Coronavirus: Businesses will sacrifice efficiency for resilience, warns expert
The global economy is set to radically shift as businesses move to prioritize resilience to supply shocks at the cost of efficiency due to the coronavirus pandemic threatening the supply of raw materials, warned a senior expert at the University of Pennsylvania.
The coronavirus pandemic is set to cause the worst global recession in nearly a century, according to the IMF, as governments move to combat the spread of the virus by shuttering businesses and telling people to stay home, triggering disastrous economic fallout.
Mohamed El-Erian – Senior Global Fellow, Lauder Institute and Practice Professor at The Wharton School – agreed with the IMF’s dire warning, adding that the “post-crisis landscape is going to look very different.”
In an interview hosted by The Wharton School, El-Erian explored some of the major changes the world could face in this new post-crisis landscape.
“We're going to emerge [from] this with much greater entanglement of the government and the private sector. Lots of industries are going to be bailed out, under what conditions we don't know as yet,” he said.
In response to the sudden shock caused by the pandemic, governments across the world have abandoned any form of fiscal restraint and authorized unprecedented injections of spending into the economy to protect jobs.
Discussions of bailouts for major companies, especially in hard-hit sectors like aviation, have already begun.
For El-Erian, a major change will be a decrease in efficiency, as both companies and individuals value security and resilience over more efficient but less secure supply chains. His comments play into speculation that the coronavirus could dramatically alter globalized supply chains, as the pandemic highlights their weaknesses, and countries and businesses look inward to try and insulate themselves from similar global crashes in the future.
“There's going to be a lot more debt in society, people are likely to put resilience in front of efficiency,” he explained. “That's particularly true for companies. They've learned a lesson now, that it really doesn't matter: When your supply chain is completely globalized, it may be efficient, it may be cost effective - but it's not resilient,” he added.