Monday, April 27, 2020

Vibrant Economy

Some commentators in New Zealand are saying that when we move out this crisis, we can have a different, better and more vibrant economy. I am not so confident.

Economies change very slowly. New businesses open, others close, but the vast majority of businesses carry on doing what they were doing, because that is what they know how to do.

For the economy to change significantly following this crisis, thousands of new and different businesses would have to emerge to replace the thousands of business that have been destroyed by the collapse of international tourism.

I am not sure whether the thousands of entrepreneurs with new business ideas ready to go actually exist. And if they do exist, they probably won’t have the confidence to commit their scarce savings to an uncertain enterprise when it is not certain whether a second wave of the virus will strike, or when the world economy will recover.

The other problem is that people cannot shift easily to different occupations. The women who make the beds and clean the hotels and motels that have been closed by the collapse of tourism are unlikely to take up jobs driving bulldozers on infrastructure projects. The chefs who have lost their jobs in restaurants that are no longer viable will not be able to take up jobs as carpenters building new houses.

Changing the shape of an economy is more difficult than many commentators realise.

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