The challenges we face coming out of lockdown
1. The first and most important challenge that we face is reversing the authoritarian and autocratic decision-making processes which has been necessary to deal with the pandemic. All governments around the world have resorted to decision making by a small group of politicians, scientists, and civil servants. This has been necessary to get decisions made quickly and to respond to the evolving situation which was unprecedented and unexpected. However western democracies do not thrive under such authoritarian decision-making processes and therefore we must return quickly to the more normal processes which have served us well over many years. It is therefore extremely important that these authoritarian processes are repealed so that the freedoms that we have traditionally enjoyed are restored in full. We must not let governments take this opportunity to chip away at our ancient hard won freedoms.
2. The second most important aspect is to reopen our economies. A few people were concerned a year ago that shutting down the economies of the western world would have adverse effects on public finances, personal health, business development and the public finances. All these have turned out to be correct. We need as a matter of urgency to open our economies and return to trade and business. Then we can face the financial challenges that have occurred because of the pandemic. People can return to their business and everyone can get back to work. The service industry especially has been devastated by the pandemic. Through these we would be able to start to restore the public finances.
3. With the public finances being characterised by high levels of additional spending it’s an opportunity to review in more detail the previous spending plans and two ensure that unnecessary and wasteful spending is minimised, and that spending is focused on those areas which are the prime responsibilities of government. Since the beginning of the Blair government in 1997 we have shifted away from helping people to help themselves towards government taking responsibility for delivering the outcomes that it is desiring. This is unsustainable and sets governments up for failure.
4. As many of you will have read in the press there is concerns about inflation returning both because of the significant spending in America as well as proposed additional support in the rest of the world. There are concerns that this level of additional spending particularly on top of the significant levels of savings that have been stored up over the last year together with the bottlenecks in the world supply chain will lead to increased prices for goods which are in short supply. This will have an adverse impact on the country and if sustained we risk and returned to either wages chasing prices as in the 1970s or significant number of people will face a reduction in their standard of living as the prices for essential goods rise whereas their ability to raise their incomes do not.
5. The financial crisis of 2008/9 showed the importance of commercial bank solvency. Last year, the support of companies through loans encouraged by governments together with the reduction in economic activity will have an impact on companies’ abilities to sustain themselves in 2021. We have already several companies being taken over by cash rich venture capital institutions. In some cases, this will be beneficial to those organisations. However, the concerns are that a significant number of small and medium sized businesses will find themselves unable to continue and will go out of business. Therefore, the opportunities that existed in 2020 will be absent and the resulting bankruptcies will have an impact on both taxes, government spending, government income and employment. If we recognise that this is potential problem, then the management of the problem needs to be conducted by government in such a way as to minimise the adverse impact of these insolvencies which in many areas are not the fault of the business owners themselves but a consequence of the pandemic.
6. The main unresolved area of the economy which is of concern going forward is the commercial property sector. Many commercial landlords have had tenants unable to pay their rents due to shutting the economy and the absence of income from their customers. This will create further problems since tenants will not be able rent for the period where they had no income and if pressed by landlords either through personal guarantees to pay this back rent might force the companies out of business altogether and into personal bankruptcy. There may need to be government help to this sector to both the commercial and personal sectors since individual talents maybe in a situation where they are unable to pay rent because they have had no income or reduced income due to the pandemic. This is a complex problem and so government and industry groups need to be discussing how best to address it.
7. International trade has been an important part of our global economy for hundreds of years and has taken on much greater importance in the last 50 years. The opening of air routes together with international shipping is an important aspect of rebooting the international economy. We have already seen shortages caused by the Chinese economy being shut down for much of 2020 and there are reports of shortages of microchips due to a drought in Taiwan. There are reported issues of Labour shortages partially due to migrant Labour returning to home countries during the pandemic. This has happened to migrant labours in India who returned to their home villages as well as Eastern European workers returning to the home areas in Eastern Europe. They are therefore not currently available in the United Kingdom to restart many service industries. This is being accompanied by increasing restrictions on immigration. This will lead to Labour shortages in the UK and will also thereby lead to rises in Labour the cost of Labour which is likely to be reflected in higher prices for goods and services with a consequent impact on inflation.
In conclusion if you are facing the challenges coming out of the pandemic within your business then presumably you have taken the time to develop a plan for your business when it comes out of block down. If you would like to discuss the plan and to test its applicability to your current situation then please do book an appointment to go through it and to test with me.