Rejecting “back to normal”

Positive and pragmatic approaches for a fair and sustainable post-COVID recovery were the focus of the latest in Cardiff Business School’s Breakfast Briefing series.

Dr Jonathan Preminger, Lecturer in Work and Labour Relations at Cardiff Business School, led a discussion on rescuing and resetting the UK economy after COVID-19 via debt-to-equity-swaps.

The idea, co-developed with Dr Guy Major, from Cardiff University’s School of Biosciences, and Jenny Rathbone Welsh Labour Member of the Senedd for Cardiff Central, positions the pandemic as an opportunity for reforming legislation and changing social norms.

A vicious circle of debt

He explained that firms are likely to emerge from the pandemic more heavily in debt, straight into a deep recession.

Their debt is likely to perpetuate a vicious circle which will affect credit ratings and generate higher rates of borrowing while workers bear the brunt of these costs through wage erosion, pay cuts and in some cases even dismissals.

After outlining the context which their idea seeks to address, Dr Preminger moved onto a discussion of equity investment as a possible solution.

Risks and rewards

He argued that as firms emerge from the pandemic, they should be allowed to swap government-backed debt for tradeable equity shares, which do not need to be repaid and enable stakeholders to share more fully in risks and rewards.

Dr Preminger acknowledged that there are inherent dilemmas of such a proposal, including:

• Firms’ reluctance to cede control to external stakeholders
• Investors’ wariness for investments over which they have no control or additional protection

In response, he explained: “We’re proposing a mechanism that explicitly locks together the interests of current owners, workers and investors. And by investors, we’re including the government at least initially…”

“The firm’s value-added, or in other words sales minus labour costs, should be split between workers and investors using a pre-agreed formula. When the firm does well, both workers and investors get to benefit, and the risk of course is shared too. So workers, by making efforts to increase their own wages, are automatically working in the interests of investors.”

Before bringing the briefing to a close, Dr Preminger outlined the advantages of their debt-to-equity proposal.

For more detail on the proposal, read Dr Preminger’s post on the Cardiff Business School blog.

Cardiff Business School's Breakfast Briefing Series is a network of events which enables business contacts to find out more about the latest research and key developments from industrial partners.

Following lockdown measures, implemented by Welsh Government in response to the COVID-19 pandemic, the School’s Executive Education Team has moved the series online.

If you were unable to attend, watch this recording of the event.