemic will be temporary. When the epidemic eases, the job market will also improve. Second, graduates with good digital technology skills will fare better, and they will be able to find suitable jobs. At the same time, schools should also consider market trends in order to train students for the future.
Chen expressed optimism in the discussion about the long-term impact of the employment structure, and whether technology and automation will lead to greater unemployment. He concluded that the history of the development of technology has been a history of anxiety, manifested in three aspects. First, technology is the most fundamental force of human destiny. Second, humans have always lacked imagination and do not know how technology will change their lives. Third, human beings have always been anxious about technological changes, and they are just as anxious today as in the past.