A number of countries are emerging from lockdown and New Zealand is in the select group in which there are very few new cases, and indeed we have days in which no new cases are recorded. Now comes the damage. The Economist ran an article that summarized what happened in China following the release of lockdown. Rides on public transport are down by a third, restaurants have 40% fewer clients, and hotel stays are a third of normal. Bankruptcies may be up to 20%. People are still wary, either of the virus or their wallet.
It is one thing to open shops, but another thing to get people to go to them and buy stuff. If the disease is still around, while some will take the risk, many others will not, although on this front, in NZ shops initially had huge days. It is not totally bad for those shops that can last the distance because for many things provided people have the money, they will still buy the same amount, other than, perhaps luxury consumables. However, the question then is, will they still have money? Different countries will have different problems here. Apparently in Europe a fifth of the labor force are in special schemes where the state pays their wages, but that presumably, cannot go on indefinitely. In NZ, after a week following lockdown, the jury is still out. People are working, but are they becoming wary?
In New Zealand, the State offered wage assistance to companies that had their income reduced by 30% due to the lockdown, which was a lot, but a number of companies, including the airlines, shed a lot of staff because it was obvious they were not going to operate at anywhere near their previous level. Airlines create a rather unusual situation: pilots rightly earn a lot of money, so would they be prepared to share work with another pilot, each at half-pay? The company keeps pilots on its books for when things improve, and most importantly for the pilots, they keep their minimum required flying hours up to date. That approach won’t work for low-paid workers. But then airlines may not have much work anyway. Here, there has to be social distancing. The passengers may at last get reasonable leg room (Yay!) but either ticket prices increase sharply or the airline realizes there is no point in losing money with half-full planes through social distancing. The simplest way to raise ticket prices is to cut out the “specials”, so designed to fill aircraft. If the expensive ones with a small markup still sell, the airline may remain viable. So what should the pilots do? The question then comes down to predicting the future.
Herein lies the problem: most people will have choices, and those who more correctly accommodate themselves to whatever happens prosper. Those who make unfortunate choices, or worse, bad choices, will suffer. Governments also have choices, and they tend to be influenced by the next election, which in our case is this year. Propping up zombie companies is bad for the economy, but mass unemployment is bad for votes. What will happen? The pandemic will uncover some scabs in our society. Here, half of our deaths came from badly run rest homes. My guess is the biggest economic price will be paid by the poor, or the small business owner who is joining the poor. Furthermore, governments may still not be able to stem the downturn. In New Zealand, the Government announced a big spend-up in infrastructure, and shortly afterwards the biggest construction and civil engineering company shed 10% of its staff.
What happens to globalization? What most people do not realize is how interconnected the world economy is. As an example, Boeing assembles aircraft, but the parts come from a wide-ranging source. For a Rolls Royce motor, it too will depend on parts from a wide range of sources. If any of these sources break down because of the pandemic, there will be a problem. Equally, with a great reduction in international flights, maybe Boeing will stop buying when it can’t sell. Widespread unemployment could cascade out. Meanwhile, selected industries will clamour to their governments for bail-outs. There will be a cry for protectionism, without realizing how much “local” industry depends on elsewhere.The odd thing is, we now have a rather unique chance to shape the future. Can we do it sensibly? And what, really, is sensible? And how do you prevent the spoils, such as they are, going to the already super rich?