Governments Should Be Transparent When Planning to End Lockdowns

Businesses will benefit from clear policy guidance from lawmakers

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Lawmakers around the US have begun planning to end lockdowns and stay-at-home orders, including those in states that were the hardest hit by the COVID-19 pandemic.

In his May 4 press conference, New York Governor Andrew Cuomo announced seven requirements that the state must meet before it could begin to reopen businesses and restart the economy.

Cuomo’s communication strategy is a good first step to reduce economic uncertainty for businesses, a topic central to a new working paper by professors Christian Moser and Pierre Yared. Their analysis suggests that state and local governments around the country would benefit from laying out clear data-driven plans and sticking to them.

The researchers find that when governments do not provide a clear vision of the extent or duration of stay-at-home orders, businesses pull back on employee training, expansion, inventory, and marketing, all of which lead to diminished economic activity.

Yared, the MUTB Professor of International Business and Vice Dean for Executive Education, says that instead of “flying by the seat of their pants” when responding to news, policymakers should instead articulate precise goals and commit to a plan that guides how policy will respond to new information in the future.

“Government should state a plan and be transparent about it,” Yared says. “They should allow for revision under extreme conditions, but otherwise they should stick to a plan.”

Moser, Assistant Professor of Business, adds “thinking about contingencies in advance is good practice in government policymaking since it reduces economic uncertainty for businesses.”

“Business leaders make decisions well in advance, considering what they think government policies will be,” Yared continues. “Lack of transparency by the government adds to the already heightened uncertainty that businesses face due to the pandemic.”

Yared notes that this can cause businesses to pull back on investments that would support the eventual economic recovery.

Yared and Moser indicate in their paper that government decisions must be made in the context of the latest health and economic data, and that a lockdown should not be lifted if the health costs exceed economic gains.

But they add that it would be advisable to start to envision a post-lockdown business environment once health thresholds are met. 

“When businesses plan months ahead, it is helpful for them to know the likely future social distancing restrictions in place, and the conditions under which these would be relaxed or tightened,” Yared says.

Once businesses have greater certainty, they can plan ahead and make long-term investments.

“This could mean preparing inventory for when the lockdown is over, or budgeting for advertising spending,” Moser says. “It could also mean making required organizational changes, such as those involving hiring and training.”

Yared notes that state governments can take a page from the Federal Reserve and its use of contingent language to provide the business sector with “forward guidance.”

“If the government has a good idea of its objective and the policies needed to achieve them, it should communicate them clearly,” Yared says. “Otherwise, it is possible that businesses will assume the worst.”

About the researcher

Christian Moser

Christian is an Assistant Professor within the Finance and Economics Division at Columbia Business School. His research focuses on macroeconomics and labor economics...

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About the researcher

Pierre Yared

Pierre Yared is the MUTB Professor of International Business, Senior Vice Dean for Faculty Affairs, and Vice Dean for Executive Education at Columbia Business...

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