“How to survive the coronavirus recession 2020?” series is part of the “Less is more economy” discussion, which explores the potential for a happiness-driven economy that does not necessarily rely on material abundance to thrive.
How to survive the coronavirus recession 2020?
1. . What is a recession anyway, and what worries us about it the most?
Coronavirus has forced many businesses around the world to close. Recession is looming, and some experts say that it could be worse than the Great Depression. It is frightening to just sit and wait for it. Is there anything we can do now to be better prepared so that we can collectively survive a scary future?
Before diving into the discussion, we need to review what exactly is a recession. The National Bureau of Economic Research (NBER), which officially declares if there is a state of recession in the United States, defines it as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
Among all the indicators, what we – as workers and consumers – worry about the most is employment and income: will I lose my job which is essential to pay bills and buy things in order to support my family? So we will focus on employment here. However, it’s not a straightforward topic because the way a recession begins has nothing to do with our ability to work. Quite the opposite, it is caused by large institutions such as governments, financial sectors or certain industries over which we have NO control whatsoever. In 1997, the financial collapse of the Thai currency triggered a worldwide financial crisis. In 2007, the failure of the then-prevalent subprime mortgage market in the US resulted in the meltdown of the financial sectors, which caused a global-scale recession. Many of us lost jobs and suffered during the “lost decades,” or the post-recession difficulties (This may sound familiar to millennials). Even though it begins in places beyond our control, it ends up hitting us really hard. It is as if we are punished for something we did not do. How does this happen?
It happens because the modern economy is systematic and highly compartmentalized. Although we think of ourselves as single, indivisible beings, from an economic perspective we are identified as having two separate identities – a worker and a consumer. And in between the two sit various kinds of institutions – governments, businesses and other product/service providers – from large to small, which play the role of 1). Your employer, and 2). Your product/service providers of consumable products. As a worker, you provide labor to your employer and receive wages in return. Your employers (all kinds of institutions) leverage your work to produce products and services which are sold to you (or others like you) as consumer products. Institutions play the dominant role in a modern economy – they are so dominant that we, individual workers and/or consumers, have little input as to how they make decisions and in which direction they are heading, not to mention having little role in stopping them from heading into recession. We are at the mercy of these institutions both as worker and consumer.
Figure 1: How the economy shifts from its normal state to recession –
People’s perspective (click to slide)
As you can see, institutions that sit between workers and consumers become a bottleneck during a recession. Whereas we usually see this as a failure of the entire economy, the problem actually rest on the institutional side, especially with the large institutions that control the market.
As far as we are concerned, we can still provide labor and other services as workers, and we still need goods and services as consumers. Nothing has really changed for us, but since institutions have changed, we have lost the way to convert our labor into money, as well as having no means to purchase goods and services.
This narrows down our question: if our abilities to produce haven’t changed, can we still keep the fundamentals of the economy functioning, even when institutions are having trouble? More specifically, can we keep producing, and trading what we create with those who are in need, by bypassing the “middlemen” institutions that are going through difficulties?
Figure 2: Potential alternative to the modern economy during recession
Cutting out the middlemen is nothing new. It’s been used as a strategy to reduce costs and provide products and services at reasonable prices. But still, almost all the trade that occurs today passes through middlemen, one way of the other, for only one reason: it brings about economy of scale and efficiency. Large institutions have large amounts of capital, technology and market power. They can provide uniform products and services at a large scale very efficiently. The modern economy loves nothing more than efficiency; so much so that it actually discourages person-to-person trade or exchanges because that is the opposite of efficiency. It’s extremely hard for small scale businesses to become price competitive: that is why Wal-Mart and Amazon are bulldozing mom and pop stores.
Figure 3: The modern economy does not favor small scale trades because they are inefficient
But we are talking about a recession now. We should be okay to engage in “inefficient” exchanges. At least that is much better than not being able work and obtain what you need. And plus, if you were wondering, inefficient trading is often beautiful, rewarding, inspiring and creative. It’s about re-discovering everything we sacrificed in the name of efficiency. In fact, now that we have technology that can connect you as a producer to you as a consumer, the potential is much larger than you would think. The coronavirus unintentionally re-discovered people’s ability to produce and create: being locked down, everywhere around the planet, individuals are baking bread, making masks and PPE to help medical personals using 3D printers or ovens. They are also coming up with creative ways to make teleworking more efficient, growing vegetables inside the house or in the backyard, and learning all kinds of subjects online.
Yes, coronavirus is threatening our existence. But it’s also demonstrating how resilient people can be. Can we leverage the resilience and abilities to produce/create in order to survive the imminent recession? We will dig deep in the next article.
The coronavirus unintentionally re-discovered people’s ability to produce and create: being locked down, everywhere around the planet, they are baking breads, making masks and PPEs to help medical personals using 3D printers or ovens, coming up with creative ways to make teleworking efficient, growing vegetables and learning all kids of subjects online.
Yes coronavirus is threatening our existence. But it’s also demonstrating how resilient people are. Can we leverage the resilience and abilities to produce/create in order to survive the imminent recession? We will dig deep in the next article.