The effects of the coronavirus crisis will leave an economic legacy long after the virus has passed its peak. How governments respond now will determine the health of our communities for a generation to come.

Whilst the Coronavirus pandemic started as a health crisis, it is rapidly morphing into a major economic crisis. As the practice of social distancing gathers force, many businesses are reporting the adverse impacts on their viability. Whether our response to coronavirus pushes the UK economy into recession remains to be seen, however all the signs point to a major economic downturn, both in the UK and the global economy. It seems likely that the economic impacts of this crisis will dwarf those of the global financial crisis in 2008/09.

During a crisis attention turns towards the resilience of an economy. Typically, resilience is couched in terms of the ability to weather the storm, for the economy to withstand the shock and then to recover afterwards. This classic notion of resilience serves well as people, and policy-makers, seek to mitigate the worst effects of a shock on their livelihoods and the economy. However, there is another side to resilience that is often over-looked in the rush to fight the fires immediately in front of us. A period of crisis is also a time to consider what we want to see standing strong after the shock has passed. How we, as a society, respond now as we try to shore up our economy in the short-term will not only affect the long-term resilience of the economy, but will also fundamentally shape the nature of our communities and of society long after the shock has passed.  Resilience is a social construct, not just an economic one. As such it implies that the future shape of society is influenced by the choices that we – as individuals, firms and as government – make, or don’t make. It is not simply an autonomous future that is shaped by forces beyond our control.

A resilient economy is one that is able to adapt to changing circumstances and which has the power to transform to take advantage of changing circumstances and structures. This adaptive capacity is partly determined by the choices that we all make, as firms, as households, as public bodies or as other actors. It is also based on the environment in which we make that choice and the range of options that we have to choose from. Crucially, we can make choices that strengthen the resilience of our economy, but we can also make collective choices that weaken resilience over the longer-term. We may do so with the best of intentions and with the sense of doing the right thing, but where the future is uncertain we can only act on the information that we have as and when we have it. This means that our actions are often driven by short-term considerations, even though they have a long-term effect.

The economic risks of the coronavirus induced shock are evident, from disrupted supply chains, through to the failures of transport companies, and the closure of shops, catering outlets and leisure-based businesses. And the potential impact on communities is also becoming clear. Even where firms are able to remain open, reduced activity levels will imply substantial layoffs as firms seek to retain their viability. As economic uncertainty increases so further falls in demand will follow, deepening the economic crisis. Of course, there are also new opportunities emerging. Home delivery companies are reporting an upsurge in demand, restaurants can move towards home delivery of take away meals. This is unlikely though to offset the effects of workers forced to remain away from their place of work for a number of weeks.

Unlike the financial crisis of 2008/09, the coronavirus crisis will potentially affect the service economy hardest. Its effects are being, and will be, felt in small shops and businesses which are more heavily embedded in local communities. As people practice social distancing so demand dries up and firms will fail without support. These are firms that do not have deep pockets or reserves on which to draw, nor do they have a high profile outside of their immediate locality. This does not make them any less important. Where rental payments have to be maintained even an owner who takes no wage may struggle to meet the costs as they mount up month by month. Although the government has stated that as much support will be available as is needed, much of the offer to small business owners is couched in the language of loans. Burdening already fragile businesses with higher loadings of debt is not a good foundation for the long-term resilience of an economy. Instead, we may have to think about how the debt burden is collectively shared, much as was the case when the banking system was bailed out during the last financial crisis.

Whilst an owner may be able to maintain some level of activity, that will not help those workers who are threatened by redundancy. Current debates illustrate how a crisis opens up opportunities for new approaches, as old models prove to be untenable. Ideas being debated include some form of Universal Basic Income, reversing the PAYE system to compensate affected workers for lost salary, or other forms of wage-subsidy scheme. The intention is to help firms to retain skilled labour, to avoid over-loading the traditional welfare benefit system and also to maintain income levels so that there is not a sudden additional downward shock to demand.

Whilst short-term responses to the immediate effects of the incipient economic downturn should be welcomed, we should also not lose sight of the larger, longer-term picture. We also need to consider the resilience of communities themselves if we want to avoid the health crisis becoming an economic crisis and then mutating into a social crisis. This means considering how to support small service-based businesses that form the foundations of many communities so that they remain standing once social distancing measures come to an end.  It also provides an opportunity to consider what our future economy might look like. One of the enduring messages of past economic shocks is the need to ensure that short-term events don’t have long-term consequences. The priority is to maintain the viability of businesses that are temporarily affected by a shock. The risk is that the adaptive actions of individuals, such as the practice of social distancing and move towards on-line activities, will push some local economies over the edge. Equally, affected workers also need support, otherwise the personal cost will add to the overall economic cost of the crisis.

The long-term impacts of the coronavirus pandemic remain to be seen. However, whilst the future may be uncertain what is certain is the need to ensure that choices taken now do not weaken communities in the future. Our responses to the coronavirus outbreak, such as the greater deployment of online activity, may hasten a structural shift in economic activities. If this is so then it is important that we do not unwittingly reinforce this because of the crisis-induced closure of venues and facilities that, once lost, cannot by re-established. In a crisis of this magnitude only governments can provide the collective resources required to maintain the economic structures on which we depend. The nature of the actions that they take will influence the choices that firms and households are, in turn, able to make. Asking government to consider how best the firms which form the bedrock of communities and local social structures can be helped to weather the coming economic crisis is crucial if we do not wish to find ourselves faced by deserted high streets and empty communities once the current health crisis has passed.

Dr. Adrian Healy is a UKRI Future Leaders Fellow. All views expressed here are his own.