By now, everyone should be aware there is a virus out there, and it has been generally agreed that action was needed to protect citizens. So far there is no vaccine, and in some cases the treatment required to preserve life is restricted. In New Zealand, thanks to various travellers bringing it here, we are starting to feel the effects. It is easy to flash around figures but with a population of about 5 million, one estimate is that if nothing were done, about 70% of the population would get it, and about 80,000 would die. The reason is, if all those got it about the same time, say over a two-month period, there are insufficient ventilators, etc. for them. If they got it one at a time, most of those 80,000 would not die. Our hospitals did not have 20,000 ventilators sitting around waiting for this event. So what we have done (as have many other countries) is we have initiated a lockdown, the idea being that by breaking the possible chains of transmission the virus will die out. The associated problem is, so will many businesses that cannot earn during this period. So the question is, what will emerge from this, or perhaps a more reasonable question is, what is more probable to arise from this?
The average estimate here is that unemployment will rise to about 9%, and many small businesses will go under. Life will be particularly difficult for restaurants, etc. because many of them tend to operate on slim margins, and they are more designed to offer the owners a life-style rather than direct them to be a developing business owner. Our airline will shrink down to 10% of what it was because international travel will almost disappear. One slight bright sign for them lies in the domestic market: their major competitor has already decided to call it quits here. Such competitors restricted themselves to the major intercity services and left the minor spots alone. The price for those tickets will now rise, but with the far lower ticket sales there would have been blood on the floor had such cheaper flights continued for that many aircraft. There will be a great reduction in the number of tourists for some time, because even if our lockdown works, what happens if other countries have not gone as hard? Do we want to succeed, at great cost, then let in fresh infection?
One of the other things that has happened is we have discovered the “just in time” purchasing ethic has a cost. One slightly ironic fact is there was a claim we were running low on hospital gowns, and the biggest manufacturer anywhere of hospital gowns is in Wuhan, except it closed because of the virus. Apparently, a couple of small manufacturers are switching to make some of this necessary equipment, including ventilators, but that will not continue because they cannot compete on price with China, and in any case, the hospitals will not need more when this dies down.
On the issue of more general manufacturing, I heard one small manufacturer say that in response to the difficulties some are having in getting certain things, he has ordered a major robotic machine. The capital cost is higher, but the wage bill is much lower, and if the equipment is sufficiently flexible, the major expenditure, apart from raw materials and capital cost, will be in paying designers. This suggests this pandemic may well be the straw that broke the back of the current way of making goods. Strategic niche manufacturing, manufacturing close to raw materials, and the use of brains may be the key factors in future prosperity.That raises the question of what happens to current workers. If half the small businesses go to the wall, there will be a lot of workers who have few resources and only limited skills. There will also be a number of highly skilled people who are unemployed. Think of the airlines. Where do pilots and cabin crew of the big jets find jobs? Nobody else will want them because all the other airlines are in the same boat, and it has nothing to do with management or mistakes. It is going to require a lot of imagination and investment to get out of this, and both may be in rather short supply. Also, new businesses need customers, and who is going to have spare money when this wrings out?