The sharp economic downturn appears to wholly justify a return of government bailouts amid the pandemic fight. Hong Kong will run a record deficit as it looks to dish out HK$120 billion (US$15.5 billion), including cash handouts and loan guarantees, in an urgent attempt to boost local industries. Japan’s response has been more generous, with a spending package estimated at about 20 percent of the country’s GDP, whilst the United States is looking to dole out roughly 14 percent. These are huge sums indeed, and an indictment of this unprecedented moment in history.

Yet government bailouts have a special resonance with the public, 12 years on from the last financial crisis, and they will no doubt be monitoring the handouts closely. Political leaders therefore need to exercise extreme caution when it comes to allocating resources in a manner that is deemed both transparent and, most importantly, fair.

There is no doubt that the global economy needs help, and fast. But it seems hard to escape the fact that the trillions of dollars offered by governments so far not only validate but reward the often questionable actions undertaken by many industries over the last decade or so. 

Many of the companies that will be on the receiving end of some of the largest bailouts were, until recently, enjoying unprecedented levels of profitability, largely thanks to massive global corporate tax cuts and stagnating salary levels. Flush with cash, these companies did little to prepare for a downturn, instead spending huge sums buying up their own shares, which have essentially become a mechanism to funnel money back to the salaries of those senior executives whose bonuses are linked to the company’s stock market performance, as earnings per share are artificially augmented through share buybacks. 

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Propelled by the White House’s tax cuts, companies in the S&P 500 index spent a staggering US$806 billion on stock buybacks in 2018. Last year, they bought up a “mere” US$730 billion. The airline sector in the US alone has spent 96 percent of its cashflow on buybacks over the past 10 years. Nevertheless, they are requesting about US$50 billion in bailouts from the government. 

Cathay Pacific, in line to receive the lion’s share of the HK$2.6 billion allocated to airlines in Hong Kong, meanwhile continues to have shareholder approval to buy back 10 percent of its shares annually. Other sectors, such as the hotel industry, have been just as egregious. The US' Hilton hotel chain, whose enormous portfolio includes over 6,100 properties in 120 countries, spent more than US$4 billion over the last three years on share buybacks. It now has US$9 billion of long-term debt and hardly any available cash at hand. Given how many people the hotel industry employs worldwide, it will no doubt receive a generous slice of the bailout pie.

However, many believe that those who do not deserve a bailout include corporations based in tax havens, arguing that asking for government assistance whilst at the same time systematically evading paying taxes is, well, wrong. This seems hard to counter. Indeed, several countries, such as France, Poland, and Denmark, are refusing to let companies registered in offshore tax havens access any State-funded assistance. 

It appears unlikely, unfortunately, that other countries in Europe, such as the United Kingdom, Netherlands, Switzerland, or Luxembourg, will follow suit, considering that together they are responsible for about half of all the world’s corporate tax avoidance risks, according to the Tax Justice Network. Some sectors, such as the cruise industry – currently lambasted as floating Petri dishes for COVID-19 – are infamous for making the most of offshore tax breaks: two-thirds of the sector is registered in Panama, Liberia, and Bermuda. They are nevertheless begging for enormous government handouts.

So if taxpayers are going to yet again bail out some of the world’s largest corporations, which employ some of the world’s most generously paid executives, it seems only right that there be some pre-conditions. 

Firstly, any company using bailout funds should be forced to maintain payrolls and actually use the funds to keep workers employed. Hong Kong’s Enterprise Support Scheme, which will pay 50 percent of employees’ salaries for six months – capped at HK$9,000 a month – so long as employers do not implement redundancies over that period, is a good example of this. Companies need to be barred from share buybacks, something which banks such as HSBC and Standard Chartered – major employers in both Europe and Asia – have wisely agreed to do, albeit temporarily. 

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And they should be prohibited from paying out dividends for several years, with a similar time period applying to executive bonuses. This is a particularly sensitive issue for the public, and there should be no repeat of, as the risk analyst and writer Nassim Taleb put it, a situation where “bankers who lost more money than ever earned in the history of banking, received the largest bonus pool in the history of banking less than two years later.” 

The UK’s Coronavirus Large Business Interruption Scheme, which allows companies to borrow up to GBP 200 million or 25 percent of turnover, on condition that during the duration of the loan the company does not pay dividends or bonuses, or engage in stock buybacks, is a potential example of the way forward.

These handouts could also turn out to be an opportunity to curtail tax avoidance. Any company that is not headquartered in the country where they request their bailout should not receive a penny. This does not need to come across as being vengeful: companies can simply re-domicile should they wish. 

Given that carbon dioxide emissions from commercial flights increased by a third between 2013 and 2018, airline bailouts should, meanwhile, come with a requirement to curb their carbon footprint, whilst any agricultural or manufacturing subsidies could perhaps be used to help drive more sustainable practices.

There is no doubt that the global economy needs help, and fast. But it seems hard to escape the fact that the trillions of dollars offered by governments so far not only validate but reward the often questionable actions undertaken by many industries over the last decade or so. Many of the relief packages, as they stand, are tantamount to an endorsement of several years of self-enrichment.

Now feels like a good time to start a discussion about what really is the corporate world’s responsibility to the people, and how those responsibilities should be enshrined in legislation so that we do not simply return to business as usual once this dark period of history passes.

The author is a consultant and writer with over 15 years of experience working in financial crime compliance throughout the Asia-Pacific region.