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Economic Thought COVID-19

From the Economist , “The business of survival” 4/8/20 Three big trends:

  • Energizing adoption of new technology

  • Retreat from global supply chains (a chain is only as strong as its weakest link, need for more resilience, less JIT)

  • Worrying rise in well connected Oligopolies. 

“The job of boards is not just to keep afloat, but also to assess long-run prospects. The crisis is set to amplify three trends. First, a quicker adoption of new technologies. The planet is having a crash course in e-commerce, digital payments and remote working. More medical innovations beckon, including gene-editing technologies. Second, global supply chains will be recast, speeding the shift since the trade war began. Apple has just ten days’ worth of inventory, and its main supplier in Asia, Foxconn, 41 days. Firms will seek bigger safety buffers and a critical mass of production close to home using highly automated factories. Cross-border business investment could drop by 30-40% this year. Global firms will become less profitable but more resilient. Don’t go from crisis to stasis

The last long-term shift is less certain and more unwelcome: a further rise in corporate concentration and cronyism, as government cash floods the private sector and big firms grow even more dominant. Already, two-thirds of American industries have become more concentrated since the 1990s, sapping the economy’s vitality. Now some powerful bosses are heralding a new era of co-operation between politicians and big businesses—especially those on the ever-expanding list of firms that are considered “strategic”. Voters, consumers and investors should fight this idea since it will mean more graft, less competition and slower economic growth. Like all crises the covid-19 calamity will pass and in time a fresh wave of business energy will be unleashed. Far better if this is not muffled by permanently supersized government and a new oligarchy of well-connected firms.”

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