Monday, May 25, 2020

Could the Novel Coronavirus Flush Out our Sclerotic Economy?

It's a form of natural selection, survival of the fittest. Covid-19 isn't just a human disease. It's also a catalyst for change.

Pier 1 is shutting its doors. Reitman's is gone. It's hard to know which companies will be standing when this pandemic is over.
As people stop flying, the head of Boeing has suggested a major U.S. airline may fail, and globally, many smaller carriers are at death's door. 
As the CMHC worries Canadian real estate prices will crash by as much as 18 per cent, the oil industry struggles to recover from negative pricing and unemployment rises toward Depression levels, it is hard to see the bright side. 
But according to the theory of creative destruction derived by Austrian economist Joseph Schumpeter in 1942 from ideas proposed by Karl Marx, economic and technological progress demands that businesses must die and industries and paradigms must be swept away to make room for new ones.
Canadian economist Peter Howitt, recent winner of the Frontiers of Knowledge Award for his work proving Schumpeter's principles in the real world, said that while the creative destruction process is happening all the time, economic crises speed the process along. 
"When old firms or technology or skills or whatever are hanging on, they can last a long time until things get really bad," said Howitt. "It's typically during a recession that a lot of the destruction takes place." 
The implication is that while those in retail or the oil business or the real estate industry may insist that the COVID-19 lockdown has been the cause of their failure, the economic crisis may instead be a trigger, a catalyst for a process already underway.
Bye bye, Athabasca.
According to Stephen Williamson, an economist at Western University, it may be dangerous for governments to try to push too hard against the economic forces at work in dying industries such as the fossil fuel sector.

"It doesn't look like, at least the exploration and extraction part of the industry, is really viable a long time into the future," said Williamson. "It seems hard to justify a huge bailout for those guys."

1 comment:

Trailblazer said...

Our economy has been on shaky ground for years.
I am not the only one that has seen the failure of so many businesses as a sign that all was not well before Covid 19.
That many of these failing companies could not ride out a month or so of a turn down of economy speaks for itself.
The economy as we know it is doomed to failure.
That the big malls had to rely upon the browsing public for survival and wait for big sales events a few times of the year makes a mockery of our buying habits and perhaps, more importantly, our needs!
We live in an overpopulated world with manufacturing capabilities so efficient they can flood the markets with cheap goods ,often luxuries, that add little to the quality of life.
These goods are then purchased by an underemployed public using extreme amounts of credit to feed their desires.
Now we stand by and say, what the fuck happened!