Short-term and long-term economic disruptions and the SME Spectrum 
            – Rebuilding after the COVID-19 pandemic of 2020 
       
       
       
       
       
                              
          STRENGTHENING SMEs IS ESSENTIAL TO ECONOMIC GROWTH 
                    UN ILO Webinar, April 6, 2020 
                              
       
       
       
       
       
       
       
                        By Giuseppe Gramigna 
                 SME Consultant and Former US SBA Chief Economist 
       
       
                    
      © 2020 by Giuseppe Gramigna. All rights reserved. 
       
       
       
      Contents 
      Short-term and long-term economic disruptions and the SME Spectrum – Rebuilding after the COVID-
      19 pandemic of 2020 .............................................................................................................................................. 1 
       Introduction ......................................................................................................................................................... 3 
       Short-term economic disruption .......................................................................................................................... 3 
       Long-term economic disruption .......................................................................................................................... 4 
       The SME Spectrum ............................................................................................................................................. 5 
       Agent adaptation and government interventions for a resilient post COVID-19 economy ................................ 6 
       The need for a new data infrastructure for fast-moving behaviors ..................................................................... 6 
       
       
       
       
                    
      © 2020 by Giuseppe Gramigna. All rights reserved. 
       
       
            
           Introduction 
           This conceptual framework divides economic disruptions into short-term disruptions and long-term disruptions, 
           and argues that they are inherently different, and thus require fundamentally different interventions. In addition, 
           it suggests that SME-centric interventions should leverage their diversity to increase resilience across the SME 
           sector and the general economy. The economic losses associate with short-term disruptions are based on the 
           assumption that activities will return to their pre disruption levels and modalities. As such, they are inherently 
           calculable, and can be largely addressed with financial interventions. Long-term disruptions tend to result in 
           meaningful economic dislocation and destruction. As a result, a meaningful portion of private sector economic 
           agents (firms and workers) will not return to their pre disruption economic level or modalities, but will need to 
           adapt new economic modalities. In this environment, government interventions should go beyond financial 
           assistance and foster adaptations of new economic modalities. The forefront of these interventions should 
           include (i) access to information and networks, (ii) capacity building, and (iii) advocacy. Financial assistance 
           should be part of these three elements. In the post COVID-19 environment, private sector economic agents 
           (including SMEs) and governments will need to respond with innovative and forward-looking adaptations, and 
           make resilience planning part of ordinary activities. They will need to be more digital, participate in wider 
           partnerships, and incorporate more diverse input and distribution channels. Finally, a healthy, well-educated 
           labor force, with robust and flexible skills will need to be at the front and center of all these interventions. 
            
           Short-term economic disruption 
           The fundamental nature of short-term disruptions is that post-disruption economic activities are expected to 
           return to their pre-disruption levels and modalities. As such, loses are inherently calculable, as represented by 
                                      i
           the area over the Red in Figure 1. 
            
           Figure 1: Short-term economic disruption 
                                                                                             
           Interventions suited to address economic losses associated with short-term disruptions tend to take the form of 
           quickly available government-assisted access to finance, that may be offered at lower than market prices. The 
           current economic assistance provided to SMEs, mostly in the form of loans or grants, by across most OECD 
           countries, while unprecedented in level, fall into this category (e.g. Paycheck Protection Program). 
                                       
           © 2020 by Giuseppe Gramigna. All rights reserved. 
            
            
       
      Long-term economic disruption 
      The fundamental characteristic of a long-term disruption is that a meaningful portion of economic agents 
      either (i) will exit the market or (ii) are in danger of exiting the market. As a result, surviving private sector 
      agents, as well as new entrants, will need to adopt to or leverage new economic modalities. Indeed, we see this 
      already being discussed in the media. 
       
      Private sector economic agents will not be the only entities that will need to adapt. Governments will need to do 
      the same to support private sector adaption and resilience. In addition, new modalities will not only need to 
      come in the form of new markets but will need to include new methods of production and distribution. 
       
      Figure 2: Long-term economic disruption with adaptive economic modality 
      Stage II: Exploration  
                              Stage I: Disruption and dislocation 
           Stage III: Adoption                 
          
         In this environment, the critical policy and investment question becomes which agents exited the 
         market? Were they (1) the less efficient, or were they (2) the risk takers? The answer to this question 
         will determine the intervention typology and agents. An empirical analysis of the characteristics of 
         existing agents might find that on average (1) the most efficient survived and the less efficient exited the 
         market. In this scenario, policy makers and financial institutions should work with existing firms and 
         new entrants. Thus, economic growth would primarily occur along existing economic modalities, and 
         with existing agents and new entrants.  
          
         On the other hand, such analysis might find that on average (2) risk-averse agents survived and risk 
         takers exited the market. In this scenario, policy makers will need to re-grow agents with high risk 
         preferences, and financial institutions would need to find additional risk takers, as their portfolio may be 
         risk (and thus yield) deficient. In this scenario, economic growth would occur via new modalities, and 
         predominantly with new agents. 
                    
      © 2020 by Giuseppe Gramigna. All rights reserved.