Elena Leontjeva | President, Lithuanian Free Market Institute
The second lockdown in Lithuania is no different from the first one: there are no clear principles for economic relief, individual groups are fighting for their own interests, and the government is forced to constantly alleviate the emerging effects of the quarantine. But what if lockdowns persisted? Would everything be the same? Can we find a fair solution and a way to preserve solidarity? Finally, how can the government be liberated from this onerous pressure, resistance, and confusion that are no less dangerous to society than the pandemic itself?
The Spirit of the Constitution—Without Involvement of the Courts
In the heat of the first wave of coronavirus, I formulated a conceptual solution, transparent and simple: restrictions on economic activity due to a quarantine should be recognized as a temporary seizure of property, for which the Constitution requires fair compensation. Everyone understands that property is not just a plot of land, a kiosk, or a building. By being deprived of the opportunity to work, to use their hands and tools, to fulfill their obligations and contracts, people are losing their property and so their source of livelihood.
So the understanding that we are dealing with the restriction of private property rights is crucial here. Unfortunately, the recognition that property has been taken, and that this must be “compensated,” is still being avoided. So far, all the talk revolves around how best to provide “support” to the affected people and businesses.
It is now up to the courts to determine whether the lockdowns were mandated lawfully or whether the state must compensate for the damage it caused. Today, however, we need a practical answer to the main question: if restrictions are necessary, what should the government’s contract be with its people? And what should the compensation be for their loss of livelihood?
Litigating with its citizens is too expensive and unbecoming for the government that aspires to restore trust in society. There is no doubt that the courts can scrutinize various cases and come up with compelling new arguments. And yet, perhaps what is needed in this dispute is not so much an emphasis on distinct cases, but rather on making commitments in the spirit of the Constitution.
A Second Weighing Pan Is Required
If we agree that compensation must be paid for the government’s “taking,” there is a question of how much. Compensations could be set as a percentage of a person’s or company’s regular income. We could look at the emerging global practices to determine what level of compensation would be appropriate. If compensation is too scant, dissatisfaction is born. If compensation is so generous that people no longer want to return to work, it becomes damaging. Psychologists, specialists in corporate motivation, and experts could help the government find the answer. The key is to make it proportionate to all companies and people affected, and that the extent and procedure of compensation is known beforehand as restrictions are brought in.
Having a clear compensation mechanism would not escalate the issue of the duration of quarantine. In the first pan of the weighing scales, the government could place the epidemiological situation; in the other, the financial possibilities of public coffers to compensate those affected. The dispute over the duration of the lockdown is so heated today, and so difficult to resolve, precisely because it is impossible to combine epidemiological indicators with economic ones. If the quarantine does not cost much to those who mandated it, it can last a long time. If it lasts a long time, the burden will become unbearable for those who shoulder its greater costs. When fair compensation comes into play, decisions become reasonable and feasible.
How Much and For What
The downtime will last until we are able to compensate for it. Here, disturbing ethical considerations kick in though. Is it ethical to pay people for not working? Admittedly, those who have been forced into furlough in a way have sacrificed their work and earnings to slow down the spread of infection in society and prevent a terrible death toll. Such is the leitmotif of quarantine. It seems obvious and reasonable that these fellow citizens should be compensated.
If so, the legitimacy of payments to affected groups of society no longer poses doubts. What needs to be given back to people and businesses that have lost income is not support or allowance that has to be begged for (and which is available only if predefined conditions are met) and not credits that must first be justified and then repaid. It must be actual compensation—an unconditional part of the contract with society in the case of going into a lockdown.
Such payments will be swift and transparent. They will reach those who cannot work because they shoulder the burden for all of us.
This solution precludes all questions such as whether to compensate downtime or rent payments or something else. Companies receive a proportionate share of revenue and can then use these funds to sustain their activities, without government allowance bureaucracy, without credit interest rates. For individual proprietors we can use another principle. If furlough benefits are tied to a minimum monthly wage, it would probably make sense to apply the same principle. After all, the self-employed not only have to support themselves but also to maintain their place of work (for example, to pay rent).
Millions and Billions
Where to get the funds for such compensation? Abundant resources have reached us from EU funds and credits. Other countries use these funds to ensure that individuals and companies in the affected sectors receive adequate relief as soon as possible. With a common currency in place (the euro, which we do not control), we can follow the example of other countries. In this case, Lithuania’s desire to save would not save the euro but would only impoverish our people.
We must remember the following regularity: with a rapid issuance of money, those who put the money into circulation win the most. So the sooner the new euros reach the private economy, the more beneficial they will be. Moreover, if the funds arrive and remain inactive because of the authorities, society loses both time and money. We have had such funds deposited since the first quarantine, and we are repeating the same mistake. Improving the allocation criteria will not help. There are no good criteria for those who are deprived of the possibility to work and plan for their futures.
In any case, we must recognize that, even if we did not have EU funds, the question would still be relevant as to how we can compensate the people who have temporarily lost their livelihood for the good of us all.
Lost Time and Peace Is a High Price
People’s trust and time are important. No matter how expensive compensation might seem to some people, it is worth calculating how much we value human capital and motivation. How much time do the public and state institutions spend in dealing with the consequences of the improper imposition of quarantine rules? How many resources are spent in an agonizing bid to cover up the collateral consequences of non-compensation? And what is the cost of the government still being unable to fulfill its primary functions? Moreover, when the disputes finally reach the courts, how much will that litigation cost those prosecuted and all taxpayers?
Perhaps it is easier and fairer to establish a clear, transparent compensation system that respects the time and the unity of the public. Maybe, for that reason, instead of waiting for the decisions of the Constitutional Court and other courts, we should treat a forced closure of activities as a restriction of property rights, and restore harmony and justice in society.