The economic storm stemming from the Covid-19 pandemic is taking its toll on businesses. But self-employed workers are taking the brunt of it.
26 March 2020
The Covid-19 pandemic is wreaking havoc on our health, our societies and our daily way of living. But it has had the biggest impact on the self-employed and micro- or small-sized businesses.
The impact on large employers – such as local and international corporations, government bodies, hospitals and educational bodies – is already well documented. But these organisations have the wherewithal to offer employees options to reduce the spread of Covid-19. This includes working from home, extended holiday periods and leave without pay. While these bigger firms will find it tough going, most of them have the financial ballast to weather the storm.
On the other hand, the sector that represents the biggest group of workers in ASEAN comprises self-employed workers, the SME sector and micro-firms (which typically hire three or less employees). According to 2015 figures compiled by the Economic Research Institute for ASEAN and East Asia, this sector hired 61 million people in ASEAN. Unsurprisingly, the losses this sector could suffer are potentially catastrophic.
The sub-sector that could be hardest hit constitute the self-employed. This includes Grab drivers, accountants operating their own practices and small-scale farmers.
Together, these self-employed workers are the ‘silent majority.’ Recent research by the International Labor Organization shows that globally, 70 per cent of all workers are self-employed or are part of micro businesses. In the East Asia-Pacific region, the figure is around 55 per cent (in the ILO nomenclature, this region includes ASEAN, Northeast Asian countries, Oceania and Pacific Island states).
These traders don’t have the financial resources of larger corporations and employers. They don’t get paid holiday leave; income is usually earned on a day-by-day basis and most of them trade on miniscule profit margins. Whilst there are indeed some wealthy self-employed people (typically professionals and investors), most own-account workers and micro-enterprises don’t make much more in a year than covering their costs and paying a wage. Even in a good year, they are statistically the most likely groups to fail.
Current measures to tackle the Covid-19 pandemic are impacting the self-employed sector. Governments across the region have put in place restrictions on public events, entertainment, and social gatherings and tourism. While necessary to contain coronavirus, they are reducing consumer activity and sales – and the potential livelihoods of the self-employed.
For the self-employed, this loss of revenue, and the risk of shutting up shop for a 14-day self-isolation period if they fall ill, can be tantamount to financial ruin. This is a significant group: there are 196,000 own-account workers in Singapore and 2.84 million in Malaysia, and many hundreds of thousands across the rest of ASEAN.
So they need financial support now, not later.
So what can be done?
Many traditional approaches won’t work. Providing more loans is one option, but arranging these can often take time. Self-employed people rarely have significant collateral to offer, so these can be risky for the lender. Tax relief is often considered, but usually suffers from a time lag. Businesses get the benefit some time later, not at the present time which it needed
This a time for policy flexibility and creative thinking. There’s no one magic bullet here.
Direct grants or operating subsidies are another option, although governments have traditionally been wary of extensive ongoing funding. Bureaucrats often impose complex administrative, application and reporting processes that deter small business operators from seeking help.
Another option may be underwriting the income of the self-employed by providing them with the equivalent of a basic living wage for the duration of the crisis. It’s an option increasingly being discussed in some wealthier western European nations. This, however, goes against the deeply-ingrained aversion to providing anything tantamount to unemployment benefits in most of Asia.
Many self-employed workers are also in the informal (unregulated) sector, making it hard for central government agencies in both countries to reach them. In Malaysia, states such as Perak have turned to local councils to distribute support, as they have a more detailed local knowledge. In Singapore, the National Trades Union Congress is providing some financial support to self-employed union members as part of a broader member support program. Each of these are timely responses to an unprecedented problem.
Overall, this is a time for policy flexibility and creative thinking. There’s no one magic bullet here. Over the next few weeks governments will have to keep consulting extensively with businesses to see if there are other innovative ways they can provide in terms of practical immediate help.
But if our self-employed and micro-businesses go under, it’s not just an inconvenience. We will lose access to services and functions that are essential to our lifestyles. We might lose the next generation of emergent firms that may become medium and large businesses. Bereft of help, we will be left with a large group of fellow citizens without the means to support themselves, their families and their workers. Indeed, this will be the collateral damage resulting from strict measures to fight the Covid-19 pandemic.
Dr Michael Schaper is a Visiting Senior Fellow with the ISEAS – Yusof Ishak Institute, and was previously Deputy Chairman (small business) of the Australian Competition & Consumer Commission.
ISEAS Commentary – 2020/34
The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute. No part of this publication may be reproduced in any form without permission.