A different recession
In 2008 the overheated and undercapitalised US housing market collapsed, taking a leading investment bank with it, and the crisis toppled over into the world economy. World governments, fearing a complete collapse of the financial system, pumped hundreds of billions of pounds into the banks to keep them afloat, and prevent a spiral into deflation, unemployment and a decline in global consumption.
It worked, after a fashion. Banks kept lending, consumers kept spending and notwithstanding a few high profile failures and exits from the market, everything returned to a new normal. Bank capitalisation regulations were changed, there were nationalisations, mergers and some banking groups were split up, and by 2015 things were getting back to normal.
Of course, public spending was subjected to a decade of swingeing cuts, and household incomes fell in real terms, and there are stubborn symptoms of hardship and economic depression, rooted in the 2008 financial crash, that are still with us.
The current worldwide economic coma, triggered by Covid-19, is going to be a completely different experience and will require a different set of remedies and treatments. But the principal difference is that the virus is not amenable to human control in the same way investment banks and national finances are. In 2008, there was a concerted effort to prevent a decline in consumption, but in 2020 it’s precisely the opposite. Governments have been forced to slam the brakes on consumption, presenting them with a financial crisis of a completely different kind.
Put simply, there are only educated guesses as to how long this induced economic coma will last, and that uncertainty, coupled with a total lack of precedent on how to proceed, means that every country is now “winging it” competitively. This is in stark contrast to the rapid global reaction to the 2008 crisis. Yes, there is a great deal of collaboration internationally on the scientific and medical aspect, but in terms of financial and political policies, every country is fighting for its own economic survival - not just to be clear of the Covid crisis, but to come out “on top”, i.e. in a better position than its neighbours.
The UK in common with some (but not all) European countries, has determined that social distancing and a fairly strict lockdown is the best solution, in spite of the clear economic damage. From recent developments, it would appear that the lockdown is going to be in force for the foreseeable future (not a long time at the moment), with the possibility of it being lifted and reinstated locally and regionally as required.
This is going to make an economic recovery much more difficult. In 2008, consumers were free to spend what remaining money they had at any time. Today, consumer spending is being heavily downregulated by social distancing regulations, and even if the government successfully keeps businesses afloat through furlough schemes and guaranteed loans, no business can survive a downturn if their core activities are specifically forbidden.
The hope is of a ‘V-shaped recession’. The idea being that, because this recession isn’t caused by a collapsing financial system, the economic mechanism is in good order, and once the restrictions are lifted, we can catch up with all the spending we’ve missed and have ourselves a little “mini-boom”. All those postponed holidays, deferred purchases, and a certain “demob happy” atmosphere would come together to create a surge in consumer spending and confidence - and like a film of toppling dominoes played backwards, the mini-boom will rattle back up the economy, lifting businesses back into profitability and activity.
This is fine in principle but relies on the Covid crisis coming to a definite end. If we are to have another 12-24 months of varying levels of lockdown, it’s difficult to see how consumer confidence and spending can make up for lost time. It’s likely that spending patterns and priorities are going to change radically as we adjust to a world where Covid is a recurring feature, rather than a shocking one-off event.
There isn’t a single factor that will divide surviving businesses from the ‘also-rans’. There’s no panacea that will insure you against the effects of Covid-19, but there are things you can do to ensure your business is still in the running, and in a position to quickly pick up business when restrictions are lifted. First amongst these has to be communication, because not only does your business need to be fit enough to weather the storm, it has to be seen to do so. Customers need to know you’re still here, and ready to spring into action with new products, services, innovations and offers when the time comes.
In spite of the temptation to hunker down and ‘wait it out’ or to mothball your operations completely, now is the time to begin understanding how your particular business sector is going to change, how your customer expectations and needs have shifted, and to start a structured and targeted communications campaign to win new business.
In 2008 we relied on financial experts and institutions to repair the economic systems that had failed so badly with the collapse of Lehman Brothers and implosion of the sub-prime housing market. The financial levers and switches were well understood, the remedial actions - tighter banking regulations, revised oversight mechanisms & greater transparency - were evident.
In 2020, those experts are hanging on the words of the public health professionals and epidemiologists, who are busy interrogating the virus for more information about when we might be able to get back to business. The virus, however, remains tight-lipped on the topic.