Apr 19, 2020

We will come back, wiser and stronger

written by Lisa Eason

This week I intend to be more optimistic. Readers have complained that my recent columns have been too pessimistic, and I suspect they are right. We all need cheering up in these dark times. So I shall attempt to shrug off the fear and suspicion that surrounds us and deliver a more positive message.

For everything to improve, we need to manage the coronavirus. That can be done with antibody tests that work, a vaccine and a rapid ending of the lockdown. The last must happen first. It is necessary to enable people to work and earn to prevent insolvencies, to end unsustainable bailouts and to ensure the nation doesn’t run out of supplies.

There will be a transition period before normal life resumes, but it will not be as far away as the worst projections. The public will grow tired of politicians, civil servants, academics and medics who failed to predict or prepare for this disaster, and the inevitable trade-offs will come more into focus.

Somehow, we all have to recover our confidence. Countries and people do it after wars. Take the Germans and the Japanese after the Second World War — both countries achieved remarkable revivals despite being ruined and utterly demoralised following their defeat in 1945. People stage comebacks from many disasters, often wiser and more resilient than ever. It is important that society does not become too risk averse, and that nations do not worry too obsessively about their health to the detriment of living.

This was something of a worst-case scenario, and our various metaphorical insurance policies didn’t really cover us. We are still in a state of shock — but we are adjusting. Frightened civilisations die. We need to be vigorous and bold, not timid. We need stronger institutions — especially in the public sector, where organisations such as Public Health England and the World Health Organisation have been catastrophic. This pandemic gives society the excuse to reform and prepare better for the next crisis.

There is much talk that life will be conducted at a distance now — everyone working from home, no going out, minimal socialising or high-touch activities, schools and universities converting to distance learning and so forth. I do not believe this. Humans are intrinsically social creatures and insist on experiencing things first-hand. Concerts, plays, clubs, festivals, sports, conferences, exhibitions, restaurants and pubs will return — virtual replicas can never replace the real thing.

Travel may take longer to resume, because borders and flights make visits more complex, but the holiday sector has overcome wars, recessions and many other setbacks. Even bookings for cruises in 2021 are surprisingly strong. Ingrained habits do not shift as rapidly as some think. We need to meet people, make friends, celebrate and have fun — these are behaviours than can only happen in the physical company of others. Doing them via Zoom is like pretending that online porn is as good as real sex. There is no comparison!

Almost all companies have suffered during this horrible episode. Some face an existential threat. There is likely to be a reduction in competition across many sectors, because so many companies will never reopen. This will destroy jobs and lessen innovation, which disproportionately springs from younger, smaller companies. The winners will be bigger businesses that increase their market share and their prices, and can better cope with more regulations. Consumers will also be losers: they will have less choice but plenty of inflation because capacity has been eliminated. Industries and markets will be less dynamic.

I hope entrepreneurs do not lose heart, even if conditions appear bleak. In certain cases, an owner will decide they must put their business into administration and then buy it back via a pre-pack, dumping creditors, unwanted leases and so forth. This is far from ideal for everyone concerned, but if it is a way to enable jobs and the enterprise to continue — as opposed to a total liquidation — it must be the preferred outcome for society.

Brave investors will seize opportunities and find value. Many companies will need equity injections and, for private firms in particular, such capital is likely to be scarce. Companies will need recapitalising, because banks will insist on conservative borrowing levels and existing levels of equity have been diminished by this crisis. Society needs entrepreneurs and innovation more than ever. We need to create jobs and preserve old ones, and generate tax to pay off the costs of this pandemic.

Seeing through the panic and fog is exceptionally difficult, but surely there are likely to be attractive — albeit high risk/high reward — situations out there.