Failure to safeguard firms will deepen economic woes

Research from Trinity College indicates that not supporting vulnerable businesses will deepen the long-term economic challenges Ireland faces.

Business group Ibec has warned of the need to safeguard vulnerable firms at risk of closure.

It cited research undertaken by Professor Andrew Burke, Dean of Trinity Business School, and peers last year, which highlighted the long-lasting detrimental impacts that a shock that causes the permanent exit of a firm from a market can have on the long-term performance of that industry.

“It will take five years to get back to approximately 80pc of industry performance”

“Our research in disaster management shows that if a firm formally exits a market, as opposed to a temporary closure of its door to business, this causes a long-term permanent decrease in the number of firms and industry profits,” detailed Prof Burke.

“From this, it will take five years to get back to approximately 80pc of industry performance.

“We can see that an exit bears significant and lasting economic and social costs and therefore any measure to prevent widespread closures of businesses in the midst of a crisis ought to factor in the enormous cost of not supporting firms in danger of closure.”

No cheap alternatives

Ibec CEO Danny McCoy said that without the implementation of support measures for vulnerable businesses, the road to recovery from the crisis will be longer and more expensive.

“While the Wage Subsidy Scheme is a welcome and a critical component to ensure the sustainability of our business model during the crisis, our reboot and recovery phase requires more.”

Last week Ibec called for a new programme of guarantees, loans, and other supports that would help ensure €26.4bn of liquidity to the economy, at a net Exchequer cost of €3.9bn.

“Although these are significant sums, there are no cheap alternatives.”

Written by John Kennedy (john.kennedy3@boi.com)

Published: 8 May, 2020