Recessions give businesses time to improve — if governments let them

 Rather than sit out the storm, this is the time to put excess capacity to good use, retaining and reallocating employees, write Peter Klein, Eirik Sjåholm Knudsen, Lasse Lien, and Bram Timmermans

 
The Covid-19 lockdowns brought a huge drop in demand for goods and services and unprecedented levels of excess productive capacity – idle factories, machines, and workers. Excess capacity is normally harmful, but there can be a silver lining. When machines and workers are idle, their time can be put to alternative uses. In a healthy economy, time spent on training, innovation, and efficiency improvements comes at the expense of producing, selling and other normal day-to-day operations. During a recession, these opportunity costs fall.

About 40 million U.S. workers are unemployed. In the five largest European countries, some 45 million have applied for government support. Many of those still employed are working fewer hours. If a fraction of this idle time could be used for development, the benefits would be substantial.

Our research on the 2008-09 recession showed how Norwegian firms responded to increases in excess capacity. While two-thirds of those firms saw less demand for their products and services, about 80% maintained or increased their investments in R&D and innovation, and almost 90% kept or added to their training programs. Firms modestly affected by the recession were more likely to boost development spending than firms unaffected or severely affected. Unsurprisingly, firms facing strict financing constraints resorted to layoffs instead of reallocation.

Can we expect a similar response to Covid-19 regarding development activities like innovation, efficiency improvements and training?

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Πηγή: blogs.lse.ac.uk