The post-pandemic world will be full of uncertainties

The COVID-19 pandemic has changed the way in which we operate in our daily lives, primarily because of new risks that all of us are now being subjected to, directly or indirectly.

Consider the public health policy risks. The central question is: how long can we shut down the economy without killing it?

If policy decisions result in opening too soon and setting off a second round of contagion, a new shutdown could doom us to a prolonged period of high unemployment and slow or no growth for years. Making such decisions is a very delicate task due to limited past experience to guide policy-makers.

This virus has unsettled our lives. While certain parts of the population are at higher risk of complications, anyone can get infected and of those who do, a small percentage will die.

Such an omnipresent risk is something new in our daily lives. It makes us want to avoid being confined in a small space with a large number of people, be it for a concert, a sporting event, worship in a church or travel on public transit or in airplanes.

This all adds up to a big shift in consumer behaviour which will determine how quickly growth can be returned to the economy and whether any given business will survive or never reopen.

To attempt to overcome this widespread and natural reticence on the part of individuals and households, businesses will have to make demonstrable efforts to reduce the perceived risk.

All this will cost money and these increased costs will be evidenced partly in increased prices and partly in reduced profits. In the case of restaurants, for example, the reduced seating capacity mandated by public health authorities may make it impossible to generate sufficient business for the firm remain in business.

The key question for consumer businesses is whether customers will return quickly and frequently on re-opening.

Firms will necessarily, if they have not in the past, become highly focused on questions of customer loyalty. But, if sales are weak in the early days of re-opening, how many small businesses, in particular, can endure two or three more months of anemic sales?

The risks for public transportation, either in a given locale or between cities by rail, bus, or air, will give rise to many changes in travel for work and pleasure.

What protocols will public health authorities impose to achieve social distancing — something really never considered in pre-pandemic times — and what will be the requirements to maintain good hygiene by disinfecting capital equipment, be it buses, rail cars or airplanes?

Further requirements to screen passengers and for staff and public to wear masks will add costs, constrain capacity and possibly discourage use of the existing capacity.

It seems likely that long distance travel will be greatly reduced, at least until a successful virus treatment or vaccine is found and widely available.

The widespread introduction of working from home has potential to shape our cities dramatically. If a stop-gap solution becomes a generally accepted practice, several major changes will occur.

First, the need to lease commercial space to accommodate workers may be greatly reduced. That means few new office buildings will be built for perhaps a half-decade. This, in turn, means unemployed construction workers and less daily commerce for merchants in the business districts of cities.

Business meetings via Zoom or another electronic conferencing platforms mean the demand both for business travel and accommodation on overnight trips will shrink substantially.

Thus, few, if any, hotels will be built in the next half-decade until the surplus hotel capacity is absorbed. Again, this will impact the service sector employees involved in staffing those hotels.

Estimating impacts on business under conditions of great uncertainty — what economists refer to as the “pricing of risk” — is fraught with difficulty.

Until we have more detailed data regarding economic activity, possible permanent closure of enterprises and levels of unemployment by location, age and skill levels, any forward predictions will be based more on hope or fear than reality.

Until we learn from experience, we will have to navigate, in large measure, by the seat of our pants. Not a happy reality for certain.