I would like to start with the optimistic case. There are positive signs of economic recovery as the deconfinement process is underway. Manufacturing reopened first followed by offices and general retail and services. Unemployment rates were difficult to calculate in this crisis but rates have come down from twenty percent or more to the mid-teens, with hopes for the sub-ten percent level by the end of the year if a V-shaped recovery takes hold. The faster the re-opening, the quicker that people can get off government assistance and back to being productive contributors to the economy. It is hard to remember that just about 100 days ago North America was enjoying the longest economic expansion since the end of WWII. There are hopes that a vaccine can be developed in time to temper the effect of the second wave of infections into the Fall. By mid-2021 we will all look back on this as a bizarre, fabricated recession that was overcome by quick-acting governments and the determination of business and the population to innovate and adjust to selling in the post-COVID new normal. Feels good to think this way, doesn’t it?
Now for the pessimistic scenario. A wave of business bankruptcies is coming as consumers hoard cash and do not return to restaurants and street-level retail, reflecting the famous economic theory known as the Paradox of Thrift – if no one spends, we all suffer. Those businesses that do survive use the crisis as an excuse to permanently cut personnel and implement technology and automation to suppress head count. Social tensions fed by racial intolerance and distrust of the police encourage the silent majority to change their socialization habits and stay home, damaging the entertainment and travel industries. Low interest rates do nothing for consumers if they do not have jobs nor for businesses if there is no demand – banks push small businesses into liquidation as government support programs dry up and loans become non-performing for 90 or 120 days. A vaccine proves elusive and a second wave of infections takes hold worldwide and overwhelms health care systems, leading to a second round of confinement imposed by governments and unemployment rates approaching 30%. Indeed, infection rates are rising in 20 US states that did not use the New York State model of phased openings coupled with massive testing. 2021 is characterized by a Great Depression level economic disaster and heightened geopolitical tensions as international cooperation to fight the virus collapses. After reading this, I understand if you want to take a moment to reach for your drink or anti-depressant, whichever is closer.
The likely scenario is skewed towards the optimistic case, but that is not going to be good enough for millions of service industry workers whose jobs will not return anytime soon. The chief economists of the Canadian banks and the Bank of Canada both issued statements in June expecting a rapid recovery that falls short of where we were before the crisis, leading to what has become characterized as the 90% economy. If we only get back to 90%, as is currently the case in China, this is not enough to generate the business profitability, employment levels nor government revenues to properly emerge from the crisis. Let’s take a typical restaurant – it takes 80% of its revenues to break even, the next 10% to make a bit of money, and the last 10% to create the funds to invest in expansion, renovate, buy new equipment and hire new employees. Getting back to a bit over break-even is going to permanently suppress our economic long-term growth potential and will not compensate for all those businesses who are not going to make it.
Even before the economic crisis hit there were millions of unfilled jobs in high-value industries, both in manufacturing and in tech services that paid higher wages than retail, hospitality, or entertainment jobs. If growth is going to return, we need to have workers trained for 21st century jobs in knowledge-based industries. Even if we repatriate some manufacturing jobs to North America for ventilators and other health care products, producing them STILL requires more skill than a displaced restaurant server possesses. If we do not invest in people, then we will permanently stifle our economic potential and we will not generate the wealth and government revenues to repay the historic levels of debt we have incurred during this crisis.
Business must do more. The Germans have a massive apprenticeship program, why don’t we emulate it? In Quebec we have the CEGEP system that was designed to give a greater proportion of youth the opportunity to learn a trade and develop useful skills for the workplace, but we need more kids to stay in school and take advantage of it. We need to send workers displaced by this crisis back to school and retrain them. In the United States, business leaders like Sanford Weill, former Chair and CEO of Citigroup founded NAF (www.naf.org) to create partnerships between businesses and high schools and target kids from minority communities to finish their educations with the skills necessary to complete in today’s economy. We have paid people to stay home with the CERB (Canadian Emergency Response Benefit) but we need to link further social support to retraining them to rejoin the productive workforce.
If you are part of the 90%, you are fortunate for now — but we are all vulnerable if the last 10% do not get the opportunity to participate in the recovery. All our lives matter, we have a collective future to build and education and training are key to making it a prosperous one.