Mark Paul: Government faces dilemma on which businesses to save

Sometimes it takes an outsider to point to issues that, deep down, we suspect are there but ignore. Gabriel Makhlouf, governor of the Central Bank of Ireland, is a mix of British, Cypriot, Greek and Egyptian. If he was Irish, he might have been less willing to suggest to the Government – as he did in a letter released this week – that it may need to consider standing back to allow some Irish SMEs to go bust.

Makhlouf hit upon an interesting moral dilemma that is likely to hit ministers square between the eyes before too long: the extent to which precious taxpayers’ resources should support businesses that may be unviable in the medium term due to social distancing. Makhlouf didn’t mention pubs and other hospitality businesses specifically, but his words suggested they were in his mind.

The question of whether or not the State should save pubs and other businesses is a moral one, as much as it is fiscal, because what happened to them in the pandemic is not their fault. They are totally innocent, with some devastated for six months by a State closure order that persisted for longer than it ought to have. Normally, the State should strive to protect and sustain the innocent.

But, in his September 3rd letter to Minister for Finance Paschal Donohoe, Makhlouf warns that if such businesses are going to be unviable for a long time anyway barring an end to the pandemic, scarce taxpayer cash might be better spent elsewhere. It is a hard-nosed, clinical way of looking at things. That is the governor's job.

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He has also been in Ireland for long enough by now to understand that these kinds of businesses are a part of the social fabric, perhaps even the identity, of the nation. In particular, pubs in Ireland mean far more to society here than pubs do in Cyprus. Weighing up this issue is more than a simple balance sheet exercise, given the social consequences. I do not envy those faced with the task.

But like many of the dilemmas currently facing this most skittish of governments, the problem over what to do with the traumatised hospitality industry is a self-made one.

It has previously been argued on these pages that it was immoral for the State to simply stand by and watch, for example, pubs go bust, while doing nothing to help. There are two ways it could have assisted them. It could have picked up the tab for their closure in the form of more grants, although that sort of corporate welfare is not ideal. Or it could have taken the sensible decision to allow them to safely trade. For far too long, it dithered and chose to do neither of the above.

Nonsensical decision

With the dilemma it now faces, the Government is reaping the fruit of the nonsensical decision to keep 3,500 of them closed when case numbers in mid-summer had shrunk to just a handful per day. Perhaps mindful of the potential hazard raised by Makhlouf, the Government has now been forced to loosen pub restrictions with cases at 200 to 300 per day.

Well-meaning but overly-cautious medical advice in June and July was not put through the sieve of economic and social pragmatism that ought to sit in the kitchen drawer of every government. Had ministers been willing to allow all hospitality businesses to trade with relevant safety measures when virus numbers were low, it might have fostered a temporary alcohol table-service café culture that would have also allowed certain sections of society to breathe.

Instead, the Government chose not to release this pressure valve and kept wet pubs closed, helping to cultivate a national crop of house parties and private gatherings that are now being blamed for the explosion in case numbers. When publicans raised this issue, they were ignored because what they were saying was so obviously in their own interests. But I suspect they weren’t too far wrong.

Those are the sins of the past. So what should the country do in the future?

Unless a vaccine comes along relatively quickly, the Government is going to have to ration fiscal support between businesses such as pubs, restaurants, hotels, coach operators, travel agents, tour operators, certain types of retailers, and the ecosystem of suppliers that feed off them.

In his letter, Makhlouf points out that some of the SMEs he is talking about entered the pandemic “with unsustainable business models”. He suggests that picking them out of the distressed crowd now is very difficult because the pandemic has afflicted so many businesses, the healthy and the already sick.

Makhlouf might have been talking about rural pubs – in the dozen or so years up to 2018, more than 1,500 of them closed, according to industry figures sourced from the Revenue Commissioners. Or perhaps he meant travel agents, which were already struggling with the shift to online booking engines.

He may even have been talking about newspapers, which were already in mortal danger from the three digital advertising musketeers of Google, Facebook and Amazon, which is a retailer but also has a $14 billion ad business growing at 40 per cent per year.

SMEs of all shapes and sizes will be lining up around the block for assistance for a long time to come. Makhlouf says it is “not in the community’s interest that it supports loss-making enterprises”, therefore “difficult decisions may need to be made”. The corollary of this is that profit-making enterprises don’t require help at all. It’s only the loss-making ones that the State should consider helping.

But which ones?

Weighing up which businesses to save and which to condemn, the Government faces a very difficult task with a spider’s web of possible economic, moral and social implications. The scale of ministerial errors over recent months doesn’t inspire much confidence in their ability to pick through this web with any of the dexterity and nuance it will require.