The new administration has taken several key steps during its first weeks in office to promote economic recovery from the pandemic, but the country still faces a rocky path ahead. The impact on small businesses has been devastating, millions of workers have been displaced and state and local governments face a budget crunch. Moreover, federal policy responses thus far have ignored the structural causes of rising inequality.
Despite the urgent need for more stimulus, the pandemic has demonstrated that we must also repair widening cracks in the foundations of our economy.
Millions of small businesses have been shuttered by financial stresses and health closures during the pandemic. Among small businesses polled in December by the U.S. Chamber of Commerce, 48 percent said their fiscal health was average or poor. The launch of the Paycheck Protection Program last March had been lauded as a lifeline for many small businesses, but initial funding was exhausted in less than two weeks. Although Congress allocated additional money, implementation problems left the program with more than $130 billion of undisbursed funds when it expired in August.
Depleted savings (particularly in communities of color) and limited relationships with traditional banks remain major obstacles to accessing capital for many small businesses. And other lenders, from community banks to fintech startups, struggle to operate effectively at scale due to state-level insurance requirements and disclosure rules. Even if we provide additional government funding, a foundational response must begin with mapping access to capital and establishing a less complicated process for lenders and borrowers to work together. Technical assistance can also increase small businesses’ ability to repay loans and improve their long-term profitability.
After millions of permanent job losses, the plight of many workers remains grim. As with the PPP, there is also evidence of geographic and racial disparities in access to unemployment benefits. Workers displaced by the pandemic disproportionately reside in communities of color, hold low-income jobs, have less education, and are younger. Meanwhile, even workers that have not experienced job loss still face major challenges. Here in California, Hispanic essential workers required to report in person continue to face greater health and economic risks due to a combination of lower incomes and limited insurance coverage.
Automation and other technologies cause some workers to lose their jobs, while others face cuts in hours and/or wages. These trends point toward strong potential for a “K-shaped” recovery, in which the outlook is markedly better for high-income earners working from home. In order to provide workers with the flexibility they need to navigate the evolving job market, we must begin to think beyond unemployment insurance and invest in systems to protect workers from more erratic employment cycles, including a thorough examination of the potential for universal basic income.
Nearly all state and local governments face tremendous economic pressures, but these vary from region to region. The National Association of Counties has shown that federal funding has not met key needs from small business support to broadband access — particularly in rural areas.
Meanwhile, our Milken Institute “Best-Performing Cities Index,” coming out next week, will show that some “superstar” high-tech hubs are seeing out migration due to low job growth and less affordable housing.
Beyond the pandemic, many regions will struggle to create jobs without fiscal guarantees or a major increase in revenues among local employers. Numerous small metros, particularly tourist hubs, will continue to struggle without a rebound in consumer spending or travel. A comprehensive solution would use the federal government’s borrowing capacity to support place-based investment in resilient infrastructure, affordable housing and knowledge-based industrial development to regrow the local tax base. This would also reduce the substantial pressure on government officials to meet their budget obligations through fiscal austerity measures that suppress regional job creation.
There are no simple solutions for creating a robust recovery from the pandemic. As we wait for vaccinations to be distributed throughout the country, small businesses will continue to struggle, workers will continue to face job insecurity and without federal assistance, state and local governments will have limited resources to promote their own recovery efforts.
A truly effective and prolonged recovery requires not only the necessary funds but also the necessary policy improvements to ensure the recovery is truly equitable and reaches even the nation’s most vulnerable communities. It’s time to repair our economy’s foundation and start building back better.
Kevin Klowden is executive director of the Milken Institute Center for Regional Economics and California Center.