COVID-19 economic reflection

Some thoughts of the economic crisis we’re currently going through, the likely ways out, and the shape of the economy and society in the aftermath.


It’s a relatively safe prediction that the economy after COVID-19 will end up more consolidated and the balance will shift from SMEs to corporations. As a result of the shutdown lots of small firms and their supply networks will be wiped out, while large global brands expand in their space. That will raise inequality within economies, and between economies. For example middle-income countries with lots of SMEs will lose domestic firms and substitute imports from the same multinationals.

In part that may explain stock prices, where tech stocks are having a V-shaped recovery out of touch with the real economy. Amazon is now above its pre-crisis valuation. Inevitably, these firms will see a few bad quarters because the wider public, if not the middle class, will have less money to spend. But they’ll spend it online or on gadgets instead of at the pub. Global firms will be better placed than small firms or other investments, and as such they may see flat profits but higher Price/Earnings ratio.


What’s less clear is whether the economy will recover to its pre-crisis state. Of course in the long run it will. But some sectors, notably oil and aviation, are seeing a sudden glut of resources where the operators have to pay to store their oil or maintain their grounded aircraft. With a slow recovery, and climate change round the corner, we may never see the current stock of aircraft, oil infrastructure, hotels, or cruise ships fully back in use. Companies like Airbus or BP will likely survive, but the more traditional products in their portfolio may be retired in favour of new technologies or greener offerings.

In theory, this is a perfect time to invest in green energy, as well as rethink the platform economy. The first phase of AirBnB or Deliveroo has been an inequality machine. But with lots of people out of work, less international travel, and probably less frivolous spending after the crisis, maybe the platform economy can find itself a democratizing role. Providing services to each other at a local level is not inherently exploitative. Perhaps as we look for a more local and more resilient way of life, both green investment and informal services could see an upsurge. Whether they will is another matter.


The crisis response to COVID-19 has been strikingly local, at the level of European countries, US states, or Chinese provinces. Roughly speaking people organized at the 10M to 100M population scale. Perhaps this tells us something about the natural scale of economic recovery also. After the crisis we may see less global trade but more domestic consumption and domestic tourism. Firms will obviously take advantage of national incentives. How nation-states pay for those incentives will be revealing.

People seem to have learnt a little, perhaps the minimum, from the Global Financial Crisis. This time round the stimulus was quick to come and relatively free of moral lecturing. It’s hard to blame a small business for failing when the government ordered it to close. But attitudes to dealing with the spike in public debt have not changed. The US and Japan are likely to load it on the central bank and deal with it painlessly. Europe is hampered by the Euro and likely headed for another round of austerity. The end result of austerity is the stronger financial capital buying up distressed assets of the periphery.


Much is said about whether, once we’re free to go anywhere and sit down in coffee shops, people will revert to their old consumer lifestyles or, thanks to this forced lesson in stoicism, our preferences and consumption patterns will change. It may not be philosophy that drives the change, but certain things that were politely obscured are now laid bare. As economist Marianna Mazzucatto points out, if the “essential” workers keep us alive, how did the “non essential” ones manage to extract so much value, and is that going to change?

The most benign way to deal with the obvious collective redundancy of the middle class is to consider more flexible work-life options, a different balance of formal employment and community work, or a four day week. Europe may deal with lean times this way. In more sink-or-swim economies like the US we may see a wave of forced entrepreneurship, where people are let go from companies and, if they’re above becoming Uber drivers, they start their own micro-brands offering who knows what products and services.

So on one hand consolidation of capital into fewer, bigger corporations that absorb the markets of smaller firms. On the other, depreciation of legacy sectors and investment in green technology likely sooner than iit would otherwise happen. Widely varying debt politics, and different ways to absorb the semi- and unemployed, either through collectivist work sharing or by somewhat desperate and improvised self employment.

What did COVID-19 do for us?

I guess the media coverage of COVID-19 isn’t cheerful enough, so let’s look at all the good things that the pandemic is doing for us.

It’s an awesome wake-up call for global warming and the collective action we’ll be forced to take in a few years. Previously I thought we’re doomed, climate change is going to be as destructive and violent as it gets. Now I think maybe not. There’s enough signs of organized action, especially on the east side of the planet, that maybe we can get our act together and deal with disaster. Even Europe is getting its act together. America, well, we’ll get to that.

The virus shows clearly which governments are competent and which aren’t. In Asia, apart from initial denial in China, pretty good. Singapore and Hong Kong are impressive. Whether by authoritarianism or public consent their response is effective. Europe acted late but is shaping up. The UK, despite having the technical expertise is politically floundering. Europe’s response is all at the national level. The EU bureaucracy is structured in an inanely conservative way that prevents any meaningful action.

In America, to my astonishment, they have local government and it seems to be doing the right things. The federal government is spectacularly useless. Is that a surprise? Their job is to make war and to protect capitalism. Aircraft carriers and central banks don’t help here. America is ideologically opposed to caring for people as a whole, but locally there is support and governance. I hope people remember and appreciate which kinds of organization made a difference.

People are staying at home and the economy so far hasn’t collapsed. It will definitely gdown and large fractions of people will face hardship, but it’s holding up remarkably well. Partly this is goodwill. It’s understood that we’re dealing with an external shock and people aren’t accusing each other of being poor because they’re lazy. So far, a pretty good attitude. I’m positively surprised.

Some people haven’t adjusted or are already craving a return to normality. How will children do without school? – they say. We need lessons over the internet. Well, maybe, or we need to re-evaluate school. Do kids nowadays learn through textbooks? Do they need to spend their weekdays getting used to office life? There’s lots of adjusting and re-thinking to do. Some people are bad at grasping how something universal is going to affect them personally.

As we get used to working at home, we may gradually re-evaluate what jobs are valuable and need doing. Delivering food and fixing infrastructure, pretty important. Bureaucratic and marketing jobs, like mine, eh… Maybe because of need we’ll adjust to less paperwork or working fewer hours. Or for white collar jobs prioritise coders, designers, engineers, etc. to managers. Our economies are overweight with too many value extractors at the top. Maybe a destructive shock will rebalance them.

In all likelihood, the market economy will fail in some sectors and a wartime plan to provide resources will be needed. For example airlines are likely to fail and transport may have to be re-established. Healthcare in some places may need to be nationalized. I think for-profit services are a luxury for good times, and when a serious crisis comes they get replaced by a smaller, more efficient, planned system. After the crisis, that infrastructure creates space for the economy to prosper around it. We’ve seen that after WW2, and it was mainly cars and appliances then. This time it may be green investment.

Tourism and travel will be badly hit. Conferences are cancelled and frankly I don’t think they’ll be missed. I like travelling but I’d like it to be different after the crisis. Less hopping between cities for a weekend, more periods of living in a new place for weeks or months. More fractal, local networks. Entertainment too will be badly hit. I hope if anything the inability to go to concerts will make people appreciate artists and support them properly.

As I said, there’s a lot of adjustment to do. Coronavirus is a terrible thing, but the actions that we’re taking, or that most of the world is taking, are for the better. The spirit of cooperation is holding up, resilience is suddenly valued, greed is shown to be ineffective. People will have to re-evaluate what’s important in life and what is frivolous. I hope that we emerge from the crisis a little better as individual people, and a lot better as a human collective.