COVID killed the radio star: the winners and the losers of the viralmageddon

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Joel Kotkin, a sensible urbanist (rare, I know), has been sounding an alarm about the hollowing out of our economy and our society for a while now. His news book, The Coming of Neo-Feudalism: A Warning to the Global Middle Class, is out next month but as a preview that draws together his old arguments in the new context of the pandemic he has written an interesting – and depressing – piece for the Tablet magazine. His thesis: COVID will serve to further increase the economic and cultural chasm between the elites and the paupers, i.e. increasingly the rest of us. And while Kotkin writes about America, his arguments are broadly applicable throughout other developed countries, particularly the English-speaking ones.

Here are the groups that, according to Kotkin, will benefit from the Great Viral Depression:

In an era defined by “social distancing,” with digital technology replacing the analog world, the tech companies and their financial backers will prove the obvious winners. In a sign of what’s to come, tech stocks have already soared.

The biggest long-term winner of the stay-at-home trend may well be Amazon, which is hiring 100,000 new workers. But other digital industries will profit as well, including food delivery services, streaming entertainment services, telemedicine, biomedicine, cloud computing, and online education. The shift to remote work has created an enormous market for applications, which facilitate video conferencing and digital collaboration…

The modern-day clerisy consisting of academics, media, scientists, nonprofit activists, and other members of the country’s credentialed bureaucracy also stand to benefit from the pandemic… The members of this class are concentrated in professions—including teaching, consulting, law, government work, and the medical field—whose numbers have grown in recent decades. Some professions once more tied to the private economy, such as doctors, have become subsumed into bureaucratic structures in the United States, and, in the process of shifting from private to public sector, have gone from being conservative to increasingly progressive professions.

Members of the clerisy are likely to be part of the one-quarter of workers in the United States who can largely work at home. Barely 3% of low-wage workers can telecommute but nearly 50% of those in the upper middle class can. While workers at most restaurants and retail outlets face hard times, professors and teachers will continue their work online, as will senior bureaucrats…

The biggest winners in the fallout from the coronavirus are likely to be large corporations, Wall Street, Silicon Valley, and government institutions with strong lobbies. The experience from recent recessions indicates that big banks, whose prosperity is largely asset-based, will do well along with major corporations, while Main Street businesses and ordinary homeowners will fare poorly.

 And those likely to get screwed:
In our increasingly feudal society, the small property owning yeomanry who operate the local businesses essential to Los Angeles shopping streets, and New York neighborhoods are already under threat and will be squeezed further by both the pandemic and its aftermath. But even more hard-pressed will be the growing, propertyless serf class that includes laid-off workers and the roughly 50 to 60 million workers in essential jobs, notes a new report from Richard Florida, and of those, 35 to 40 million require close physical proximity as opposed to those who can retreat to safety behind their computers. Roughly 70% of these workers are in low-wage professions, such as food preparation, and often, despite their increased risk, often lack health insurance from their employers…
The hardship caused by today’s crisis is particularly evident in retail, where 630,000 businesses have already shut down. Supply chain problems related to the Xi-Trump, China-U.S. trade war had already threatened many U.S. industries, but since the pandemic some 87% of small-business owners now say that they are struggling in a Wallet Hub survey, and a full third predict they will fail if conditions don’t change in the next three months.
Restaurants, small retail establishments and “personal service” establishments like salons and gyms will experience the greatest pain. In the past their primary selling point against larger firms has been their independence and familiarity with customers. Many have taken on debt they may have trouble to pay off. According to the JP Morgan Institute, 50% of small businesses have a mere 15 days of cash buffer or less. If the shutdown lasts much longer as many as three-quarters of independent restaurants simply won’t make it…
In contrast to the old unionized workers, many people today, whether their employment is full-time or part-time, have descended into the precariat, a group of laborers with limited control over how long they can work, who often live on barely subsistence wages. Nearly half of gig workers in California live under the poverty line.

A few comments can be added to Kotkin’s litany of woes.

As I have blogged before, the biggest winner of all in among the current fiasco and its aftermath into the future is the state and its apparatus. Governments and bureaucracies have in a space of a few weeks either acquired or first used previously dormant powers on a scale unprecedented outside of a major war. The skyrocketing spending, funded by skyrocketing debt, is putting whole new classes of citizens and institutions in a relationship of dependence on the governments’ generosity. The powers of control and surveillance, even if one believes them entirely justified under the circumstances, have reached dizzy heights previously only dreamed of by technocrats and busybodies of all official sorts.

What the state takes it very rarely gives back. Circumstances might completely change over time, but programs and powers remain. The people, the civil society and the private sector are the losers. This really is a zero-sum game.

Experts and the media are in a peculiar position of being both the winners and the losers of the Corona crisis. Experts are now everywhere and in most cases running the show, in a sense that only a brave politician will choose to disregard their recommendations. This is the pinnacle of the boffin influence. The media is also having a grand time, the pandemic being the perfect fodder for the media-industrial complex: if it coughs it leads off. It’s a rating bonanza with a captive and terrified audience. Yet I strongly suspect that both sets of institution will suffer a further decline in trust, respect and influence as a result of the crisis, simply because most of the models, predictions and prescriptions are bound to turn out wrong and people will tend to remember the worst of the sensationalised media coverage, whether it’s motivated by the straight-forward journalistic penchant for drama or by the desire to harm the conservative politicians in charge in many countries affected.

Manufacturing might be a moderate winner, if more businesses choose to – or are encouraged to – relocate back home from China. The Japanese government is already incentivising companies to do so. Trump might be inclined to follow, seeing how well this would fit with his focus on bringing jobs back into the United States. This is in part to punish China for unleashing the plague (at the very least through negligence), partly to diversify supply chains so currently over-reliant on Chinese factories, and partly for the need to re-establish certain industries domestically for strategic reasons.

But the employment news overall is grim. It is not just the catastrophic and unprecedented (in their extent and their speed) job losses in the tens of millions from businesses deemed inessential and thus forced to shut down or scale down their operations. In a longer term, the crisis will also starkly reveal to owners and managers how many non-essential staff they carry on their books and how many fewer employees they really need to carry on their business – especially if demand continues to lag. This is a private sector nightmare only – bureaucracies are sheltered workshops, protected from any and all storms, and I suspect even record deficits and debt will not force governments into cutting its payrolls.

Kotkin further notes:

In the immediate future the monied classes in America will take a big hit, as their stock portfolios shrink, both acquisitions and new IPOs get sidetracked and the value of their properties drop. But vast opportunities for tremendous profit available to those with the financial wherewithal to absorb the initial shocks and capitalize on the disruption they cause. As in 2016, politicians in both parties have worked hard in the new stimulus to get breaks for their wealthy constituents, whether they are big retail chains, rich California taxpayers, or, in some cases, themselves.

Over time, the crisis is likely to further bolster the global oligarchal class. The wealthiest 1% already own as much as 50% of the world’s assets, and according to a recent British parliamentary study, by 2030, will expand their share to two-thirds of the world’s wealth with the biggest gains overwhelmingly concentrated at the top 0.01%.

The wealthy will take a hit, but most of them can afford it unless over-extended or unwisely with all eggs in one basket (such as a single business interest). A few might go down but more will remain standing, ready to snap up any bargains at post-COVID fire sales. Same for the impersonal big business in general, which tends to be “too big to fail” and comes to worst can expect bailouts. Airlines seem to be the most vulnerable, as are all non-essential transport and logistics and tourism-related businesses. I doubt many will completely disappear; more likely some might simply change the owners.

In summary – the winners: governments and bureaucracies, big tech, most white collar professionals, cashed-up big business and investors; the losers – small business, services and retail industries, casuals and gig workers, employees from the middle management down.

In the 14th century, the Black Death that killed around one third of the European population led to a rise in wages and standards of living for the survivors who found themselves much in demand by the employers. Coronavirus will not – thankfully – kill many people, certainly not the numbers which would affect the labour market, but it will kill enough business to make for some uncomfortable and lean times ahead.

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