Recovery is on the horizon, but will it be fair for all?
Rebuilding our economy to where it was shouldn’t be definition of success, some say
In deserts from Australia to Arizona, in airfields with no terminals, amidst the hulking bones of passenger planes past, orderly columns of modern airliners sit empty, engines sealed from lizards and sand, gleaming like a promise in the sun.
Grounded by the decimation COVID-19 has caused their industry, tens of thousands of planes — many larger craft with international capacities and reach — have been placed in “temporary” storage, often and ominously beside the relics of their dead forbearers.
“Airlines, they know how to preserve their planes,” says Mark Kamstra, a professor of finance at York University’s Schulich School of Business.
“They’ve got a lot of them sitting in the desert, they just go and turn their wheels every day,” Kamstra says.
But as the wheels of the international economy turn likewise — slowly and haltingly going nowhere fast through the pandemic’s second wave — many experts are openly optimistic that it will take off again.
Accelerating, they say, down a runway of expanding vaccine distribution, it may even fly into pre-pandemic heights before next year’s over.
“We’ve had a rough patch,” University of Toronto economist Peter Dungan says dryly.
“But on the whole I think it’s reasonable to be fairly optimistic about this,” says Dungan, director of the policy and economic analysis program at U of T’s Rotman School of Management.
Dungan says recent promising numbers showing Canada’s economy rebounding nicely in July, August and
September — after the first COVID-19 wave but before the second’s savagery was obvious — were in line with a potential 2021 recovery.
During that third-quarter period the country’s economy posted its best three-month stretch on record, with growth at an annualized pace hitting 40.5 per cent, The Canadian Press reported.
Built largely on the renewed strength of household spending, that third-quarter growth beat a record that dated back to the first three months of 1965.
But this year’s spike, reported by Statistics Canada, was tied almost exclusively to a historic drop in the nation’s economic output during the spring lockdowns brought on by the pandemic’s first run-through.
Still, Dungan says such rebounds would not be out of line with his hopes for the second half of 2021 — especially if vaccine rollouts prove successful.
The key to economic recovery from
the crisis was always going to be an effective and widely available vaccine, he says.
“And if anything the news is kind of better on that than it was,” Dungan says, adding there’s a good chance most Canadians will receive a shot by early in the third quarter — likely sometime in July.
“But even if you get the most susceptible people vaccinated (earlier) the point is you can let the disease go a little bit more rampant than you otherwise would (without) swamping the hospitals.”
That ability to open the country more fully with the most vulnerable people safe — reducing hospitalization and death rates — means the massive second wave would not be as devastating to the economy as the first, Dungan says.
“The good news, compared to our outlook maybe six months ago, is that hoping for a vaccine has now turned out to be not a vain hope,” he says. “It’s coming.”
Of course should none of the current inoculation contenders prove effective, then all bets are off for a recovery, Dungan says.
“But in that sense (that they will be effective and widely distributed) what I see the second wave causing is something of a delay, but not a huge one,” he says.
“And we still are looking towards the end of 2021 of largely being over this.”
Indeed, Dungan says that as bad as the second wave has been in terms of morbidity and mortality, it’s proven less pestilential economically than its predecessor because of the lessons learned during that novel spring bout.
He says the realization that many could work from home and the broad acceptance of social distancing, masking and other prevention strategies have blunted the economic impact of this second wave — helping avoid mass lockdowns, for example — and will pull us out of it faster.
And Dungan is not alone in his cautious optimism.
Ambarish Chandra, an associate professor in economic analysis and policy at Rotman, says a willingness to reopen our wallets could spur a robust recovery in a vaccine’s wake.
“One thing that seems quite clear to me is that if a vaccine is indeed deployed by spring and we do see a return to the prepandemic normal in terms of things like travel, social gatherings et cetera, then I would expect to see an extremely quick recovery,” Chandra says in an email interview.
“This would both be because those economic activities that rely on close contact — restaurants, bars, performances, airline travel — will snap back immediately, but also because consumers will open their wallets and spend freely, even in activities that were not necessarily curtailed during lockdowns,” he says.
Chandra says much household spending has been suppressed across both waves, due to a combination of lost incomes, general fears for the future and a relative dearth of things to buy.
“Many households have actually sharply increased their savings over the last few months … and so I would expect a sharp increase in consumer spending in the spring and summer,” he says.
“It is interesting to contrast this with postwar recoveries. Many western economies actually saw a slump after wartime mainly because governments cut back on defence spending. Now however, it looks like both government and consumer spending are likely to juice the economy next year, if all goes well.”
Vik Singh, an expert in global management strategies at Ryerson University’s Ted Rogers School of Management, fears for crucial holiday spending, especially in Toronto where a partial lockdown is in effect.
But he also sees a ribbon of hope in the coming vaccines, which could open the spigots on some of the cash savings the pandemic has forced on consumers.
“And perhaps when consumers see that light at the end of the tunnel maybe they’ll start opening up and spending more,” Singh says.
However, he says, the Canadian economy is still dependent to a large extent on the health of its U.S. counterpart — which is a wild card at this political and pandemic juncture.
“We’re seeing shutdowns in California … and with the transition to the new president we might see further lockdowns,” he says.
While Singh sees almost certain troubles in the coming quarter, however, he says there is definitely a light coming into view.
David Soberman, Canadian national chair in strategic marketing at U of T’s Rotman, sees a Canadian economy that’s close to fully recovered a year from now should vaccines prove successful.
“I think our economy by this time next year will be much closer to the animal that we saw in December of 2019,” Soberman says.
That economy will be altered by a continued migration from brick-and-mortar to online work and shopping, as well as by swelled levels of government indebtedness, he says.
“And this could mean that down the road we’re either looking at situations where our levels of taxation will have to increase substantially or whether there will be reduced levels of things being done by the government,” he says.
“There’s no free lunch. We luckily have the economic capacity to be able to make the expenditures necessary to try to weather the storm, but there’s going to be a big debt to pay.”
Still Soberman says a vaccine would help pandemic-stricken sectors like hotels, hospitality, entertainment and travel recover, giving a booster shot to the country’s economy.
“It’s functioning to some degree but it’s moribund and until you have people feeling comfortable travelling (or crowding together) that piece of the economy is not going to pick up,” Soberman says.
“And who knows what percentage of the economy that is, but it’s probably greater than 10 per cent … that’s one of the rea
sons we’re still below where we were.”
And while the third-quarter StatCa n numbers saw the country’s economic growth at some 95 per cent of it’s preCOVID capacity, it will be hard pressed to shoot past the 100 per cent mark required for actual GDP expansion without these industries, Soberman says.
He says, however, that a pentup yearning for social interactions — coupled with a vaccine — will help people overcome any lingering fear of crowds and give these businesses a needed leg up.
“I’m pretty sanguine about that because I think we are basically social animals,” Soberman says.
“And I think while people have learned that a lot of things can be done at home and done online, I think we crave those social interactions.”
Soberman says these social urges will help restaurants, hospitality and travel businesses and cinemas make a strong comeback in a vaccinated 2021.
“I think there’s a … sort of pandemic fever that’s building and people are crazy staying in their houses,” he says.
But Kamstra says the second wave has likely hobbled many people-packing enterprises for the foreseeable future.
“I was hoping (during the first wave) that it would just be a wobble and things would get back to normal,” he says. “But the disruption in some businesses, like business travel and office space in downtowns, I think that’s probably close to permanent.”
Kamstra says that it’s hard to imagine businesses — having seen the utility and economy of Zoom conferences — would readily splurge on plush, planefront seats again any time soon.
Nor with much white-collar work being done efficiently
from home, he says, would they continue to pay for the expansive and expensive square footages they now occupy in downtown office towers.
“I can’t imagine that they’re going to renew leases using up all the space, they’ll abandon some of it and people will continue working at least a couple of days a week from home,” Kamstra says.
“It just makes sense, everyone kind of likes it better and I don’t think there are big problems with monitoring employees. It’s hard to imagine that we will pivot back to the way we were,” he says.
As such, Kamstra says, a return to full economic growth is not likely to come hard on the heels of a subdued pandemic.
Instead, he sees disruptions akin to those that followed the 1994 North American Free Trade Agreement (NAFTA), which sent sectors of the economy into disarray while others grew or remained unscathed.
“People will have to retrain, and we’ve got physical capital some of which is literally being destroyed,” Kamstra says.
“Cruise ships (for example) are being cut up for scrap metal,” he says, while also mentioning the mothballed airliners.
As in the years after NAFTA, however, many of the economic disruptions that will come postpandemic will barely register with many whose livelihoods are not affected, Kamstra says.
As a young university professor starting his first job in the mid 1990s, Kamstra says the agreement’s narrow havoc barely registered with him.
“NAFTA didn’t affect me at all and anyone I interacted with. But some parts of Ontario were really hard hit. Some people stayed unemployed for two or four years after that,” he says.
“I think it’s going to be one of those kinds of recessions, a lot of us won’t feel it and some people’s lives will remain upended for years.”
And there’s the recession word.
Even historically low interest rates are unlikely to keep the country out of one as the appetite for government support programs like extended employment insurance wanes, probably by the spring, Kamstra says.
“The interest rates are so low (that) people will engage in investment projects that they wouldn’t have thought of three years ago,” he says. “But it’s hard to imagine how, even with people working hard, being able to get loans, that we’re not going to see a pretty significant wobble.”
Kamstra says pandemic-related job disruptions could represent 10 per cent of the economy. And while major sectors like manufacturing and agriculture will run on relatively smoothly, that is not an insignificant blow.
“Those people will be working again, it’s just a question of what are they going to be doing,” he says. “Are they going to be doing what they used to do or are people not going to have an appetite for some of those services anymore?”
Kamstra says that NAFTA eliminated about 12 per cent of jobs that existed before the agreement and that it took a decade to fully replace them.
“That’s not very reassuring, is it,” he says. “But I don’t think that will happen this time, things seem to move faster now, don’t they?”
Dungan agrees there will be stranded capital and lost labour opportunities in COVID-19’s wake, but he still sees a robust recovery by the end of next year.
“It doesn’t mean we get back completely to full employment and everything is rosy by the end of 2021,” he says. “But I would still hold out that we’re getting pretty close to it.”
In a sense, however, many argue a successful economic recovery cannot be judged by old parameters of GDP growth and low employment in the light of the inequities the pandemic has revealed.
Steven Hoffman, director of York University’s Global Strategy Lab, was pegged in July to head the United Nations Research Roadmap for the COVID-19 Recovery.
And Hoffman says that the obvious and disproportionate burdens placed on low-income workers by the pandemic — plus their essential roles in bringing us through it so far — means that equity has to be part of a morally valid economic equation going forward.
“If we just build back our economy to where it was before the pandemic, then that’s not the definition of a successful recovery,” he says.
“We need to build back better. We have to build back more equitably, more resiliently and more sustainably.”
Hoffman says that many pandemic programs Canada has offered — like income and rent supports and communitybased funding — have helped marginalized people in his country. But much more needs to be done, he says.
“For example we still don’t have requirements around sick days and sick leave, which is such a basic infectious disease prevention tool,” he says. “We don’t usually think of days off work as being a public health matter, but when someone is sick you really don’t want them to show up at work.”
Still, Hoffman suggests, many of the government initiatives launched during the pandemic could be seen together as a pilot for a national basic income program that would nudge the country’s economy into more equitable territory.
“That (type of ) program is intended to help support people with the bare, bare minimum needs,” he says.
“But it does provide a platform for the kind of things that could end up supporting those already facing conditions of marginalization.”
Hoffman says new and more generous child-care programs should also be part of the equity mix, as should affordable housing and transportation strategies.
“This pandemic has pointed to very specific areas in which existing unfairness becomes a driver of even more unfairness,” Hoffman says.
And such programs would bequeath benefits across society when the inevitable happens again.
“We know that providing affordable housing for all Canadians is a very expensive proposition, but it’s also a cost-effective way of promoting the health of all Canadians,” Hoffman says.
“And when it comes to infectious diseases, we need to ensure that everyone is able to live in environments where they can protect themselves and thereby protect others at the same time,” he says.
In the end, Kamstra says, COVID-19 is unlikely to pose an existential threat to the Canadian economy, especially with an effective vaccine in circulation.
“This isn’t a fundamental challenge … people aren’t going to starve and the GDP isn’t going to fall seven per cent or something,” he says.
“But these kinds of disruptions rarely leave us unscathed.”
“I was hoping (during the first wave) that it would just be a wobble and things would get back to normal. But the disruption in some businesses, like business travel and office space in downtowns, I think that’s probably close to permanent.”
MARK KAMSTRA
YORK UNIVERSITY PROFESSOR