FINEX FILES

THE origin of this famous phrase appears to be a Persian adage that reflects on the temporary nature or ephemerality of the human condition. It was notably employed in a speech by Abraham Lincoln in 1859 where he related: “It is said that an Eastern Monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too shall pass away.’ How much it expresses! How chastening in the hour of pride! How consoling in the depth of affliction!”

With all the negative news about this ongoing pandemic, we can only hope that there is a bigger plan that is in store for all of us, and this too shall pass. It is a simple phrase that bring peace and comfort as we live through this struggle. And true enough, history is replete with stories about how ends of plagues give rise to postpandemic booms.

Several articles in The Economist discussed the implications of such a recovery. Households in the rich countries have accumulated tons of cash while in various stages of lockdown. Per estimate, what should have been regular savings of $3 trillion in the first nine months of 2020 has ballooned to $6 trillion. Excess savings in the United States is expected to reach 10 percent of gross domestic product (GDP). The question is what will consumers do with the cash?

A more recent article in The Economist is even more telling. It reviewed the cholera pandemic of 1830 in France, the Black Death that struck Europe and Asia in the mid-1300s, the 1918 Spanish flu, and even the most recent Ebola and SARS outbreak.

The record shows that GDP did bounce back post pandemic. History, however, reveals three important lessons. “First, while people are keen to go out and spend, uncertainty lingers. Second, crises encourage people and businesses to try new ways of doing things, upending the structure of the economy. Third, as Les Miserables shows, political upheaval often follows, with unpredictable economic consequences.”

The first observation clearly applies to developed economies as the previous article on excess cash alludes to. But what about economies such as the Philippines that is in the middle of a bad recession? Surely, there will be a segment in the economy with untapped surplus, but the majority will be challenged as 80 percent of families who earn P20,000 to P40,000 a month are on survival mode. Uncertainty in the recovery will be more pronounced. The domestic economy will need to grow at the pre-pandemic level before spending and employment recover. The path forward is definitely volatile and unsure.

It is with the second big lesson of post-pandemic booms that we hope the country finds its groove – the supply side on how and where goods and services are produced. History reveals that the Black Death made Europeans more adventurous setting on sail for new lands. The Spanish flu pandemic gave way to increased expression of risk taking. The number of startups in the US boomed after the great depression.

Following the pandemic, we want to see more Filipinos trying out new ways of making money. My wish is to see small businesses find the path to innovation, adjustment and creativity as we move into the new normal. Economists have seen the link between pandemics and the use of labor-saving technology. Already, digital and online commerce has surged during the lockdowns and may more budding entrepreneurs join the ranks of new business formation. Some research also shows that workers do better in the aftermath of pandemics. Filipinos are a resilient bunch and this character should help us move on.

While history is rich in evidence of this supply side boost, policy makers must take heed and provide the necessary incentives that will make entrepreneurship a viable alternative. This means policies on taxation, wages, red tape and financial access for small businesses must be designed to promote a healthy environment. The stimulus package need not be dole outs but a set of incentives that promote better conduct of business. This means less burdensome government and friendlier regulations.

A third consequential effect of most pandemics, which is foreboding, is the potential issue of social unrest. With people suffering in large numbers, there is increased sensitivity to inequality in society. Pandemics expose and underscore differences in wealth and, according to International Monetary Fund research, have led to significant social unrest in many jurisdictions. The lessons of Les Miserables come to mind where France saw political instability for years after the cholera pandemic.

The Philippines is one year away from a national and presidential election. How it is conducted and the choices our country makes will dictate whether the expected unrest and political disorder characterizing post-pandemic eras will prevail. It is a scary thought and as a people, we must ensure an orderly election next year and put in place trustworthy and responsible leaders. The lessons of history reveal that if we don’t do it right in 2022, we are going to be in for rough sailing for years to come.

End of plagues can give rise to post pandemic booms but as history demonstrated, the route to recovery is tricky. Yes, this too shall pass can be double edged. Some say the phrase also has some foundation in the Bible. Although research shows it is not a Bible verse, there are many verses that closely resemble the term and could be interpreted with the same sentiment. Trials are part of our existence and as a God-fearing people, we need to find hope in the Almighty. Let us pray things get better after this pandemic. But as a citizenry, we must do our part.

Benel Dela Paz Lagua was previously executive vice president and chief development officer at the Development Bank of the Philippines. He is an active FINEX member and an advocate of risk-based lending for small and medium enterprises. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.