The empty chair economy

The business sector after lockdown was described by the Financial Times as the empty-chair economy. The Economist called it the 90 percent economy. The new normal will really be very challenging.

French Prime Minister Edouard Philippe captured the dilemma facing policymakers when he unveiled France’s lockdown exit strategy last week.

“It is a difficult tightrope,” Mr. Philippe told the National Assembly. “A little bit of imprudence and the epidemic takes off again. Too much caution, and the country collapses.”

In Spain, the FT reports that customers must now book an appointment first. A bicycle shop in Madrid “already has 15 appointments lined up for Monday and expects to have 30 to 40 a day thereafter.”

The booking system, the FT explains, is a temporary safeguard. But the bike store owner intends to keep it because his 70-square-meter shop is too small to allow social distancing between his customers.

Even hardware stores now require an appointment. “It’s as if we are doctors or dentists,” a hardware store owner in central Madrid told FT.

Post-lockdown will be anything but business-as-usual, according to the FT.

“The next few months are going to feel like an empty-chair economy, with new shift patterns at factories, half-full buses and trains, staggered opening hours and unusually roomy restaurants.”

Here’s our reality: Our economic, social and cultural life will remain subject to social distancing requirements and travel restrictions for so long as we do not have an effective cure or vaccine.

We cannot be on lockdown forever. We must learn to live with the virus because there is no guarantee we will have that vaccine within 18 months or even within five years or more.

FT reports that France’s loosening plan starts on May 11, with the reopening of smaller non-food shops, junior schools and small museums — all with strict social distancing. Non-essential trips of more than 100km are banned. Only at the end of the month will the authorities decide whether to reopen high schools, restaurants, bars and beaches.

Spain published an exit strategy that FT described as having mind-boggling detail. It gives no fixed timetable, but instead aims for four phases of relaxation before arriving at a “new normality,” hopefully, at some point in late June, but possibly later.

“For example, restaurants will be permitted to open from next week for takeaway meals. The following week they can serve customers on their terraces at a maximum of 30 percent of normal capacity.

“If all goes to plan, a few weeks later they can resume table service inside, but with only one-third of covers. Spaniards would have to get used to taking away their favorite paella dishes, Prime Minister Pedro Sánchez said in an address to the nation.”

The company making Plexiglas is being kept busy producing cubicles to protect sunbathers in Italy’s beach clubs. Hmmm… looks like locally, Chan C Brothers of Carlos Chan will have good post-COVID business prospects.

But many others will need to completely re-appraise their business models, consultants Bain & Company said in a report last week.

“For most executives, the task at hand will be less like restarting a business than [actually] starting a business.”

People are weighed down by financial hardship, The Economist pointed out, “businesses are short of money and the unemployed could face a lost decade. The longer the world has to endure the 90 percent economy, the less likely it is to snap back after the pandemic.”

Worse, The Economist expressed fear “popular demand for change could radicalize politics faster than it did after the financial crisis in 2007-09.” National leaders with autocratic tendencies can use the crisis as an excuse to get themselves more powers.

No doubt about it. McKinsey Consultants called the coronavirus crisis a world-changing event. Ian Davis, one of McKinsey’s previous managing partners, wrote in 2009 in the midst of the global financial crisis a view that’s very relevant today:

“For some organizations, near-term survival is the only agenda item. Others are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal.”

Here are a few thoughts on what might happen next from the consultancy group:

“Distance is back. Even before COVID-19 hit, there were signs of unease, expressed in calls for protectionism and more restrictive immigration and visa policies. In these ways, people sought, in effect, to create more distance from those unlike themselves.”

It is happening now. “To deal with the pandemic, governments around the world have imposed restrictions on people and goods of a severity not seen for decades.

“According to one study, more than three billion people live in countries whose borders are now totally closed to nonresidents; 93 percent live in countries that have imposed new limits on entry, because of the coronavirus…

“… for businesses, the prospect of more border restrictions; a greater preference for local over global products and services; the need for resilience across supply chains driving a move to bring sourcing closer to end markets…”

In short, the resilient companies likely to survive are typically those with stronger balance sheets— and with a good ability to cut operating costs.

McKinsey also noted an observation of the Wall Street Journal that the crisis has revealed weaknesses in succession plans as leaders get sick and deputies quickly need to be found across all aspects of operations.

McKinsey also noted the COVID-19 pandemic could prove to be a decisive turning point in the rise of the contact-free economy in three particular areas: digital commerce, telemedicine, and automation.

It is also now possible, McKinsey observed, to imagine a world of business—from the factory floor to the individual consumer—in which human contact is minimized.

Once we open up, we will see who of our local tycoons kept busy during the lockdown figuring out how to operate in the new normal, and who are the tycoons who spent too much time watching Netflix.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco