A Black Swan flew into our backyard
Published : Wednesday, 8 April, 2020 at 12:00 AM Count : 302
Those of us who have read about the Black Swan event, know this to be an unanticipated problem with extremely severe and unintended, consequences The global conversation about the corona virus pandemic has focused around a few things. Firstly, that the outbreak of the virus is largely seen as and perceived to be history's Black Swan event.
Secondly, everyone who has something of value to say, has mentioned there is a need to 'flatten the curve' so that healthcare systems can cope, and thirdly; that its impact on the economy and markets everywhere will be debilitating and that then perhaps everyone would be loser, in the end. This is an existential threat for a capitalist world, a flourishing globalist society which had seemed to be at the pinnacle of its forward journey.
As far as the economic impact of the coronavirus pandemic is considered, there are two problems with these common assessments making the rounds: One, they are an understatement. The global economy is doing badly and will continue to do so for the foreseeable future. The pandemic will play into this existing matrix in ways that are not entirely clear as yet. Two, when we abstract the analysis to the point that our main takeaway is that everything is going to hell, the analysis itself loses most meaning and its nuance. In short, while it may seem callous to put it like that, the pandemic will have its own set of winners and losers.
The tech industry should be basic justification for this hypothesis. If you ask yourself for a moment, who are the biggest winners from this pandemic might be, a preliminary response from many will be that tech giants like Facebook, Google, Apple etc will stand to gain. Things are not quite as simple as that though. Apple, for instance, is not in the running because their supply chains run through China and are likely to be severely impacted. So is the case for Samsung. Basically any company with a complex supply chain that may or may not run through China is going to be hit.
We need to also consider the fact that we are in the middle of the biggest work from home experiment in history. Zoom, the US-based video conferencing service, for instance, has gained a lot from this, without actually making a lot of significant changes. Since the beginning of December 2019, its stock price has gone up by $40 to about $115 (from approximately $70). It peaked earlier in March at about $125.
Moreover, tech platforms per se, are better suited to navigating this outbreak as compared to more traditional firms. They have fewer components in their supply chains relative to, say, a phone or a tablet. People are likely to depend on the conveniences offered on their screens, given that travelling is going to be restricted. Spending more time at home also means slipping more frequently into distractions of social media and online streaming.
Now let's turn to another aspect of the current economic conundrum. The spread of the virus does not bode well for the gig economy. A bit of explanation: it is a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. Working in the gig economy means constantly being subjected to last-minute scheduling. The current situation puts workers at a huge risk of exposure, especially in developing countries like India. It is not effective to self-quarantine in informal settlements. It is hard to stock up on essentials or food when most of one's family is living hand to mouth and it is near impossible to provide for families when the small/medium businesses temporarily shut down.
Most huge platforms rely on the gig economy to sustain themselves. Let's take the case of Amazon. While it has its product and management teams, which work from their HQ and other regional offices, there is a huge part of the company that is run by the gig economy, i.e., people working in warehouses and drivers who deliver the products to the consumers. It needs to seen to what extent companies with such business models are affected by the current disruptions.
Let's turn to another industry that is likely to be impacted-something we know as 'entertainment'. Box offices across the world are facing huge losses and will continue to do so. Cinema halls and popcorn machines have already been facing threats from online streaming.
Netflix and HBO have been winning golden globes and Academy awards, giving the 'traditional' film industry a run for its money. Enter coronavirus and the release dates for most movies have been postponed. The longer social distancing and self-quarantine last, the worse it is going to get for cinema halls. People are likely to get more hooked to streaming and a significant percentage might end up realising that they can do just fine without making that extra trip to the hall.
The world is a net loser from coronavirus, there are no two opinions about that. But while many industries are likely to be impacted and a large number of firms are likely to shut down due to the lack of demand, this is not reason enough to make abstract, generalised claims about how the economy is going to suffer.
We live in a complex, interconnected and global world where effects are not equally bad for everyone. Let us treat this as something distant and different from the Black Swan event- something like a complex global economic event. And accord it the nuance it deserves. It would be best to avoid broad generalisations when speaking of the economic impact of the coronavirus and build our beliefs on reason, not dogma.
Let me wish that my readers are safe, and able to bear through life's trying journey, with courage and fortitude.
The writer is a former educator
based in Chicago