There is no single path to a resilient economy, but some common themes emerge. A key role taken by public authorities in the aftermath of an economic shock is to stabilize the situation, both through its own actions and through helping to reduce the uncertainties facing households and firms. A second dimension of public policy is to promote economic recovery through helping firms and households to adapt to new circumstances. However, an economic shock affects government finances, alternative policy approaches may be required. During the economic crisis of 2008/09 a range of policy measures have been implemented, aside from automatic stabilisers such as unemployment benefits.
In an effort to boost economic activity, governments across the EU have introduced a range of economic stimulus packages, even whilst implementing austerity measures. These range from bringing forward, or increasing, investment in infrastructure projects through to more specific schemes, such as the ‘car scrappage’ incentives enacted in many economies at the start of the crisis. In practice, many infrastructure investments suffer from implementation delays, limiting their short-term impact. There is also a risk that the economic benefits of stimulus packages are felt in localities other than those initially intended. Stimulus measures enacted in Finland for example have reportedly played a positive role in supporting economic recovery in Estonia as many of their firms benefit from trade links with Finland and Finnish firms.
A host of policy initiatives have been aimed at maintaining employment levels; assisting redundant workers, and supporting those unable to gain jobs. Measures include short-term working allowances, which compensate workers who are affected by reductions in their working hours; temporary wage subsidies; retraining initiatives and advice and support schemes. These can prove an effective mechanism for protecting firms and workers from short-term reductions in demand, but their cost can be high, particularly if kept in place for extended periods. The positive benefits of the value of short-time working allowances are widely acknowledged in Germany, but in Finland, where the crisis persisted for longer, the benefits (compared to the costs) remains the subject of debate.
Support for Training
A key policy approach has been the support of training, in the case of Baden-Württemberg this was allied to temporary short-term working allowances, providing an opportunity to raise skill levels during the reduced hours of the working week. This counters the tendency whereby employers reduce training budgets during the economic downturn. In contrast, in other regional cases training was targeted on the unemployed to assist their return to work. In a contracting labour market this may prove less effective, but may provide longer-term benefits through a general raising of skill levels within the region.
Promoting business responses
The crisis has strengthened national policy efforts directed at creating more competitive economies. This ranges from policies to encourage business start-ups, through to increasing support available for innovation and research – with some initiatives seeking to combine both. Where overall budgets are under pressure, levels of activity relative to other policy areas have often increased. There is a sense that the crisis has not changed the underlying fundamentals of economic growth and that investments in these areas will assist the longer-term transformation of the economy. If anything, there is some evidence that the crisis has caused “countries to think more in terms of longer-term growth and international competitiveness”. Several regions responded to the crisis by seeking to encourage the diversification of their businesses. This ranged from assisting firms to access new market opportunities, particularly through promoting export activity, to encouraging the development of a more diverse business base. This included encouraging regional engagement in national initiatives promoting emerging sectors or technologies.
Tax and investment incentives
In an effort to stimulate economic activity, and to limit constraints, national and European authorities sought to ease eligibility rules of existing aid schemes and to raise award ceilings where possible. At a European level measures included the relaxation of rules on the use of existing financial support mechanisms, such as State Aid rules and the European Globalisation Adjustment Fund. Similarly, governments have also sought to overcome the difficulties experienced by firms in raising external credit facilities, including the provision of risk capital, access to loan guarantees and other financial support instruments. Other examples of policy initiatives in this area include the easing of regulatory costs and burdens as well as the reform of administrative procedures.
Reform of government structures
A significant policy response that merits inclusion is where the economic crisis has acted as a catalyst for the reform of Government structures. The reasons for this vary from the potential efficiency savings that can be realized to anticipated improvements in the effectiveness of government. Two clear cases of reform were reported in work by Bristow et al, firstly the reorganization of the public sector in Greece under the Kallikratis law of 2010 and, secondly, the planned rationalization of government structures in Ireland. Both are a clear consequence of the economic crisis. At a European scale though, significant institutional changes have also been enacted owing to the crisis, notably in the development of the new instruments for the sharing of risk between Member States.
Supporting community-based responses
The crisis has also witnessed the burgeoning of self-organised, community-based responses. These include actions by charitable and other civic associations seeking to counteract the effects of the crisis on those most affected, as well as actions by firms and business in support of suppliers, competitors and other businesses in the surrounding economy. Many, if not most of these actions, occur independently of policy responses and actions. However, consideration could be given as to how policy might act to strengthen the capacity for self-organising community-based responses to shocks and crisis. One area of interest may be the role of alternative currencies, which evidence from Switzerland suggests could act as a viable counter-shock mechanism for maintaining economic activity.