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LATEST OECD REPORT - THE TERRITORIAL IMPACT OF COVID-19: MANAGING THE CRISIS ACROSS LEVELS OF GOVERNMENT

LATEST OECD REPORT - THE TERRITORIAL IMPACT OF COVID-19: MANAGING THE CRISIS ACROSS LEVELS OF GOVERNMENT

LATEST OECD REPORT - THE TERRITORIAL IMPACT OF COVID-19: MANAGING THE CRISIS ACROSS LEVELS OF GOVERNMENT

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With more than 1 million people around the world affected by COVID-19 and half of the world population experiencing confinement measures, national and subnational governments are adopting a wide range of measures to respond with targeted action and cope with the public health emergency and its economic impact. The OECD estimates that for each month of strict containment measures, there will be a loss of 2 percentage points in annual GDP. The impact is of COVID-19 crisis is also differentiated within countries, with some regions and cities being harder hit than others. The combination of national and subnational measures and an ability to work together, is fundamental for an effective response to this crisis and, ultimately, any emergency. As of 3 April, the responses by national and subnational governments highlighted that:

  • COVID-19 has a strong regional impact, calling for differentiated governance and policy responses. The regional and local impact of the crisis has been highly asymmetric. In China, 83% of confirmed cases were concentrated in Hubei province. In Italy, the country’s north was hardest hit, and Lombardy, registered the highest number of cases (around 41% of total cases in Italy). In France, the regions of Île-de-France (37% of cases) and Grand Est (29%) were the most affected as of 1 April. In the United States, the state of New York has the highest proportion of COVID-19 cases (40%). Countries are managing the asymmetry in a variety of ways. In China, the central government allocated Hubei Province CNY 35 million in general grants to be used at the discretion of the provincial government, following national general policy guidance. The French government is transferring patients from the most affected regions to less affected ones. Italy is negotiating to apply funds under the EU Corona Response Initiative to public health services, SMEs, workers and households. Korea adopted a supplementary budget in March 2020 that includes support for Daegu City and North Kyeongsang Province, two of its hardest hit areas.
     
  • Subnational governments are at the frontline of the COVID-19 response. Regional and local authorities are responsible for delivering critical short-term containment measures and more long-term recovery activity – from health and social care to economic development and public investment. Subnational governments account for a quarter of total public health expenditure, on average in the OECD, ranging from more than 90% in Switzerland or Spain to less than 1% in France or New Zealand. Directly and indirectly, they are also supporting members of the most vulnerable populations, such as the elderly, migrants and homeless. Meeting these demands calls for pro-active initiatives and flexibility by all levels of government, ranging from how services are delivered, to adjusting the regulations framing such activity. Some Austrian municipalities are offering food-delivery services to sick and vulnerable people upon request. Over 60 cities in China have changed regulations governing land and permitting a delay in meeting contractual obligations. Local authorities in Greece must create a record of citizens requiring assistance, including the indigent. “State of Emergency” measures in Japan allow authorities to commandeer large buildings for makeshift hospitals. The UK Government is introducing measures to give Local Councils 1 Initial Insights greater flexibility and allow them to further focus resources on responding to COVID-19. In the US, state governments are proactively implementing crisis management measures, including in collaboration with their neighbours.

  • Subnational governments have a key role to play in mobilising digital tools to better track the pandemic, tracking and testing, and inform decision-making at all levels. In Germany, coronavirus testing has been increased considerably since the beginning of the crisis and Germany can now carry out half a million tests per week. The dense network of laboratories across Germany have helped organise the testing relatively quickly and on a large scale. Italy’s Veneto region successfully applied a multi-pronged approach to controlling the virus, emphasising extensive testing, proactive tracing, home-diagnosis and care, and monitoring medical personnel and other vulnerable workers. In Korea, authorities used mobile phone local information to backtrack the movements of infected persons, and many municipalities set up “drive-through” COVID-19 testing pods where medical staff in protective clothing take samples from people in automobiles, facilitating massive and continuous testing. Norway’s government launched an online reporting tool through which all of the country’s residents can report their respiratory symptoms and underlying conditions.

 

  • A coordinated response by all levels of government can minimise crisis-management failures. The main risk of non-coordinated action in a crisis is to “pass the buck” to other levels of government, resulting in a disjointed response. This can generate collective risk. It can also reignite a centralisation vs decentralisation debate. Yet, it is not the degree of centralisation or decentralisation that matters for successful response measures. In fact, while some governments are temporarily recentralising health management in response to the crisis, such as Norway and Switzerland, others, like the UK, are decentralising it. What matters is the effectiveness of the coordination mechanisms in place, and the ability of government actors to align priorities, implement joint responses, support one another, and foster day-to-day information sharing, including with citizens. Effective crisis response highlights that robust vertical and horizontal coordination mechanisms are more important than ever. Canada’s Public Health Agency activated the Health Portfolio Operations Centre (HPOC), which acts as the focal point for coordinating response activities and supporting emergency operations at different levels of government. Chile established the Social Committee for COVID-19 bringing together national and local government representatives, and academics and professionals from the health sector. In Germany, the Federal state and the Länder jointly decided to close non-essential economic activity. Spain introduced an inter-ministerial commission to ensure coordination within the government, and an inter-territorial commission to support cooperation among different levels of government.
     
  • The medium-term economic impact will also differ across regions, based on a region’s exposure to tradable sectors, global value chains, and type of specialisation (e.g. tourism). Metropolitan regions show a relatively higher risk of job disruption than other regions (OECD, forthcoming). This could lead to significant differences in regional employment and GDP, affecting a well-distributed economic recovery. However, in the medium- to long-term the effect – including with respect to the territorial impact on the economic and financial crisis – is likely to become more uniform across regions.
     
  • The stress on subnational finance will be substantial, in the short, medium and long terms. Implementing measures to address the virus increases pressure on subnational spending. Meanwhile, subnational revenue will be strained by reduced tax-, tariff/fee- or asset-derived income that is sensitive to economic fluctuations and policy decisions. Mitigating the financial impact on subnational governments and to help them commit the necessary urgent resources to help the population or support businesses is fundamental. In Finland, The Government has announced that it will ensure that there will be no funding gaps for local governments and one of the first announced measures is an increase in the municipal share of corporate income tax revenue. In France, the "emergency bill" allows subnational governments to derogate from the spending rule adopted in 2018, which limits the growth of their operating expenditure to 1.2%. The Norwegian Government announced a discretionary grant to municipalities to cover additional expenses caused by the outbreak. In Spain, local governments are now allowed to allocate up to EUR 300 million from the 2019 surplus to finance economic aid and all provision of primary care and dependency care managed by the social services. At regional level, a “shock plan” includes several measures to provide the Autonomous Communities with more resources to combat the coronavirus.

National and subnational governments will be leading the economic recovery effort, including through regional and local recovery plans that are likely to include business support and stimulus packages targeting public investment. Some of this activity is already underway. France established regional task forces that include development banks in order to accelerate support measures for businesses, while EUR 1 billion in national and regional funds have been unlocked to support artisans, retailers and small businesses. Poland announced an economic recovery package that includes boosting public investment. The European Union launched the “Corona Response Investment Initiative” (CRII, complemented by the CRII+) directed at health care systems, SMEs, labour markets and other vulnerable parts of EU Member State economies. The United States passed a USD 2 trillion relief package for individuals and businesses. It include money for hard-hit hospitals and healthcare providers, as well as financial assistance for small businesses, and loans for distressed companies.

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THE TERRITORIAL IMPACT OF COVID-19: MANAGING THE CRISIS ACROSS LEVELS OF GOVERNMENT © OECD 2020