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The COVID-19 pandemic has hit the global economy with force. Many businesses across the world are struggling to cope with the financial strain – with mounting pressures placed on governments for more information on when society and businesses can return to “normal".
This of course can’t happen overnight and it’s likely to be months before life completely returns to normal due to ongoing safety concerns and the need for continued social distancing.
Alessandro Rebucci, associate professor at Carey Business School is currently working on the pros and cons of controls on international capital flows, and methods to estimate macroeconomic models of financial crises.
He compared how China’s strict mandatory lockdown during the first week of the epidemic compared to the initial lax restrictions in the US and Europe had evolved.
Rebucci said: “The steepness of the curve has been much higher in these countries than in China.
“This suggests that continuing to go with a fairly liberal approach to reopening is potentially dangerous because we know from history that there is a concrete risk to see a second wave of infection, potentially more virulent than the first one.”
The world of work
COVID-19 has taught us that some jobs can be more easily executed without social interaction than others. When it comes to lifting restrictions for the sake of the economy, these should be taken into account.
Rebucci said: “We need to focus on those that are less vulnerable to transmit infection as the first to be liberalized.
“For those sectors where it is not possible to do smart social distancing - for example, restaurants and movie theatres - we need to compensate with support for the businesses and individuals.”
The service economy has been hit particularly hard, as Professor Roland Rust of Smith School of Business noted: “What we are seeing is a lot of individual people and individual ‘mom-and-pop’ service retail locations being completely hammered.
“For example, if somebody has a small retail store, chances are they have a relatively low margin for what they sell, and they simply don’t have the financial capability to withstand a long period of time without any revenues.
“PPP loans [in the US] are supposed to be supporting small businesses, but the truth is, that money has been very, very slow. Many of the businesses that have succeeded in getting the money have been big businesses that had good relationships with big banks.”
It’s been predicted that 70 percent of businesses in the US may never reopen but some may in fact grow and come out stronger. Rust said: “The [businesses] that are going to have the most trouble are the ones that have a lot of direct personal contact.”
Fine dining or mass-seated restaurants will be in trouble for a while according to Rust, as even if restrictions are loosened, service personnel and clients won’t necessarily want to show up. He said: “If you don’t have a customer and somebody to serve the customer, well you don’t really have a business.”
Paul Pfleiderer, professor of finance at Stanford Graduate School of Business, discussed the difficult question on how to weigh up adherence to the medical experts versus livelihoods and businesses.
Pfleiderer admitted it’s difficult as there is so much uncertainty surrounding the information we receive about COVID-19, such as how lethal it is and whether certain age groups are safer.
Some people are going to be more willing to take risk than others. Pfleiderer used a Californian earthquake in 1989 to add to his point. Pfleiderer said for about a year he would drive carefully to ensure he wouldn’t get caught under an overhang of a bridge if the traffic slowed down.
He said: “I think we’re going to see the same thing. A number of people are going to be very shy about social contact.
“The worst thing to do is to open up things and not too much happens on the economy but then we see a big spike in the virus again and that means the next time we open it up, it’s going to be even more difficult.
“I think opening it too soon is going to run the risk of undermining the confidence that consumers have.”
Should the economy be reopened?
Could there be a significant economic benefit to start to reopen the economy? Rebucci agrees that people are scared at the moment. He said: “The medical situation [in China] is way more under control, where the epidemic curve is definitely beginning to flatten to the no risk zone.
“Risk is still so elevated that individuals are not willing to take chances. That’s why I think a lot of thought needs to go into how and when to reopen but there is the risk of fueling further spread without large economic gains.”
In reality, things aren’t going to pick up where we left off. People working in retail and the service industry have probably been laid off – they’re not going to have an easy time, similar to many customers.
And there’s already the risk that owners can’t reopen stores; effectively, their revenue has gone.
Rust added: “[Owners] still have to pay their rent and all their creditors, and they were counting on revenue coming in. Now it’s not coming in and so they are in deep, deep trouble.”
“You end up with the unemployment rate being at great depression levels. My greatest concern is that we are entering a great depression.”
Pfleiderer said: “I’m very glad that I’m not in the position of having to make decisions that are really difficult, having to trade off life-and-death and economics.”
There are going to be winners of course. Food delivery places, grocery stores and online retailers have already benefited hugely from increased demand. However, there are going to be a lot of losers too.
Rust said: “People out of work because their retail location went out of business are not going to contribute to the economy and they’re not going to hire people. You have a multiplier effect that’s going in the negative direction.”
When the dust settles, people will likely think twice about hopping on a plane from Philadelphia to San Francisco for a two-hour meeting when they know Zoom works and they’re used to it.
Pfleiderer said: “It could be that we all have Zoom fatigue in the end and people are just really anxious to get on those airplanes and go. I think this could change some of the cultural norms and the way business is done.”
Of course, transformations are going to happen, but some may be seen as more of a silver lining. Rebucci said: “Because the crisis is so protracted, businesses will have to adapt. There will be innovation likely to survive past this particular period.”
Niamh was Deputy Head of Content at QS (TopMBA.com; topuniversities.com), creating and editing content for an international student audience. Having gained her journalism qualification at the Press Association, London and since written for different international publications, she's now enjoying telling the stories of students, alumni, faculty, entrepreneurs and organizations from across the globe.
Re-opening Businesses in COVID-19: Pros and Cons
By Niamh Ollerton
Updated UpdatedThe COVID-19 pandemic has hit the global economy with force. Many businesses across the world are struggling to cope with the financial strain – with mounting pressures placed on governments for more information on when society and businesses can return to “normal".
This of course can’t happen overnight and it’s likely to be months before life completely returns to normal due to ongoing safety concerns and the need for continued social distancing.
Newswise recently held a live press event with expert panelists from Stanford Graduate School of Business; University of Maryland's Robert H. Smith School of Business and the John Hopkins Carey Business School debating the pros and cons of re-opening the economy under the COVID-19 pandemic.
Let’s see what the experts had to say.
Hearing from the professionals
Alessandro Rebucci, associate professor at Carey Business School is currently working on the pros and cons of controls on international capital flows, and methods to estimate macroeconomic models of financial crises.
He compared how China’s strict mandatory lockdown during the first week of the epidemic compared to the initial lax restrictions in the US and Europe had evolved.
Rebucci said: “The steepness of the curve has been much higher in these countries than in China.
“This suggests that continuing to go with a fairly liberal approach to reopening is potentially dangerous because we know from history that there is a concrete risk to see a second wave of infection, potentially more virulent than the first one.”
The world of work
COVID-19 has taught us that some jobs can be more easily executed without social interaction than others. When it comes to lifting restrictions for the sake of the economy, these should be taken into account.
Rebucci said: “We need to focus on those that are less vulnerable to transmit infection as the first to be liberalized.
“For those sectors where it is not possible to do smart social distancing - for example, restaurants and movie theatres - we need to compensate with support for the businesses and individuals.”
The service economy has been hit particularly hard, as Professor Roland Rust of Smith School of Business noted: “What we are seeing is a lot of individual people and individual ‘mom-and-pop’ service retail locations being completely hammered.
“For example, if somebody has a small retail store, chances are they have a relatively low margin for what they sell, and they simply don’t have the financial capability to withstand a long period of time without any revenues.
“PPP loans [in the US] are supposed to be supporting small businesses, but the truth is, that money has been very, very slow. Many of the businesses that have succeeded in getting the money have been big businesses that had good relationships with big banks.”
It’s been predicted that 70 percent of businesses in the US may never reopen but some may in fact grow and come out stronger. Rust said: “The [businesses] that are going to have the most trouble are the ones that have a lot of direct personal contact.”
Fine dining or mass-seated restaurants will be in trouble for a while according to Rust, as even if restrictions are loosened, service personnel and clients won’t necessarily want to show up. He said: “If you don’t have a customer and somebody to serve the customer, well you don’t really have a business.”
Paul Pfleiderer, professor of finance at Stanford Graduate School of Business, discussed the difficult question on how to weigh up adherence to the medical experts versus livelihoods and businesses.
Pfleiderer admitted it’s difficult as there is so much uncertainty surrounding the information we receive about COVID-19, such as how lethal it is and whether certain age groups are safer.
Some people are going to be more willing to take risk than others. Pfleiderer used a Californian earthquake in 1989 to add to his point. Pfleiderer said for about a year he would drive carefully to ensure he wouldn’t get caught under an overhang of a bridge if the traffic slowed down.
He said: “I think we’re going to see the same thing. A number of people are going to be very shy about social contact.
“The worst thing to do is to open up things and not too much happens on the economy but then we see a big spike in the virus again and that means the next time we open it up, it’s going to be even more difficult.
“I think opening it too soon is going to run the risk of undermining the confidence that consumers have.”
Should the economy be reopened?
Could there be a significant economic benefit to start to reopen the economy? Rebucci agrees that people are scared at the moment. He said: “The medical situation [in China] is way more under control, where the epidemic curve is definitely beginning to flatten to the no risk zone.
“Risk is still so elevated that individuals are not willing to take chances. That’s why I think a lot of thought needs to go into how and when to reopen but there is the risk of fueling further spread without large economic gains.”
In reality, things aren’t going to pick up where we left off. People working in retail and the service industry have probably been laid off – they’re not going to have an easy time, similar to many customers.
And there’s already the risk that owners can’t reopen stores; effectively, their revenue has gone.
Rust added: “[Owners] still have to pay their rent and all their creditors, and they were counting on revenue coming in. Now it’s not coming in and so they are in deep, deep trouble.”
“You end up with the unemployment rate being at great depression levels. My greatest concern is that we are entering a great depression.”
Pfleiderer said: “I’m very glad that I’m not in the position of having to make decisions that are really difficult, having to trade off life-and-death and economics.”
There are going to be winners of course. Food delivery places, grocery stores and online retailers have already benefited hugely from increased demand. However, there are going to be a lot of losers too.
Rust said: “People out of work because their retail location went out of business are not going to contribute to the economy and they’re not going to hire people. You have a multiplier effect that’s going in the negative direction.”
When the dust settles, people will likely think twice about hopping on a plane from Philadelphia to San Francisco for a two-hour meeting when they know Zoom works and they’re used to it.
Pfleiderer said: “It could be that we all have Zoom fatigue in the end and people are just really anxious to get on those airplanes and go. I think this could change some of the cultural norms and the way business is done.”
Of course, transformations are going to happen, but some may be seen as more of a silver lining. Rebucci said: “Because the crisis is so protracted, businesses will have to adapt. There will be innovation likely to survive past this particular period.”
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Niamh was Deputy Head of Content at QS (TopMBA.com; topuniversities.com), creating and editing content for an international student audience. Having gained her journalism qualification at the Press Association, London and since written for different international publications, she's now enjoying telling the stories of students, alumni, faculty, entrepreneurs and organizations from across the globe.
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