Will the recovery be shaped like a V or a U, some other letter or perhaps the Nike swoosh? This is a much-discussed question among economists right now — but it is not the most important question. We’re familiar with the idea of an up-and-down financial crisis where things return to their starting point: we had roller-coasters in the mid-1980s. Even after the global financial crash of 2008-09, financiers still kept their place as masters of the universe. Global supply chains were repaired and the old power structures remained in position. This time might be very different.
Old fixes are being applied to a new crisis. Central banks, for example, have less scope to cut interest rates than they did ten years ago. And there is little point in stimulating demand when you lock down the economy. This is what makes the Covid-19 lockdown unique: the extent to which it hits both consumption and production.
After the lockdown, life will gradually return to normal. Most of us will work in offices again. Restaurants will reopen. But the transformation will come when consumers cling on to some of the habits they acquired during the lockdown, and when companies change the way they work. Reliance on global supply chains, hitherto seen as a money-saving blessing, will start to be considered a liability. Investment into 3D printing will in the long-term accelerate to reduce reliance on imports, which as we have seen can choke off at short notice. Remember, 3D printers could, in theory, produce any three-dimensional object.
The way we buy and sell things will change, too. Restaurants and greengrocers that started delivery services for the first time during the lockdown may continue afterwards. This is what makes this crisis the first in our lifetimes with the potential for ‘-creative destruction’, an expression invented by the Austrian political economist Joseph Schumpeter in the 1940s.