Covid-19 as ‘Destructive Creation’
The Covid-19 pandemic has hard hit the global economy and Bangladesh is not an exception to that. Many businesses across the country are struggling to cope with the new normal situation with financial strain and trying to overcome with minimal resources. As the pandemic unfolds, processes and nature of businesses are changing rapidly from one day to next, which could be best described by Joseph Schumpeter's 'Creative Destruction' as changes are happening through innovation of newer products and organizational mechanisms replacing the old ones.
However, if we look at the global economic impact of the Covid-19 first, we would see that the early estimates predicated that, most major economies would lose at least 2.9 percent of their gross domestic product (GDP) over 2020, which was later projected at a GDP loss of 4.5 percent. To put this number in perspective, global GDP was estimated at around US$ 87.55 trillion in 2019-- indicatively, a 4.5 percent drop in economic growth results in almost US$ 3.94 trillion of lost economic output.
Comparatively, Bangladesh's economy fared well amid Covid-19 havoc in FY2020-21 attaining 6.1 percent GDP growth and looks forward toachieving 7.2percent economic growth in FY 2021-22, thanks to the blessings of the government-announced stimulus packages as well as the accommodative innovation-driven private sector.
Coming back to the core topic of today's article-- businesses can be considered as a set of key processes, certainly, enterprises of Bangladesh are no exception to that. Process innovation refers to the act of applying innovative measures to redesign these key processes. One classic example of process innovation is Henry Ford's implementation of world's first moving assembly line. Now let us take a step back to understand how the coronavirus pandemic induces innovation into business processes and fits into the definition of creative destruction.
It has been identified in prior researches that firms had to shift the ways of doing business due to the pandemic. One example can be a Mexican small sports socks manufacturing firm. It had to shift its market from general consumers to diabetic consumers who are more likely to visit doctor's chambers despite the pandemic. Moreover, this consumer group is unserved as most manufacturers focused on the general consumers for sports socks in Mexico. This strategic shift of the firm from a 'red ocean' to a 'blue ocean' also added to the likelihood of getting more clients during the ongoing Covid-19 persuaded crisis.
The new type of sock was designed to control sweating and pressure which causes ulceration and amputation of diabetic patients. The firm had to modify its knitting machine and find suppliers for appropriate raw materials to produce the new products. Moreover, the marketing strategy had to be changed as well. To spread the 'word' about this new product, the owner of the firm used his prior family doctors. Virtual platforms, such as Zoom, StreamYard, Google Meet, WhatsApp, and Skype were also used to contact potential clients through doctors and clinics located in the areas near the business.
If we look closer at all businesses located in Bangladesh, we will find that everyone had to change their way of doing business. For example, supermarkets that did not have home delivery options earlier on had to change their delivery mechanisms focusing more on online interactions with the consumers and virtual market promotion. Local small Pharmacies which did not have an online presence earlier, are now adopting online platforms. Schools, colleges, universities, and training institutes are forced to move to online platforms. Small wholesale suppliers of eggs and other farm products are also forced to go door to door for selling their products as the lockdown is forcing businesses to keep their doors shut. Recruitments are also shifting to online platforms.
The Covid-19creative destruction process offers incentives to the productive and efficient firms providing highly valued goods and services. Hence, those who are incapable of producing quality goods and services must eventually exit. One positive dimension of creative destruction on the labor market is the fact that the creation of new firms causes an increase in employment. However, one must not forget the fact that closure of the older and effective firms also causes job losses which is higher than new creations.
Therefore, it is highly required that continuous skills development of individuals keep going forensuring theiremployability. Even if an unproductive firm shuts its business operation, its employees will eventually run after a job or become entrepreneurs themselves provided that they possess or have acquired the necessary skills to survive in the job market. To confirm employability during and after coronavirus crisis to ensure quick recovery of the businesses as well as the entire economy, government may start a workforce recovery program through skills development system to ensure employability and a sustainable economy.
Addressing this, digital skills (remote working & IT skills), practical knowledge about the business sector, marketing, distribution, sales strategy, Tax and VAT filing efficiency can be given the highest priority as hard skills while showing empathy, dedication to work, networking skills, teamwork and creativity as soft skills to be developed under the workforce recovery program.
The corona pandemic, however, is causing firms to resort to innovation not for improving productivity and developing new products but mostly to survive. Though the Covid-19 is often blamed to make rich wealthier while poor more impecunious, as in the USA alone, 20 million Americans lost their job in the pandemic when, roughly 650 billionaires in the USA saw their net worth increase by more than US$1.2 trillion and they are now worth more than US$4.6 trillion, controlling more than 5.2percent of the global GDP-- clearly, it is indicating that the innovation in the fiscal and monetary policies of the government lags to identify and extract revenues from the super profit made by the richest people.
But, process, product, and business innovation during this pandemic, at least in the short term, can be hence considered to be an ad-hoc solution for survival, which can be a great solution for the entire humanity in the long run if it can pave its future path following the norms of Social Business-- a midway between traditional capitalism and socialism, which can be an excellent equalizer between the rich and poor classes enduring the economic revival more inclusive. Nevertheless, integrated private-public policy realignments are the only answer to sustainability and growth from this disastrous situation.
Therefore, we are not calling the corona persuaded innovation to be 'Creative Destruction', rather, as 'Destructive Creation'with the optimism that the product, processes, and business innovations during this crisis will eventually result in the rise of newer businesses or business units of existing businesses from the ashes of the devastation of this pandemic, in a moment, when Bangladesh is poised to become a developing country by 2026 as well as the government has rightly articulated its plan to transform the country into a developed country by 2041 while keeping the country afloat for achieving the targets of Sustainable Development Goals (SDGs) within 2030.
Truly speaking, to minimize the consequential adverse effects of this destructive creation and to put an end to this lethal virus, the developed countries must act fast in making all types of Covid-19 vaccines patent-free and should handover the formulae in tandem with the transfer of proper technologies for producing Covid-19 jabs to the developing countries as well as the least developed countries. Certainly, more vaccines will curtail the spread of Covid-19 creating 'memory cells' in the human body, for saving the humanity which is now crucial to readdress!
The writers are research associates (Deputy Executive Secretary) at the Research & Development Department of the Dhaka Chamber of Commerce and Industry.