Cities and countries are just waking up from sort of an induced coma to contain the Covid-19 pandemic. For those who had considered lockdown measures as excessive, the 100,000 deaths in the US in just three months are a fateful reminder of the human helplessness in the face of a microscopic pathogen that has turned the world upside down.
The reopening of the world economies has been mandated by decree. But we still do not have a vaccine or therapy that can reduce the death rate. New outbreaks could force us to go back into lockdown later in the fall. The pandemic’s impact on the world economy has been devastating, but it is impossible to exactly assess its real cost since we do not know for how long it will seem dangerous for people to do things like go to a movie theater, dine at a restaurant or get on a plane.
The renowned internationalist Robert Kaplan says that great crises have a fast-forward effect on geopolitics. This is true and we are seeing it, as the new cold war between the US and China intensifies. The same is happening to several sectors in the economy hit by the evident disruption of the Tech Revolution, a process that started prior to the pandemic. As an example, the Covid-19 has been the final straw for the traditional retail sector, structurally disrupted by the Amazonization of consumer patterns that has forced the closure of physical stores and accelerated its inevitable fate. In the US, we have seen the bankruptcy of retail chains with more than a century of existence: Barney’s, Lord & Taylor, Henri Bendel, and now Neiman Marcus and JC Penney may follow. The same thing happens to car rental companies such as Hertz affected by the emergence of ridesharing services like Uber.
The great challenge for governments around the world are at least three: How to efficiently use their resources to avoid that the private sector’s liquidity problem becomes a solvency problem? How to support small businesses by preventing their permanent closure? And how to alleviate the loss of income of the unemployed without falling into a clientelistic-schemes (i.e. Mexico)? This without delaying normal consolidation and merger processes in affected sectors, and while avoiding rescuing companies that in any case will end up going bankrupt. The same applies to some sectors that will have to make strong cuts in personnel, such as airlines. Despite the collapse in travel, no US airline has fired personnel thanks to having received aid from the federal government. However, an inevitable jobs massacre in the airline industry will begin in October. The exorbitant contracts with pilots and flight attendants have become evident, along with the burden of labor liabilities that make the profitable operation of airlines impossible.
In the case of Mexico, government aid will be essential to prevent national private airlines from disappearing. However, the current administration of President Andrés Manuel López Obrador (AMLO) will surely demand the nationalization of airlines. This would fit the government like a glove in order to force the airlines to use the new Santa Lucia Airport -an AMLO pet project- despite the experts’ technical objections to its operation.
Markets underestimate how long this crisis will last. Even if the faster moving vaccines are successful -like the Moderna or Novavax trials-, they are still very far from gaining government approval and from producing billions of doses to inoculate the same number of human beings. Normality will not arrive until this is achieved. Are governments willing to maintain relief programs for so long? How many countries have the fiscal soundness to achieve this?
It will be inevitable that we enter a process of “natural selection” where capital chooses to invest in the best-governed countries, the winning sectors and the best companies. Today, it is essential, more than ever, that governments manage their resources with extraordinary efficiency, given that tax collection will collapse as a consequence of lower consumption and of the crisis in production.
This is going to take a long time. This crisis will increase the gap between winners and losers both at national and private sector levels. There is no room for dogma, pragmatism will be rewarded.
* Jorge Suárez-Vélez is an economic and political analyst He is the author of The Coming Downturn of the World Economy (Random House 2011). A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @jorgesuarezv