Breakingviews - Cox: What will change after coronavirus passes?

ZURICH (Reuters Breakingviews) - Someday, we will look back and recall the coronavirus lockdown as a formative experience. For some it will be a heartbreaking affair, where loved ones were struck down by Covid-19 and their bodies laid to rest without dignified formalities. Most of us will hopefully avoid tragedy. Some may even find fortune, spending time with family, creating art or even kicking bad habits.

South Korean soldiers in protective gear sanitize a shopping street in Seoul, South Korea, March 4, 2020.

But depending on the ultimate cost of the disease, both in human and economic terms, a host of behaviours are likely to shift. These, in turn, have the power to reshape entire industries, redefine the role of governments and fundamentally alter the way humans interact. All this poses profound challenges and opportunities for businesses and markets. While it’s too early to predict how many of these changes will endure, Breakingviews presents some possibilities.


Global tourist travel has doubled since 2000, according to the United Nations World Tourism Organization, powering economic cogs from airlines and producers of aircraft and engines to hoteliers and shared-economy stars like Airbnb, Oyo and Uber Technologies. It has enabled cities like Doha, Dubai, Istanbul and Abu Dhabi to style themselves as international hubs. Lots of pension fund money went into airport infrastructure. Will the pandemic prompt more people to permanently stay put, or focus on domestic trips? Tourism dropped after the Sept. 11 attacks and the 2008 financial crisis, but swiftly rebounded. This too may be a temporary setback. The one certainty is that cruises will be the last to recover, if at all.

Still, changed working habits may hit one of the more lucrative pieces of the travel complex. Many businesses have adapted quickly to working from home. Even before governments imposed social-distancing measures and restrictions on movements, most major companies had banned “non-essential” travel. After months of effective remote working, the definition of what is essential will almost certainly become narrower, reducing the future need for pricey business-class air tickets, hotel suites and rental cars.


The shift in working practices may also affect commercial real estate. Fewer people will need to be in the office five days a week. This is not a scenario that commercial property developers want their tenants to ponder beyond the outbreak. But expect them to do so anyway. Would this benefit shared-office space providers like WeWork, or put them out of business? The latter seems more likely. And if half of us work effectively from home twice a week, saving something up to four hours of commuting time in some large cities, does that lift productivity? It’s certainly an opportunity for providers of home-office supplies.

Then there’s the question of who provides the critical informational technology infrastructure for the expanded armies of remote workers. Shares of Zoom Video Communications, Citrix Systems and Slack Technologies have all outperformed during the crisis. But above all, Microsoft has proven its resiliency and retained its crown as America’s only $1 trillion company. There will be others.


Perhaps the biggest question of all is the role of government. Did countries with universal healthcare systems and extensive social security systems ultimately better protect their citizens? We won’t really know the answer until the pandemic subsides, the death tolls are tallied and the economic data can be analysed. But it’s possible that Denmark, say, did a better job than the United States. Or that Singapore, with a hybrid healthcare model, was the standout. Either way, it’s safe to believe stronger safety nets will become a bigger political rallying cry.

Similarly, paid sick leave, which the United States has only instituted temporarily as part of congressional action, is a benefit that will be very difficult to take away. And what about workers in the gig economy? The crisis is likely to be a further catalyst for challenging the notion that the likes of Uber and Lyft – and their kin across the gig economy – aren’t responsible for the welfare of their supposedly self-employed workers.

The role of governments will expand in other ways, too. The crisis has already brought stepped-up enforcement of borders and declarations that certain industries are strategically vital. Soon, authorities will also take direct shareholdings in private companies. It will be harder for small-state liberals to shrug off solvable problems, like homelessness. And taxes will probably have to go up to pay for all this stuff.


Greater access to effective healthcare, and wrangling with its cost, will be inevitable. People will expect hospitals to have much greater spare capacity – think ventilators and beds. This will challenge the idea, predominant in the world’s largest economy, that healthcare is a privilege reserved for those who can afford it. A move to more universal coverage will decimate middlemen like pharmacy benefit managers and insurers.

If states put more money into public health and prevention, that might mean more money for vaccines, diagnostics, smoking cessation, anti-addiction and antibiotics, but less for expensive lifestyle drugs.


As safety nets are to society, balance sheets are to companies. Will regulators, politicians and shareholders demand companies keep larger cash cushions to deal with unforeseen exogenous events? Just as the 2008 financial crisis was the catalyst for boosting bank capital ratios, the coronavirus may lower the acceptable level of corporate debt. This need to save for a rainy day is likely to strip activist investors of one of their favourite tools: to demand higher leverage. It might also spur governments to take the long overdue step of reforming tax codes that encourage companies to borrow by allowing them to deduct interest payments.

If investors place a higher value on companies capable of coping with shocks, does that come at the expense of hyper-efficiency? The emphasis of most supply chain management has been on finding the lowest-cost way to produce, manufacture and ship goods around the globe. But the disruption wrought by Covid-19 may shift the trade-off between cost and reliability of supply. Consumers and large-scale procurers, like governments, may even be willing to pay a premium for products that are made domestically. Combined with trade tensions, this has the potential to further redraw the footprint of manufacturing in many parts of the world.


Cash on the balance sheet may become king, but the acceptance of digital money for most transactions will only accelerate. In Switzerland, my local pharmacy won’t accept cash, apparently in the belief that the disease can spread via surfaces including paper and metal coins. Banks are also seeing a spike in the number of digital transactions over their internet and smartphone platforms. The crisis will probably hasten the closing of branches.

The investment industry is also getting a much-needed test after a decade shaped by a shift towards passive vehicles like index trackers and exchange-traded funds. If these investments perform no worse than actively managed and hedge funds, a further shakeout will be on the cards for high-priced strategies. There will be outliers, of course, like Pershing Square Capital Management’s Bill Ackman, whose prudent hedges against market turmoil turned $27 million into $2.6 billion last week. Managers like Blackstone and Brookfield Asset Management’s Oaktree Capital might also make a killing from distress. But overall, it’s hard to see the long-term tilt away from active management being reversed.


For several decades the trend in developed and developing economies has been for people to move to urban centres. Companies like General Electric and Kraft Heinz also moved their headquarters into cities, lured by human capital, better transport links, top universities and culture. Social distancing may change that thinking.

Similarly, will the massive shift to online shopping and delivery in the crisis become permanent? Amazon and grocery chains like Ahold, Kroger and Tesco have gained market share, which may hasten the demise of mom and pop retailers. And what about hoarding? As our highly popular story on Kraft Heinz suggested, the virus has reminded people to stock up on extra Campbell’s Soup.


Then there’s fun. Music festivals like Coachella and Glastonbury may survive. But the longer-term impact on sporting events and concerts is harder to gauge, as evidenced by the dismal performance of shares in companies ranging from concert promoter Live Nation to European football clubs. Will we see more virtual entertainment options, to appeal to those who wish to avoid large gatherings?

On the same track, the mass reversion to online learning forced by social distancing measures should force a rethink of the cost of education, particularly in the United States, where the “college experience” has become a gut-busting expense of questionable value for the middle class.

Other social conventions may also suffer. Is the elbow bump a permanent replacement for the handshake? Will the French and Swiss ditch multiple kisses as a greeting? More importantly, will we now be screened for heightened body temperatures when we go to the airport or public gatherings? Consider the impact 9/11 had on airport security. It probably won’t be long before someone invents a health passport that proves immunity to various diseases, and speeds the well-heeled to the front of the queue.

Those who came of sexual age in the shadow of the AIDS virus in the 1980s will recall how it fundamentally changed the way people interacted. If Covid-19 changes change the nature of dating, apps such as Tinder and Match will need to reconsider their models.


And finally, a note of scepticism. During moments of duress, investors – and journalists – tend to overstate dramatic shifts. After the 9/11 attacks the consensus was that fewer people would fly, or that banks would no longer concentrate all their people in a single building in a financial hub. That didn’t happen. In the end, the lasting impact of the pandemic may be that people may just wear face masks more frequently and use more hand sanitiser, the way Hongkongers did after SARS.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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