Presently we should work on allaying the fears so that business can recover, says Hardo Pajula, professor of Free Economic Thought at EBS, who had a discussion with Madis Müller, Governor of Eesti Pank (central bank of Estonia), during the first show of EBSi Majandusstuudio (Economics Studio “Economy after the corona crisis”).
According to Hardo Pajula, the coronavirus crisis dramatically highlighted the central problem of the Estonian state, which is public sector financing: “I believe the corona crisis is, above all, a public financing crisis, and one of its reasons lies in the uncontrolled growth of healthcare and social expenses due to population ageing. We have by now entered a new phase of the debt predicament which had been haunting us since 2008, which clearly an issue of fiscal policy and not an epidemiological concern.”
“Bureaucratic structures have crystallised, which is why the state is a part of the problem rather than the solution. Similarly to other countries of the world, a strategy of intimidation was opted for in order to solve a short-term problem, and the fear has taken a life of its own. What we should do now is work on allaying the fear an encourage people so that our trust in on another can be restored,” Pajula said.
Madis Müller believes the steps taken by the government immediately after the crisis arose represented a logical enough reaction. “At the beginning of the crisis, the emergence of a massive wave of bankruptcies had to be prevented, and the people whose income had plummeted needed support. However, to start recovering from the crisis, the country needs to analyse which sectors are to receive support from taxpayers’ money more thoroughly than before.” Müller says the role of the state cannot be allowed to become more and more important. “We need to analyse which cycle of economy we are in at the moment and set a balanced budget as our long-term goal so that the state’s debt burden would not increase in the long term.”
Müller says there is a number of innovative companies in Estonia, but an average Estonian production enterprise will not be an exactly active user of IT solutions, for example. Over-optimisation poses another risk: “In the production sector, the crisis highlighted the risks associated with over-optimisation: the supply chains of companies had been optimised to the utmost, and everything ran like clockwork as long as borders remained open. To mitigate these risks, more production will probably be moved to the European Union and why not to Estonia, which will create new opportunities for Estonian companies.”
Madis Müller put forward three ideas on what the state could do for supporting entrepreneurs when the initial aid packages run out:
- A lot of our companies have room for improvement in the sphere of digitisation, and this is where the state could help them. There is no point in supporting the companies which will not survive in the long term: what should be promoted is innovation and the use of state-of-the-art technology.
- Unemployment is likely to increase further by the end of the year, so contribution should be made to retraining people and helping them adapt faster in the situation where a number of companies have had to make employees redundant.
- At the EU level, the Estonian state has already assumed the obligation to make our economy more energy-efficient, which demands major investments from the government and the private sector alike. So even as far as crisis measures are concerned, we need to ask ourselves whether the investments to be made support the above goal.
The EBS Economics Studio is a weekly debate programme in which well-known experts on economics propose solutions to the economic problems that have arisen during the current crisis. “The viewers of our Economics Studio can get new tips and ideas on how to cope with the various challenges they can find their organisation facing during the crisis and how to use these difficult times for their benefit. The participants of the debated during the show will be giving advice on how to implement changes and find new development opportunities in challenges,” the show moderator Toomas Danneberg, Vice Rector for External Relations and Business Development at EBS, explained.
The next show, “Crisis as innovation accelerator”, will be on from 15:00 to 16:00 on 4 June. Teleworking has made our country’s “E-tiger” leap faster as the situation forced companies to develop new digital solutions in order to survive. Are the developments achieved in such a short timeframe sustainable? How will the new digital solutions be affecting the economy when the crisis is over? The discussion on digital innovation will be held by Mart Habakuk, EBS Chancellor and one of the partners in Metro Capital, and Timmu Tõke, an EBS graduate and the founder and CEO of the 3D avatar producer Wolf3D.
