The first non-clinical trial recipient of a coronavirus vaccine was Margaret Keenan, a 91 year old woman from Coventry, England. She is the first member of the general public to step out of the pandemic period. She is a harbinger of better days ahead for both individuals and businesses.
Once the vaccines are available to all, will everything be back to normal? In Britain, the economy was put on life support, but the Chancellor of the Exchequer acknowledged that “not everything will look the same as before”. This comment recognises that putting the economy into a deep sleep won’t necessarily mean it will awaken the same as it was previously. But how different will it be? And should this transition be eased or accelerated?
Preserve and Revive?
There have been two models for reducing the coronavirus’ impact on the global economy. First, there’s the approach undertaken by Britain and its European neighbours. This could be labelled “preserve and revive”. The idea is straightforward: the economy has not gone into recession due to cyclical factors, rather, it was put back purposefully to preserve public health. When the virus dissipates, it should be possible to carry on as before, albeit with some alterations to significant segments of the economy like retail and tourism. As the Chancellor acknowledged, there will be economic pain, but by and large, many of the same firms will be carrying on doing more or less the same work as they were prior to the pandemic.
This makes sense in many European contexts: for example, German small to medium-sized manufacturers represent a key part of the country’s industrial base. German industry is the key to the country’s export-led growth. Yes, production was temporarily stopped, but the need for high quality manufactures will not be eliminated by the coronavirus. These firms and their complex tooling and skilled labour are necessary for revival; so, it follows that it’s a priority for the government to preserve them. The same logic applies in countries that have more agrarian economies like France: vineyards and cheese makers will still find their products in demand after the lockdown, albeit the shape of these markets may have changed, i.e., there will be less demand from hotels and restaurants, but more from individual consumers.
The logic in a service-based economy such as the United Kingdom is less clear; for example, if a recruitment firm collapses, a new one can easily take its place. There is less investment in premises and equipment required. However, the Chancellor may believe that job creation is unlikely to occur quickly enough after the lockdown to make a more adventurous strategy worth attempting. Another element is Brexit: how the economy will adapt to life outside the European Single Market is an unknown. Britain’s economy may have already taken a hit due to this lack of clarity: The Times newspaper reported on the 28th of May that France had overtaken the United Kingdom as Europe’s top destination for foreign direct investment. Given this turbulent atmosphere, the Chancellor can be said to be taking a “safety first” approach, trying to protect the economy from dramatic shocks as best he can.
Or Chop and Change?
The second model is “chop and change”; it relies on an acknowledgement that the pandemic represents a drastic economic shift. This alteration is so significant it calls for what the Austrian economist Joseph Schumpeter referred to as “creative destruction”. Schumpeter believed this productive vandalism was a natural function of how the economy worked; he stated that creative destruction is the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. Schumpeter’s ideas were a reflection of reality: for example, the horse and carriage industry was undone by the arrival of the motor car. However terrible it was for those who worked in the older industry, the greater mobility proffered by the car represented progress.
America appears to still adhere to the doctrine of “creative destruction”. Although the US Government has provided support to many companies, a lot of firms have gone bankrupt without so much as a murmur. This is particularly evident in the retail sector: J. Crew, JC Penney and Neiman Marcus, key tenants in the American shopping mall, have gone bust. Other famed American companies like Gold’s Gym and Hertz rental cars have also filed for bankruptcy. The American government has not supported jobs not nearly in the same way that the British one has. Indeed, the American government’s main idea was to give individuals a stimulus cheque; a second one may be provided in the near future, depending upon whether Congress and the President can agree.
The “chop and change” approach may act as an accelerant to economic changes that were already afoot: the retail sector has been under continual pressure from online competitors. However, the pandemic may have caused changes in behaviour: people are probably going to be inclined to travel less; demand for rental cars is likely to drop. During the lockdown period, many people have learned how to exercise on their own using YouTube videos, home weights and solitary runs: a gym is now less attractive, particularly given the epidemiological dangers it now poses. Furthermore, the value of human relationships may have been reinforced by abstinence from social contacts. Given this, the personal, the local, the small, may very well be of greater utility.
The difficulty associated with the “Chop and Change” approach can be seen in America’s employment statistics; a stimulus cheque and extended unemployment benefits only eased the pain to an extent. It was not removed entirely. Furthermore, there was no breathing space for firms to adapt. For example, a JC Penney that had more time might have the ability to transition more of its operations to online retail, or perhaps become a more specialised; changes of this type might have permitted it to survive. However, the harsh logic of “creative destruction’ has been allowed to run; it is unclear how quickly the economy will return to health after these forces have washed over the economy.
The “Chop and Change” approach may only be suited to the United States. America can take advantage of its unique position to ease this transition: the dollar is still the world’s main currency. The United States has firms like Google, Microsoft and Apple: as the recent barring of Google apps from Huawei phones made clear, other nations may make beautiful hardware, but it’s America’s software that makes things work and more importantly, appeal to consumers. It can be said that “American software” is what powers the global economy. These factors will enable a revival even if “creative destruction” proves to be a deep operation. Other nations that utilise this method may not find it so straightforward.
What’s Next?
The Chancellor perhaps said more than he realised by stating that “not everything will look the same as before”. Retail has certainly changed: enter into a supermarket and one can see the social distancing measures put in place. Demand for home food deliveries has skyrocketed: at the beginning of May, Tesco had to restrict the number of home deliveries per week to one and restrict the number of items which could be ordered per delivery. Home delivery slots still prioritise those in the “shielding” category: others find it more difficult to secure them.
Demand for online shopping has also boomed: Amazon’s market capitalization has increased by over $90 billion since February 2020, according to the Wall Street Journal. New entrants into the online market are being facilitated by providers like UENI.
Will people return to the shops once they fully reopen? This is unclear: purchasing some items, such as clothes, will still incline individuals to a try before you buy approach. Bookstores may also fit into this category.
Will the leisure industry return to previous levels of activity? Again, this is unclear. It may very well be that there will be reduced demand for hotels and package holidays; however, it was reported on the Daily Telegraph on April 12, 2020 that more people were booking cruises after than before the coronavirus outbreak. This is in spite of the outbreaks which occurred on a number of cruise ships.
Will the local coffee shop remain? Given the reduction in costs proffered by home working, some firms may opt to have their entire staff, or a large portion of it, work from home from here on in. There may be too many outlets at the moment to serve the needs of commuters in the future. On the other hand, it may very well be that some firms will want their staff to return to the office at least on a part time basis to ensure corporate cohesion.
In short, both “preserve and revive” and “chop and change” are responses to uncertainty and the unknown shape of the future economy. It is unclear if any approach is “right” or even if one is “more right than wrong” or “more wrong than right”; great ideas for new businesses remain great ideas. Entrepreneurs need to be flexible, take advantage of online opportunities, and keep one eye on an ever shifting economic picture.
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