Deregulation now—and in the post-COVID world

Hopefully, the worst of the COVID-19 pandemic will soon be behind us. Economists are debating the likely speed and vigour of a post-COVID economic recovery, but it seems fair to conclude that government policies that reduce barriers to labour mobility—and regulations and other impediments to new business startups—could substantially boost the strength of any economic recovery.

Fortunately, the stock of human and physical capital, while idled by the mandated shut-down of much of the domestic and global economy, remains largely intact. The layoffs and furloughs of workers have been relatively short in duration, at least so far, so that the labour-market skills of the growing number of workers affected have not (yet) seriously degraded. Furthermore, physical assets, including commercial properties, industrial plants and machinery and equipment, can be readily brought back into operation after appropriate sanitation and maintenance. However, it’s likely that significant modifications must be made to how human and physical capital will be used going forward.

Specifically, it’s highly unlikely that patterns of economic activity that existed prior to the onset of the COVID-19 pandemic will reemerge as Canada’s economy, and those of other developed countries, open up. Some major economic sectors such as hospitality and tourism may comprise a permanently smaller portion of the post-COVID economy than prior to the pandemic. Others sectors, such as online education and at-home care (rather than nursing homes) for senior citizens and the disabled, are likely to be permanently larger sectors of the economy.

To accommodate new economic circumstances in a post-COVID era, many businesses may need to reengineer how they conduct production and distribution activities including, for example, redesigning the physical layout of their stores and factories or repurposing buildings from commercial properties to warehouses and logistical centres. And there will be needed investments in new business startups to provide employment opportunities for workers who need to move on to new jobs.

Unfortunately, the rate of new business startups in Canada and other developed economies was declining prior to the COVID pandemic. This reflects to a significant extent population aging. Entrepreneurs tend to be from an age group (mid-20s to late-30s) that comprises an increasingly smaller share of the total population of developed economies. Nevertheless, governments can implement policies to promote increased entrepreneurial activity, by reducing or eliminating capital gains taxes and easing regulations that inhibit would-be startup companies from raising financial capital through online crowd-sourcing and other less-conventional methods.

Moreover, easing licensing restrictions that require relatively extensive training and costly certification for workers to be legally employable in businesses (delivering cosmetic and grooming services, daycare for children and at-home care for seniors, etc.) should be streamlined to facilitate a transition of human capital from economic sectors, which are unlikely to be robust sources of new startups, to those with more attractive prospects for profitability.

Finally, because many existing physical assets may need to be reconfigured or redeveloped for new or modified activities, governments should reform zoning and other municipal review processes to reduce regulatory red tape and other sources of costs and delays imposed on real estate developers.

During the COVID crisis, governments in Canada, the United States and elsewhere have relaxed—or outright suspended—regulations in various areas. For example, allowing off-patent use of therapeutics, expediting the use of testing diagnostics and allowing health-care personnel to work across licensing jurisdictions. If governments can relax or suspend regulations during a health-care crisis, then surely any economic recovery program could include reductions in regulatory restrictions on the mobility of workers and other productive inputs.

Public policies to promote improved efficiency on the supply-side of markets are always desirable. In the post-COVID era, they are arguably critical to restoring economies back to health and getting Canadians back to work.